"CONFIDENTIAI." <T1~ﬁ"£6Tr':FhT¢iEon7"'- LAW COMMISSION OF INDIA N. TWELFTH REPORT (Income-"tax Act; 1922) GOVERNMENT OF INDIA---MINISTRY OF LAW CHAIRMAN LAW CO SSION New ELI-II, September 26, 1958. Shri. Ashok Kumar Sen ~ Minister of Law, Government of India, New Delhi. My dear Minister, I have great pleasure in~forwardi_1 herewith the Twelfth Report of the Law Commission on the Income ax Act. 2. At the request of the Government of India, the Commission agreed to take up the revision of the Income Tax Act and entrusted the task to a Committee consisting of Shri P. Satyanarayana Rao, Shri G. N. Ioshi and Shri N. A. Ralkhivala who was specially appointed a Member for the purpose of the revision of this Act. 3. The Committee held more than nine meetings, some of which were spread over several days'and formulated a scheme for the revision of the Act. Some aspects of the work as well as the scheme wet' discuss- ed at meetings 'of the Statute Revisio ' Section of the Commis on held on the 22nd September, 1956 nd the 9th March, 1958. A dra Report prepared by Shri P. Satyana _yana R q, the senior Member o the sec- tion of the Commission, dealing with s te law revision, was culated to all Members of the Comm' ion anditheir views invited ther . These views together with the draft eport were discussed at a meeti g of the Statute Revision Section held on the 23rd and 24th August. 19 8. Some suggestions made by Members at this tneeting were accepted a' d it was left to the Chairman and Shri:P. Satyﬁiarayana Rao to ﬁnally ettle the Report in the light of the discussion.' 4. Shri G. S. Pathak, being outside India, is unable to sign the Report. But he concurs in the recom endations and has auth sad the Chairman to sign the Report on his ehalf. Dr. N. C. Sen G pta and Shri-D. Narasa Raju are unable to c 'A edown to Delhi to si the Re- port but similarly concur in e re A endations and have a thorised the Chairman to sign the re rt on their behalzf. Dr. N. C. Gupta while expressing his concurrence withjthe Report has added afseparate note on certain points. 5. The Commission wishes to acknowledge the services ndered by Shri S. A. L. Narayana Row, Commissioner of Income Igaex, Shri N. Srinivasan, Deputy Secregry in the Ministry of Finance. ' d Shri K. N.- Srivastava, Income T ' Oﬂicert in connection with the prepara- ' tion of this Report. ; ii 6. The Commission also wishes to place on record its appreciation of the services of its Deputy Draftsman Shri P. M. Bakshi in preparing the report and drafting the clauses. The assistance rendered by Shri M. Bhujanga' Rao. Private Secretary to Shri P. Satyanarayana Ram in draw- ? ing the report also deserves mention. Yours 'sincerely, M. C. SETALVAD. I in Paragraph: '*4 5-8 9 10-] x 12-13 14,-! 7 18-42 23-29 301° 41 no III H2 I13 I14 CONTENTS INTRODUCTION Need for simpliﬁcation and reference to the Law Commission . Scheme of Simpliﬁcation , . . . . Alteration of tax structure essential for simpliﬁcation Analogous statutes . .- . Changes proposed in the Act . Chapter I. Preliminary. Chapter II. Basis of charge . . . . I . Chapter III. Incomes which do not form part of the total income Chapter IV. Computation of total income / Chapter V. Incomes of other persons, included in assessee's total income. . . . . Chapter VI.  Chapter VII. Incomes on which no income-tax is payable Chapter VIII. Rebates and reliefs Chapter IX. Double taxation relief ' Chapter X. Provisions against avoidance of tax. Chapter XI. Super Tax 7 . . . . . Chapter XII. Determination of tax in certain special cases Procedural provisions - . . . Chapter XIII. Income-tax authorities . Chapter XIV. Procedure for assessment . Chapter XV. Liability in special cases . . Chapter XVI. Special provisions applicable to ﬁrms Chapter XVII. Special provisions apqplicale to companies Chapter XVIII. Collection and recovery of tax. . .. Chapter XIX. Tax deemed to have been paid on dividends Chapter XX.  :. Chapter XXI. Appeals and revisions .. . . . . Chapter XXII. Penalties imposable by Income-tax authorities 7 Chapter XXIII. Offences and prosecutions Chapter XXIV. Recognised provident: funds Chapter XXV. Approved superannuation funds Chapter XXVI. Miscellaneous Schedules . . Scheme of 'notes on 'clauses. Increase in number of sections . Scheme of Appendices . . . Lists appended.t.o the report . . . . . . List 1 --List of changes . . . . . . . List II-List of recommendations APPENDICES Appendix I.--Showing the proposals in the form of draft clausa. Appendix II----Comparative tables.  Page: 3"5 5-7 7-9 9-1 2 I2 1 2-: 3 1 3-14 14 I 5 I 5 I 5-: 6 16 1 6-1 7 I 7-: 9 19-20 20-22' 22-24. 24 24,-1.2 49-43 43 43-55 . 55 55 55 56 56-57 57 57 57 57 58-71 72-76 77-297 298-31 9 83°19' INTRODUCTION 1. There is hardly any Act on the Indian Statute Book N?" "0' 'im- which is so complicated, so illogical in, its arrangement, and ' in some respects so obscure as the Indian Income--tax Act, to the Law 1922. Courts and commentatprs have commented on the Commission. illogical arrangement of the provisions of the Act. It has been repeatedly pointed out=that the amendments made from time to time to the Act, directed as they frequently are at stopping an' exit through the net of taxation freshly disclosed, are too often framed without sufficient regard to the basic scheme upon which the Act originally rested. Pro- visions dealing with the same topic or subject-matter are scattered through the various Chapters of the Act, and only a thorough knowledge of thewhole Act would enable any one to ﬁnd out all the provisions bearing on a certain point. Added to the illogicality of the arra ernent are two other defects, inaccuracy in the use of Ian j e and a degree of obscurity which make it difﬂpult to --e a glimpse of the real intention of the legislature. As: Lord Wrenbur said (with reference to the corr¢spond'j' \Act of the nited Kingdom), "No reliance can be placl$:upon an assumption of accuracy in the use of language in these Acts".' 2. The hopeless 'confusion into which the Income-tax law has fallen is mainly due: to pre nitate and continuous ( tinkering with the Act by the legisla e. The amendments e to the Income-tax Act havegbeen sq; short-sighted and so short-lived as to rob the 1a of tha modicum of stability f which is essential to its h hy gr Before the provi- sions of the Act can be suﬂiqiently ariﬁed by the judicial 4 process,-new prqvisions are substituged in their place. In M l;ae%islzi=1I1;ion'a'si ot(li1J_ec1; ﬁeldosf 1;activi;yi_ith'1es weltlhg: f r mm e um - con, i ;arry 1 , so we maythmake an eng the sdpner." 'Stability is motslt essanc-i tial to e proper a mimstrh' tion o gs taxing sta te, an if the tax structure of this country i be put on a sound footing, it is essential that (3 halt ' J (I be called-to the making of i11--digested ameqdmentsiin a frenzy of hurry which has characterised the? historyi; of income-tax law of : the last few years. A . ' 3. The Government hassasked up to revise the Income- tax Act so as to make its visions More intelligible with- out aﬁecting its basic tax ctural }The task is difﬁcult, and, as the Codiﬁcation C t in England said, "to ' expect from us a codiﬁcat n of e law of income-tax ; which the layman could y read-iatid understand was an vain hope, which only the could cherish".' It ' 1 Rex v. Ifemington Income-tax Gnmnissioncr. ST. C. 613, 623 (H.L.) ' ' Report of the U. K. Comm' tee on Gmlfstgu, para 26, quoted in the report the Taxation of Proﬁts and Income, /943; "the Royal 'Cmnniuionm 330, para. 108:); -t 2 is perhaps possible to makethe provisions of the Act more logical and clearer without affecting the tax structure; but it is certainly not possible to make the Act simpler without encroaching upon at least the fringe and verge of the tax structure. However, we have made an attempt to arrange the provisions of the Act in a more logical manner and also to make them simpler and clearer. We have also codiﬁed some of the principles well established by decisions but not contained in the provisions of the present Act. ' 4. In November, 1956, we issued a press communique and invited suggestions in this behalf. We received sugges- tions from various individuals and bodies. We have con- sidered these suggestions in redrafting the Act. Scheme of 5. As the ﬁrst step in the simpliﬁcation of the Act, simP1iﬁca- we have made a fairly logical rearrangement and re--group- "°"- ing of the sections of the Income-tax Act. Each chapter deals with a particular topic. 6. The next step was simpliﬁcation of the language of the Act. This was done by splitting up the present sec- tions, which run into several pages, into independent sec- tions. Wherever possible, provisos were removed and were converted into independent provisions of the Act. ' 7. As our terms of reference implied the "restriction that the tax structure should not be altered, no major change affecting the substance of the law has been made in the substantive provisions. 8. We, however, felt that a few minor changes in the substantive parts and a few major changes in the present procedural provisions would make for simpliﬁcation. These changes have been made and will be indicated in the appro~ priate places. - 9. We would like to say at the outset that there can essential to be no real simpliﬁcation of the Income-tax law without a make forsirn- simpliﬁcation of the tax structure. As this was beyond p1iﬁcaﬁ°n- the purview of our work, our task of simpliﬁcation has been greatly hampered. ~ A 10. We have examined the Income-tax Acts of other countries to study the scheme of arrangement -of the sec- tions and the manner in which analogous provisions have been drafted in those Acts. We have derived considerable help from them. We wish the Indian Legislature would Analogous statutes. simplify the tax structure of this country on the lines ad- _ opted by some other progressive countries. a .- .- 11. We may also add that in framing our proposals we have not been unmindful of the recent taxing statutes enacted in India, such as the Estate Duty Act, the Wealth .Tax Act, the Expenditure Tax Act and the Gift Tax Act. We have examined these statutes, and where we thought _ 'desirable, drawn upon the provisions of these statutes gin framing our proposals. A « - . ' . -- 2 3. 12. We now proceed to indicate the lines on which Char(1lg«;uPt°- The Act has been redrafted and the important changes ﬁg' "1 'h° effected by us. » ' 13. The changes made by us fall into two catego- ries : _ ' (1) changes of substance, and (2) changes of form. Changes of substance are discussed in the succeeding' paragraphs; while changes of form or improvements in . drafting will be explained in "Notes on clauses". There are certain changes which have not been embo- (gcoommcn. Vdied in the draft clauses in Appendix I, but which we dations not regard as desirable. Our recommendations as to such :mb°S1é'?d Ii" changes will be found either in the discussion in the body ppm "' )' 'of this Report or in the notes to the relevant clause in "Notes on clauses", or, in the list of recommendations an- inexed to this part of the Report. ' 14. As in the present Act, the preliminary Chapter Chap," 1' contains only two sections. One is ' the section head- Preliminauy. ed 'Short title, extent and commencement' and the other is the section containing deﬁnitions. Several new deﬁnitions were found necessary and New d,ﬁ,,;_ have been inserted. Of these, .the following deserve notice---- tions. A deﬁnition of assessment ;has been -added to make it «A,,,..m._m-, clear that "assessment" includes reassessment. ' . This expression has been used by' decisions of courts "Assignment and is well-understood as meaning thf ﬁnancial year for - which the assessment is being ade at .-the rates prescribed -by the Finance Act of the yea, concerned. A deﬁnition of 'assessment year' has therefore'been inserted in the Act. These are two new deﬁnitions which were found neces- "Average of sary. In respect of several incomes which are included in £3" e_Tu.. the total income, abatement of the tax is given at the "A m,' average rate of income-tax. ' The present Act provides a of 2 Super complicated process for the computation' of the abatement.'1'aX"- in section 17, where the method of working the average ' rate of income-tax is referred to. 'It was found convenient to give deﬁnitions of these two exprqssions and to refer 'to' them in the appropriate sections instead of repeating a long clause every time. The basis of charge, under '-the Act varies according as §§',',':.'2"°'§;nd a person is a resident of India or a 'non-resident. The ex- uR¢.ad¢m»_-- pressions 'Resident' and 'Non-nesident' Ihave speciﬁc mean- ings for the purpose of the ct» It ,was, therefore, felt .Recessary to introduce these wo new , deﬁnitions in the - ct. ; ' '7 ' "Tax" Changes in existing deﬁ- nitions. "Assessce" .:g'a.pital as- "Incomc". ' gains" in the substantive sections. Wherever Scheme substantive provisions. of 4 A deﬁnition of 'tax' has been introduced. Under this deﬁnition, 'tax' means both income-tax and super-tax charge- able under the provisions of this Act. The definition will make it clear that where income-tax is referred to in any provision of the Act only income-tax is meant, and where super-tax is referred to in any provision of the Act, only super-tax is meant. Where 'tax' is referred to, both income- tax and super-tax are meant. 15. The deﬁnition of "assesses" has been ampliﬁed so as to include all the various classes of persons who may become liable for assessment or payment of tax or other sum.' - Item (iii) of existing section 2(4A), which excludes, from the deﬁnition of "capital asset", land from which the income derived is agricultural income has been redlrafted by substituting the words "agricultural land in India'';. Land lying fallow and yielding no income should, it is felt, be excluded from this deﬁnition. Hence this change. ' The deﬁnition of "income" has been ampliﬁed so as to include proﬁts and gains. This will obviate the necessity of repeating the lengthy expression "income, profits and actticable. only the expression "income" has been used in t e substan- tive sections. 1 16. The substantive provisions of the Act rela g to one topic or subject matter we at present spread a over the Act. This has naturall led to considerable di culty in ascertaining a person's lia 'i1ity under the Act. For ,%exam- ple, section 42 which' deemsjcertain incomes to acciue or arise in India is separated from section 4 which d_ea with the charge to tax of,incomes accruing or arising in India. Similarly, while most incomes excluded from the to ' come are dealt with in section 4(3) of the Act, the e are some provisions pertaining to exclusion in other e.g. sections 14(1), 25(3) and 25(4) etc. We have, the efore, in grouping the sections in various Chapters, taken dare to see that all the provisions pertaining to a particular subject or topic are placed in the same Chapter. 17. The substantive provisions are at present co ained mainly in Chapters I, III and.;IZX in the existing Act. hap- ter III deals with several subjects. It deals with th bass of charge, the compdtation df total income under rious heads, the rebates on; life insiirance premia and othe mat- ters and the provisions pertaining to salaries, wag and other matters. In the' draft (if 'the Act which we havp pre- pared, the substantive provisions pertaining to income-tax and super-tax have been classiﬁed and grouped in eleven Chapters which deal with the following subjects : ' The notes to clause 2 (QC, in the Notes on clauses, contain a iituilcd discussion. a p : 5 (i) Basis of charge. (Chapter II) (ii) Incomes which do not form part of the total in- come. (Chapter III) (iii) Computation of total income. (Chapter IV) (iv) Incomes of other persons, included in the assessee's total income. (Chapter V) (v) Aggregation of income and set-of or carry-forward of losses. (Chapter VI) (vi) Incomes on which no income-tax is payable. (Chap- ter VII) (vii) Rebates and reliefs. (Chapter VIII) (viii) Double taxation relief. (Chapter EX) (ix) Provisions against avoidance of tax. (Chapter X) (x) Super--tax. (Chapter XI) (xi) Determination of tax in certain special cases. (Chapter XII). 18. All the provisions which concem the charge of Chapter I income-tax have been brought (together. in this Chapter. 3181895 Chat The deﬁnition of 'previous year' is one of the essential 3°' criteria for the basis of charge and has been included in this Chapter. - - . The .basis of charge has been expressed more generally than in the present Act, by referrin tovevery "person" in ' the charging section.' This is in fcon omiity with the laws of other countries'. '[9. In the present Act the scope of total income is given sometimes in relation to the nature of income and sometimes in relation to the residence qf,the assessee. To avoid any confusion, the scope of total in e of residents. and non-residents has been put in two iﬁerent sub-sec- tions.' . 20. Several provisions of the _.Act refdrto income which is "deemed" to accrue in India, is de ed to be received in the previous year. We have b ought 5these provisions together and placed them in pr ' 'ty , ;each other'. 21. At present, there is no provisioniwhich determines Residence. the residence of an artiﬁcial juridical rson. A new sub- clause' has therefore been i,ntrod ced in" ;section relating to '_Residence' roviding that pe ns 0 than those for which a speci c provision has en ti. would be resi- A dent in India, unless the controlfand agement of their aifairs is situate wholly outside India. ' ' See section 2(1), Canadian Incomeotax Act, 1948} section 5(1), Sou- th African Income-tax Act, 194.1;-and section I7, Anstnalian Income-tax etc. Act, xgé;fe--53. ' clause: 4 (1) and 4 (2), App. I. ' Sec clauses 7-I0, App. 1. ' See clause 6 (4), App. 1. ..., 22. The present Act (section 4) speaks. of three cafe- gories of persons: (i) Persons who are resident in India; (ii) Persons who are not ordinarily resident in India; and . (iii) Persons who are not resident in Endia. -So fay as the second category is concezjned, certain incmznee rnenmoned in section 4 aocrumg outsxde India are not to be included in their total incomes. This category is also of importance for the purpose of certain transactions men~ tioned in sections 42(2) and 44D but is of nae importance for any other purpose. The Taxation Enquiry Commission' considered the question whether the category of "not ordinarily resident persons" should be continued for the purpose of assessment, and expressed the View that there was no justiﬁcation for continuing the exemptions given to this category of cases any longer. We are in entire agree- ment with the View expressed by the Taxation Enquiry Commission. Our primary recommendation is. therefore, that this category shoulé. beﬂabelished. If, however, the Government wishes to continue the exemptions, we would. prefer to put, in Chapter III the items which are to be exchxcied from the total incc-me in the case of persons not ordinarily resident'. We would also mention the oﬁher lia- bilities of persons not ordinarily resident at the appropriate place. We have not. therefore, referred to persons" 'ot ordi-- -- narily resident' in the section "Scope of tot5a1_ ' come". We would like the basis cf charge ta be determined oniy with reference to «me question, namely, whether the per- son is resicient. in India or not resident in Inciia. The deﬁnition ef "ordinary residence" in setfon 1&3 is couched in a negative form, with the result '{ at the section is ambiguous in its import. The View take by the Madras and Travancore-Cochin High Ceurts' is t at resi- dence in India for less than nine years -out of the preceding ten wears is suiﬁcient to make: the assesses "not ariiinarily resident". whereaethe View taken by the Bombay High Court' is that in order to claim the status of "nut ordi- narily residen " the requisite conditiorris that the 'assessee should he non~resident in India in nine out of the ten years immediately preceding the relevant acceuntmg year. Under the Madras Vi€W non-residence in one of the saidnine years would make the assessee "not ordinariiy resident", even if he has been resident in the remaining ei years. Under the Bombay View ndtzeresidence in each of 2 nine years is required befare the assessee can be regard as "not ordinarily residen ". We understand that the Centr Board 1 Vida T' E. C. Report (£953-£954.}, Vol. II, Chapter £1, 'para 1: ?agcs 28~29. ' ' _ * V:?a':c1ause :1 {4} (iv), App. I. . ' ' Marimezthu Piifai vs. C. 1. 'IT, (1945) :2 I. T. R. :86, :88; Swanzinatfmx gkgﬁg vsg (3.1. 71, :94'; I. T. R. 418, 4.24; Baum vs. C'. J. T." {;955_) 27 . . . 3. ; 'Magﬂibai Farsi vs. C. I. T, (1953) 23 I. T. R. 27. 7, of Revenue. has approved of the Madras view in some cases where the question arose for its consideration. If, contrary _ to our recommendation, the concept of ordinary residence is retained, it would be advisable to redraft the deﬁnition of "ordinary residence" so as to make it clear which of {the two conflicting views -is the one intended by the Legis- ature. 'We would like to draw the attention. of the Govern- ment to two provisions of the Income-tax Act which deserve to be deleted. The ﬁrst is section 4(1)(b)(iii), taxing an assessee in respect of the remittances by him into India out of the income of past years (i;e., years prior to the rele- vant accounting year). Such a provision has only the eﬁect of preventing capital being brought intothis country at a time when the country badly needs capital. It is true that the effect of this provision has been to a large extent counteracted down by the fourth and ﬁfth provisos' to section 4(1), which were inserted by the Indian Income-tax (Amendment) Act, 1953; but there is no reason why any tax on remittances out of past year's proﬁtsshould be levied -even in a modiﬁed form. ' To tax the aggregate of the proﬁts of the past twenty years as the proﬁts of the year in which they are remitted into India is unjustiﬁable on rin- ciple, apart from the fact that, as noted above, it resu ts in capital being kept out of the country. ' ' Another provision which we regard as still less sup- portable is section 4(1), Explanation 4, Which rriakes an assessee liable to tax if he moves his past profits from one part of India into another, that is, from the erstwhile merged territories or'Part B States, into another/part of the coun- try. India is one country and it is wrong' on principle to tax, the movement of money from one part of the country to another. Besides, a fairly long period has already elaps- ed since the integration of the former native States into the Republic of India, and it would be anachronistic to re- tain any longer provisions which were appropriate at a time when the political map of India was different from what it is today. We recommend that these two provisions, namely, sec- tion 4(1)(b)(iii) and section 4(1),'Explanation 4, should be deleted. (We have not, however, given eﬁect to this recom- mendation in the draft clauses in Appendix I, since this would affect the tax structure). ' 23. The exemptions in the Act are of several kinds. Chnptg III' Some incomes are not liable tozinclusi in the total in- I"°°m Whi'~ ' com;e. Some incomes are liable'to incl sion in the total gm dp.m":} income_but are not liable to, payﬁany tax'. It Was felt that the totap this distinction should be brou ht out prominently by income. ' grouping together provisions pe aining to these two cate- gories separately and putting them in diﬂerent Chapters. Incomes which under the provisions of- the Act, are not . to be included in the total income have been put together, in Chapter «III. 1 See section 16 (i) (a). I 4 . ' I Charity. 8 24. A few of the exemptions notiﬁed under section 60, under which the income is to be excluded from the total income, have been mentioned here', as it was felt that such important notiﬁcations should be prominently brought to the notice of the tax-payer, e.g., income of a University or other educational institution, scholarships and others. The exemptions have, wherever possible, been classiﬁ- ed into well-deﬁned categories e.g., non-residents, foreign residents, interest and others. 25. The provision in existing section 4(1) 2nd Proviso, for incomes accruing outside India which are to be exclud- ed from the total income of a person who is not ordinarily resident, has been retained in the draft proposed'by us. If the Government accepts our primary recommendation", this provision' would have to be omitted. The provision in section 4(3) (xiv), relatingcto the exclusion of remuneration received by employees of foreign enterprises, is sought to be conﬁned to foreigners, since , there is no reason why the exemption should be enjoyed by Indian citizens'. . The provision in section 4(3) (xiva), relating to salary received by certain foreign technicians. is sought to be slightly widened so as to cover salary received for work done before the actual commencement of business'.' 26. The provisions of section 4(3) (i) and (ii) (income of religious and charitable trusts) have been the si1bject- matter of interpretation by" various courts. It app¢ars to us that the'intention of the legislature is not clea from the present language of the Act. It also appears to that the distinction between a trust and an institution as not been borne in mind in drafting section 4(3)(i). An stitu- tion is something different from a trust. A trust jis not necessarily an institution'. % 27. In our opiniqn' the intention of the legisla re in framing section 4(3)(i) was ;to exempt three catego 'es of income :-- - g (i) Income from property held under trust forlchari table or religious puiiposes. i ' or charitable purpo ,, subject to the con itions mentioned in proviso (b) to section 4(3) (i (ii) Income from ibusinesje' eld under trust for reﬁigious Vi41e,clause II (17) and it (24), App. I. _ Sec para. 22, above. , Clause 1: (4) (iv), App. I. . See clause II (8), App. I. See clause 1 I (9), App. I. ' Minister of Natimtal Remm vs. Tmm and Guarantee: Ca. Ltd., (193?) 4. AER. 14-9, P. C. ' insulin The notes to clause in may be poi-used for a detailed examinaﬁen of _ the position. 3 a ~ E 9 (iii) Incofne from a business carried on on behalf of a religious or charitable institution, subject to the f:c3>;iE:li_')tions mentioned in proviso (b) to section 4 1 . . 28. It appearsto us that in View of the decision of the Supreme Court' it will be diﬂizult to exclude "business" from "property" which is the subject of a trust. But, it is also clear to our minds that income from business should b exempted only if the conditions mentioned in proviso (:3 are fulﬁlled. We have, thefefore, redrafted section 4 (3)(i) to make this position clear': ' 29. We are of the opinion that the legislature intended also to exempt the income from a business carried on by a reli ious or charitable institution, if the conditions men- « -tione in proviso (b) are satisﬁed. As the exemption of the income from a business carried on on behalf of a religious or charitable "institution" is not covered by the category of income from business held 2 under "trust", we have provided',.for' the exemption of such income of a religious or charitable institution, Chapter IV Gom tation _ _ _ _ , _ of to inco- tion of total income. computation of mcpme under various me, heads, and other matters are_ oontaindgin Chapter III of the present Act along with other protrisions pertaining to exemptions and other matt rs. We_.»o_onsider that' the provisions pertaining to the co putati 'of income under each head speciﬁed in section 63 should ,all 'be grouped to- gether under the Chapter "Combutationf of tota income", 30. As stated above', the provisions negarding computa- Though there are separate modes ctf computation un- der each head, we ﬁnd a basic schenie underlying the method of computation under ail the heads. The Act ﬁrst provides for diﬁerent categories of incdme being assessed under different heads of income. Ther V is, then, a provi- sion for deducting from the ass ' ome under each head expenditure incurred for ming ' is, again, a provision which prohibits c computing the income' under , t head this basic scheme of the Act, w have head a section which deals wi the or the nature of income wh'> ' able under that E-ticular head. e.g.. under sal es, p ty, and business. ' ductions to be allowed or n ' in co sing the income under each head are separately A rovid . {The sections per-' taining to a head of income ' groupqd under sub-titles, for example, A--Salaries, B----I.n§erest on Securities, C---In- aving regard to ojvided under each 'gories of income come from house property and soeon. ' J. K'. Truu vs. Commmioner oflncarm-tax, (I957) 32,1. T. R. 535 (S.C.). ' Sec clauses 12 (2) and :2 (4), App. 1.: 'r s i 3 See clause 12 (3), App. 1. 'i ; .3 '.7 I I ' 1 '"1' Interest on Securities. Income from property. Proﬁts and gains of busi- ness profes- sion or voca- tion. 10 31. In the present Act the expression "tax shall not. be payable" has been used, even in respect of deductions-. in computing the income under each head. The language has been criticised and has occasioned some confusion. In, the scheme adopted by us deduction have been s arate- 1y listed and the expression _"tax shall not be pay ble." is not used in regard to deductions'. - Section 8 provides that the tax should be payable in, respect of interest "receivable" by assessee. As the word_ "receivable" has been interpreted by courts as meaning' _ "received", we have adopted this interpretation and re-. drafted the section accordingly". ' 32. The income assessable under section 9 is more appropriately described as "Income from house property"; we have adopted this phraseology. ' 33. Section 10, which pertains to income from business covers about fourteen printed pages of the Income Tax; Manual. The section is divided into thirteen sub-sections, and sub-section (2) has about ﬁfteen clauses and a large. number of provisos. In the absence of any marginal notes: appended to the sub-section and the clauses, it has been found very diﬂicult to ﬁnd out whether any particular deduction is admissible in the case of business income or- not, or to trace a provision relating to any particular topic. We have, _therefore, divided the provisions pertaining to business, profession or 'vocation into a number of sections._ The important changes are mentioned below'. I 34. One provision which has caused a good deal of' hardship in practice is that regarding bad debts. The allow-I ance for a bad debt under section 10(2)(xi) is conditional upon the Income-tax Officer, ﬁnding that the amount had become bad in the relevant accounting year, and tliis has. been found to bear hardly oprthe assessee in manyicases. An assessee may write off and claim a debt as a ba debt in a particular year, honestly thinking that it had come bad in that year; the Income,-tax Ofﬁcer may disall the. claim on the ground that the claim was premature d it really become bad in a subsequent year; on appea, the appellate authorities -may uphold the disallowance but on the ground that the ;debt hadi actually become badgin an earlier year. By thetime the claim is ﬁnally rejec ed, it may be too late for the a essee to claim the ba debt in any earlier or late!) year. 0: make the allowance pend upon the chance of the as ,§ee's view as to the y at in which the debt became 'bad? coinciding with the part». ment's view of the matter, and to put the assessee ' peril of completely losing the ' ht to the allowance ' the absence 'of such coincidence, Ts not a very satisfacto , basis-T ' Sec clause 19, App. 1. ' See clause 18, App. I. : ' For other changes, see list of changes appended to this part of that Report. 11 of allowance. We have therefore proposed an express pro- vision' in the Act that if a bad debt disallowed as being claimed too late, the assess ent fora" the year in which, according to the Income-tax ﬁicer, the debt became bad can be reopened and the allowance niay _be given for that year wherever possible. . I ' We have also proposed a provision' to meet the con- verse case of a bad debt being claimed prematurely. 35. We have also enumerated in a separate section the topics covered by these sections'. ' 36. The proposed arrangement will make it conveni- ent to ﬁnd the provision pertaining to a deduction or a charge easily. "' 37. The provisions pertaining to. insurance business have been placed in a Schedule, as at present. 38. Two changes that we have made in section 10 (2) (vib), relating to development; rebate,imay be pointed out here'. In the first place, we Have sli 1§1y altered the pro- vision so as to allow the rebate in pect of the year in which the machinery or plant :is ﬁrst gait to use by the as- sessee, if the' machinery or plant is 0' used in the year of acquisition. Under the existing ovision, the deduc- tion is allowed only in the year of at pisition or installa- tion, and the position regarding casglgwhere the machi- nery or plant is not "used" in the yéar of acquisition or installation is doubtful. This; has now been made clear. In the second place, We have omitted sub-sections (2B) and (2C) of section 10, relat' g to d psits or proﬁts by companies. The proposed 0 ission ﬂ sub-sections (2B) and (2C) of section has beer: made 11 view of the fact that these sub-sections are nd; beingtienforced at present. The omission is relevant also; for the}. 'urposes of clauses (vi), (via) and (vii) of sub-section (2) section 10. 39. Section 12B has beenicriticisefii as containing the uni largest number of provisos. ;It has iavso been criticised gs' . on the ground that it is difficult to kngw, from the present language of the section, the deduction a person is entitled to on account of the cost of the asse S; We have felt it necessary to coin an expressi , viz, " tatutory cost"? for this purpose. We have made rovisi or the determina- tion of the statutory cost se ately 'Iﬁ respect of depre- ciable and non-depreciable' ssets'. gProvision has also been made for determining the statutory cost in relation to the mode of acquisition of the assets :by the assessee by purchase, inheritance and other methods. 1 See clause I62 (6), App. I. _ See clause 36 (6), 2nd Proviso, App. I. Clause 29, App. I. Vida Clause 33, App. I. Vida Clause 4.9, 50, 51, App. I. Vida Clause 50 and 51, App. I. 2-1 Law Com./58. I ovum?-1'9 12 3:32:32? 40. The provisions pertaining to the computation of 3' income from other sources have now been put after the provisions pertaining to the computation of all other _ incomes including capital gains. The section is thus a resi- duary section for computing the income from all sources for which no provision has been made earlier. We would like to draw the attention of the Govern- ment to the fact that the present system of taxing divi- dends creates a good deal oftdiﬂiculty. At present, com- panies are taxed at a very heavy rate under the annual Finance Act but section 18 (5) and 49B (1) of the Income- tax Act treat income-tax paid by companies as paid on behalf of. the shareholders and allow the shareholders credit for the income-tax paid by the company. The'tax to be so credited to the shareholder has to be arrived at after an elaborate computation under the process known as "grossing up" of dividends. _This process, dealt with in section 16(2) of the Income-tax Act, is a complex one. Moreover, difficult questions often arise in practice as to whether dividends are declared out of the taxable proﬁts of the companies or not, since money has no ear-mark and it is not easy in practice to identify the fund out of which a dividend has been declared. This difficulty has been accentuated after the substitution of the present rule 14 of the Income-tax rules prescribing the new form of certiﬁ- cate to be furnished by the company to the s arehdlder along with the dividend warrant. It would in e theglaw much simpler and easier to administer if at least public companies are taxed at a very low rate and the share- holders are taxed at the normal rates without any credit being given to them for the tax paid by the co"mpa' 'es. We have not made any changes 'on this point in the igaft clauses in Appendix I, since such change would a ect ' e the tax structure; but w eel that the Government should consider the simpliﬁcation of the law on this point. The notes to the relevant draft clause may also be perused in this connection. ' chaptc, v 41. Income which belongs to other persons is. in goer- Incomes of tain circumstances. liable to inclusion in the total income ?th¢TdP§'8°{'8 of the assessee, e.g., under sections 16 (1)(c) and 16 (3). :::]"as:csse;,': These have been grouped together in this Chapter. {The ma] ;ncom.,_ language of section 16(1) (c) lmds to some_ confusion. {The provisions pertaining to settlement of income and tr' us- fer of property have therefore been separately dealt W" h. Chapter VI 42. The method of computation of the total incgme, Aggregation the method of computing the loss and the right to c rry of Income forward such loss to later years all pertain to the conipu- andm °*7°' tation of total income after the income under each head §f"1';§fe'S'"a'd has been separately computed. All these provisions have, ' therefore, been grouped together in this Chapter. ' Under section 24 as it stands at present, a loss urider a head other than cap tal_ga s _is set oﬁ also again: a loss under the head " apital ains". Since the rateT of l 13 tax in the case of capital gains is lower than the rate for other heads, this provision for the compulsory set off of other losses against capital gains is unfair to the assessee. The beneﬁt which he derives from the set off is smaller than what he would have derived if. the loss were set off against other income. We have, therefore altered the pro- vision' by'barring the set off of a loss under any head (other than capital gains) against income under capital gains, so that for the purposes of set off. capital gains now becomes a completely independent category. 43. The second proviso to section» 24(1) does not bring out clearly the intention of the legislature. We have now put the proviso in the form of an independent section" so as to leave no doubt as to its meaning. The provisions pertaining to set off and carry forward of the losses of registered and unregistered ﬁrms in the assessment of the ﬁrms and their partners have also been put in separate sections'. - 44. It is now well settled by a series of decisions' that a cash credit whose nature and source have not been ex- plained is to be treated as.the income of the year in which it occurs. There are similar decisions' regarding invest- ments whose nature and source areinot explained. These- 1 decisions have been codiﬁed in two sections' of this Chapter. 45. As stated at the outset. the present Act does not make a clear distinction between the three categories of exemptions: (i) Incomes which do not formipart of the total in- come and are altogether excluded from compu- tation; 1 (ii) Incomes which form part ofjthe total income, but which are exempt from tax: (iii) Expenditure incurred by an assessee, on which an abatement is given. The present Act uses the words,"the tax shall not be payable" in respect of all the three dategories; e.g.---- (a) Any sum received by a member of [a Hindu Undivi- ded Family as a member of such family--S. 14(1). (b) The taxed share of ti partner of an Unregistered Firm--S. 14(2) (a). (c) Payments made to effect insurance on the life of the assessee or on the life of a wife or husband of the assessee----S. 15(1). Vida clauses 37 (1) and 75 (1) , App. I. See clauses 78 (1) and 76 (1), App. I. See clauses 76 to 79, App. I. - Scc clause '70, App. I. and the mates there See clause 71, App. I. and the nptes theretki ' ' Clauses 7o-71, App. 1. i 4 ORCHID" Chapter VII Incomes on which no Imomc-tax is payable. Chapter VIII Rebates and Reliefs. 14 ' 46. It would be inappropriate to use the same language in respect of the three categories. We consider that the expression "tax shall not be payable by an assessee" is inaccurate in respect of expenditure in- curred by the assessee, as such expenditure is not part of his "income". We have, therefore, separated these three categories and put them into three different Chapters'. We have already dealt with the ﬁrst category in the Chapter" in which all the exclusions from total income have been gathered together. The incomes which are in- cluded in the total income but exempt from income-tax have been gathered together in this Chapter. The pro- visions of the Act which allow a rebate in respect of expen- diture incurred by the assessee, e.g., sections 15(1), 15B. etc., have been grouped together in the Chapter' headed "Rebates and reliefs". ' 47. In respect of several of the incomes referred to in the Chapter under discussion the exemption is con ' d to income-tax and is not applicable to super-tax. To av id confusion, the expression "income-tax shall not be pa ab e" has been used in this Chapter. 1 e exemptions app ica le to super-tax have been speciﬁcally mentioned, in the Chap- ter relating to Super-tax . 3 48. In view of the present gﬁtlaeme of taxation (under the Finance Act, 1958) under W 'dh no deduction is a1l¢.$v1'- ed for earned income, we consi er it unnecessary to c - tinue section 15A in the Act. e have therefore omit d the latter part of section '15A, leaving it to the Govemm t to omit its earlier part also. i 49. We have discussed above? the unsuitability of t e present language in regard to algfitement of tax on exp -- diture by the assessee. We hav, made the necessary v_r- bal changes. ' 50. This Chapter provides for a deduction, from t e income-tax payable on. the tot income, of an amo equal to the income-tax calcula ,d at the average rate if income-tax on the amounts on which the assessee is titled to a rebate, for example, life insurance premia, contributions, to Provident Fund. The language of t is Chapter has been borrowed from the U. .K. and Ceyl 11 Acts'. We have slightly widened' the provision in secti 11 60(2), (relating to power of the; Central Government grant appropriate relief ,where salary is paid in arre and other matters), so as to covdr§"perquisites" also. '1' e power will thus be available w ' re a perquisite, enjoy d in the form of cash, is paid in H ars. 1 Chapters III, VII and VIII, App. 1. ' Chapter III, App. 1. ' Chapter VIII, App. I. ' Chapter XI,-App. I. ' Vida paragraph 45 and 46 above. ' See section 2x9 (1), U. K.§Income-tap Act, 1952, and section 14, (b)Iof the Ceylon Income-tax Ordinancei 5 2 7 Sec clause 90, App. I. .15 51. The provisions of the Act which pertain to double Chapter IX taxation relief have been gathered together in this Chapter. D ° " b 1. ° T a x a t 1 0 n Relief. 52. This Chapter deals with the provisions against Chapter X avoidance of tax by means of transactions with non-resi- P*°'.'i-°*i°" . dents and by dealings in securities-cum-dividends and in 3f:;:c"°f";'a";' other ways. We have also dealt in this Chapter with the ' provision pertaining to avoidance of tax in the hands of a resident principal. 53. As regards transactions in securities the present law (section 44JF) deems the interest to accrue de die in diem. As a tax avoidance provision it would be very ap- propriate to tax the interest wholly in the hands of the person transferring the securities before the due date of maturity. We have altered,the provision' accordingly. 54. The provisions pertaining to super-tax, are contain- Chapter XI ed in Chapter IX of the Act. There are a few other pro- SuP<=r-tIX- visions not included in that Chapter which pertain to super- ' tax, e.g., section 23A which provides for the levy of addi- tional super-tax in the case of certam companies. All the- provisions relating to super-tax have been brought toge- ther in this Chapter. In regard to super-tax, the basic pro- vision that the total income for per-tax shall be the same as the total income for income- asx has been retained', but the provisions which exclude certain incomes from computation of the total income have been made into se- parate sections'. C In connection with section 23A, we may draw atten- tion to the latest pronounqement of the Privy Council'. on an identical provision of a foreign statute. It decides that if having regard to the smallness of proﬁts or past losses or any other relevant factor' or circumstances the payment of a dividend or a large dividend than that declar- ed would be unreasonable, no order should be passed un- der section 23A. We have not made any change in the existing section on . this point; but we think that the Income-tax Officer should ndt pass order under section 23A where the declaration of a dividend or a larger divi- dend would be unreasonable on aotoilmt of current busi- ness requirements. . We may also draw the gattenti A to the inconsistency inherent in the present provisions L lating to tax on dis- tributed and undistributed proﬁts.' Section 23A of the Income-tax Act taxes undistzributed iproﬁts, while the pro- vision usually inserted in the annual Finance Act has the effect of increasing the tax on excessive distribution of proﬁts. This inconsistency' must be removed. A detailed Vida clause 97 (3), App. 1. ' Vida clause 99, App. 1. ii I Vida clauses 104 to 108, App. ' 'f ' QCIIH C.I.T. vs Williamson Diamond! _ ., I958 4.1 (P.C.). ? Chapter XII Determina- 16- discussion of the subject appears in the notes to the rele- vant draft clause. We have, of course, not made any change in the existing section on this point; but we re- coénmend that the Government should take steps as indica- te . -55. We have placed under a separate group provisions _ relating to rebate on super-tax on, certain types of expen- diture or reliefs in respect of certain incomes as-in the case of newly established industrial undertakings'. The Act is not clear as to whether certain incomes exempted from super-tax are to be included in the total incomes for purposes of rate or are to be excluded altogether; for example, the exemption [in section 14(3)] in respect of co- operative societies. In our draft we have borne in mind the distinction between an item which is excluded from the total income" and an item on which only a relief is applicable at the average rate of super-tax'. 56. In this Chapter we have dealt with cases which mm Ofmxin are not covered by thenormal rules regarding the com- cmagn spa- putation of total income or the rate of tax applicable there- cial cases. Procedural provisions. to. The topics dealt with,here include the computation of tax for income comprising exempt incomes, liability in respect of compensation payable, the rate of income-tax and super-tax applicable to non-residents, the mode of computation of income-tax_ on capital gains, and to on. We have made it clear' that in the case of compe ' tion payable to and received by a registered ﬁrm, the ial mode of computation mentioned in the Act applies to the partners. The position is not clear in the Act. ' 57. In respect of capital gains the provisions of the present Act are not easily intelligible, and we have there- fore clariﬁed the position by expressing the computation of tax on capital gains in the form of a mathematical for- mula'. ? ' 58. The provisions pertaining to income-tax au hori- ties and procedure are at present contained mai y in Chapters II. IIA, IV. V and V-A. All these provisions'have been brought together, with section 64 which perta' to the place of assessment and section 54 which pertains to disclosure of information by public servants. These; pro- visions have been divided into 'the following Chapters: (i) Income-tax authorities' (Chapter XIII). (ii) Procedure for assessment (Chapter XIV). 1 Sec clauses 109 to 112, App. I. ' Contrast clauses 104-108, on the one hand, with clauses 109 to I12, on the other, in App. I. ~ - 3 Vida clause :23 (2), App. I. ' Via': clause 125, App. I. Cf. section 6 (1) ofthc South African Income- tax Act, I941 for the device ofgmathematicaj formula. . -- i r 17 (iii) Liability in special cases (Chapter XV). ' (iv) )S{;%;:Ic)ial provisions applicable to ﬁrms (Chapter (v) Special provisions applicable to companies (Chap- ter XVII). ._ (vi) Collection and recovery of tax (Chapter XVIII). (vii) Tax deemed to have been paid on dividends (Chapter XIX). (viii) Refunds (Chapter XX). (ix) Appeals and Revisions (Chapter XXI). (x) Penalties imposable by income--tax authorities (Chapter XXII). (xi) Offences and prosecutions (Chapter XXIII). (xii) Recognised provident funds (Chapter XXIV). . (xiii) Approved superannuation funds (Chapter XXV). (xiv) Miscellaneous (Chapter XXVI). 59. The provisions pertaining to Income--tax authori- qhapte,-X111 ties are contained in sections 5, 54 and 64 of the present Income-tax Act. The provisions contained in sections 37, 38 and 39 "»"h°""°*- pertain to the powers of Income-tax authorities. We have. therefore, grouped all these sections in this Chapter. The present classiﬁcation of these provisions is not very happy. We have. therefore. classiﬁed the provisigns pertaining to Income~tax authorities as under: (a) Appointment and control, (b) Jurisdiction. (c) Powers, and _ (cl) Disclosure of information. ' 60. Effect has been given to the observation of the Supreme Court in a recent case' by providing that the as- sessee should be given an opportunity, wherever possible,: of being heard before a caseis transferred from one Income-' tax authority to another. . - There is at present no provision in the Act as to the Incorne--tax authority who should take proceedings where' there has been a transfer of the case from one Income,-tax authority to another. A doubt has been expressed as to; which Commissioner is to exercise jurisdiction when a' case has been transferred from an Income--tax Officer under the jurisdiction of one Commissioner to an Income-tax' Oﬂicer under the jurisdiction of another Commissioner. We have provided speciﬁcally for such cases by inserting a new section on the subject'. The new provision will also 1 Pannulal Binjmj and others vs. Union oflrzdia (1957), 31 LTR. 565, 589, A.I.R. (1_g57) S.C. 397, 410. 1 . ' See clause [34, App. 1. " 18 meet cases of transfer of a c$e from one Income-tax Offi- cer to another. A few minor changes made in the various sections have been indicated in the Notes on clauses. An important addtion to the provision relating to dis- closure in section 54 (3) is the new provision' enabling the Income-tax Officer to disclose the substance of the parti- culars on which he relies (for the purpose of an assess- ment) to the assessee with-out. of course. disclosing the name of the person to whom the particulars pertain. This is intended to give eﬁect to the decision of the Supreme Court in the case of Dhakeshwari Cotton Mills Ltd}. f.One other provision added to this section' enables the Incpme- tax authority to disclose the facts necessar for the (pur- pose of enabling an officer of the Central overnment to levy or realise any tax imposed by it. A provision has also been added' authorising the. dis- closure to civil courts of certain documents (like balance- sheets, proﬁt and loss accounts etc.) prepared by comp' ies under 'the Companies 'Act, or documents of which c pies can be obtained under the Registration Act. As no of these are private documents, there is no harm in permi ting their disclosure _in cases where the documents are relevant in a proceeding before a civil court. Similarly, we haveialso added a provision' authorising the disclosure of ace nts ﬁled by the assessee before an Income-tax authority hen the accounts are required by acjivil court for the pur ses of proceedings to which the assessee is a party. We do not see any reason why the mere fact that the accounts': are lying with the Income-tax authorities should debar their production in court. - g One important change which we have made conce ing section 5 may also be;noticed.2 $ection 5(8) provides hat ofﬁcers and persons entployed n' the execution of the Act shall observe the orders, inst tions and directions is ued by the Central Board of Revenue. As some of the or ers and -instructions affect asse es in general, we have a ded a provision' to the effect hat orders and instructions of a general nature should be published. We have also added a clause providing for the re m of documents producediby an assessee before any Inc e- tax authority'. V ' 1 Sec clause 14: (3) (c), App. 1. 3 ' (I954) 26 I.'l'.R. 775. V ' Cause 141 (3) (:1), App. I. 4 c;auses 141(3) (0 (ii) and (iii), App. I. 5 Clause 141(3) (f) (i), App. 1. ' Clause 130 (1), 2nd Proviso, App. 1. 7 Sec clause I36 (4): App. 1. 61. In view of the fact that we havekrecommended the abolition of the Appellate Tribunal, the provisions pertain- ing to the Appellate Tribunal haive been omitted from this Chapter. 62. The provisions pertaining to procedure for assess- Chapter xw ment have been gathered together in this Chapter. Procedure for assess- The Chapter has been divided into sections so as to "'°'"' bring out clearly and prominently the various stages of an assessment. The principal chan es made by us in respect of these provisions are given bepow :- (1) The date by which the voluntary return is to be ﬁled has been ﬁxed as the 30th day of June'. \ (2) A primary obligation to make a return of income has been imposed without the necessity of a general notice as under the existing section 22(1). (3) The provisi-on has been 'extended to representative assessees, e.g., agents of non-residents, trustees' and others. (4) The person who is to sign the return is mentioned at present in a footnote to the iorm of return of income. We consider that this provision is so important that it should be embodied as a part of the Act itself. We have, ac- cordingly, added a section on the subject.' We have made special provisions for the signing of returns in the ease of mentally incapacitated persons, minors and persons absent from India. (5) The criteria for making a "best judgment assess- ment" have been speciﬁcally mentioned.' (6) The provisions which are now contained in section 13 have been transferred to this Chapter. The provision has been so drafted' as to avoid any cqnﬂict between sec- tions 13 and 23. It has been made clear that section 13 applies only where the accounts are correct and complete. Section 23(4) will apply to cases where the accounts pro- duced are not correct or are not compldte. (7) The Act--section 34(1), 1-'st Proviso, (ii) enables with the permission of the Central Board of Revenue, the re- opening of assessments without limit of time in cases where the aggregate income which has} éscapeg assessment is over Rs. 1,00,000. We consider that in most: of the cases there should be some ﬁnality as to an assess ent after the lapse of. a certain period of time. While pro _ ting the interests or revenue by providing' that "where income which has escaped assessment in _a particular year is over Rs. 50.000 ' See clause I43 (1), App. 1. ' See clause 144,, App. I. 3 See clauses 14,8. 149, App. 1. ' Sec clause 150, App. I. ' Sec clause I55 (I) (1) (i), App. I. " 20 the proceedings can be re-opened without limit of time, we have provided' for a limit of 16 years in all other cases which are now covered by section' 34(1)(a) lst proviso, clause _(ii). We would. further recommend that even where the income escaping assessment in a particular year is over Rs. 50,000, there should be no re-opening of the assessment after the lapse of 16 years from the end of the assessment year concerned. This last recommendation has not been embodied in Appendix I. (8) In the case of Parashar vs. Vasantsen Dwarkadas,' the Bombay High Court held that the provisions of section 34(3) are invalid to the extent to which they allow the assessment of a person other than the assessee to be re- opened without limit of time. We have now provided' that the person whose alleged income is included in the assess- ment of the assessee, should be given an opportunity of being heard, before the assessment is completed. This will cure the invalidity of the provision. (9) At present there is no time-limit for the completion .of an assessment made under section 34(1)(a). We think that the proceedings for such assessments should not go on indeﬁnitely. We have accordingly provided' for it time- limit of four years for the completion of the assessment. The time limit will run from the end ofthe assessment year in which the notice under section 34 is issued. Similarly, we have provided' a time--limit of four years in a case where a notice is issued under section 28(3) read with section 28(l)(c) (i.e., notice for the imposition of a penalty where the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars). Under section 34(3) there is no time-limit for the comple« tion of such assessments. (10) Section 35 has been split into two sections. The rectiﬁcation of mistakes, strictly so called, is putlin one section. Several rectiﬁcations which are permitted Kinder section 35 are deemed to be mistakes apparent on the face of the record. All such deeming provisions have been gathered together in another section. A ~ fi1;_*;)1g;i=tryXi\; 63. All the provisions of the Act dealing with iability special cam. in special cases have been gathered together in this =hapt_er. H The following topics have been dealt with in this Chapter :-- t ' Legal representatives; Representative assessees (i.e. persons liable as trustees, guardians. managers, agents of no'n-residents etc.); Executors; -
1 Sec clause I55 (1) (a) (ii), App. I.
' (1956) 29 I.T.R. 857 (Bombay H.C.). 3 Vida clause i6o, Expl. 3, App. 1.
' Vida clause 160(2) (81), App. I.
' Clause x6o(1) (b), I.
It « 21! Succession and partition;
Shipping' business of non--residents; Persons leaving India;
Discontinuance of business .etc., or dissolution of asso- ciation;
Royalties;
Liability of State Governments.
64. The principal changes made in respect of these pro- , visions are as under :--
(i) The provision relating to legal representatives has been made more elaborate' so as to cover all possible situa-
, tions.
(ii) A new expression has been coined', namely "repre- sentative assessee", to cover all cases where a person is made responsible in an assessment for the income of ano- ther person under sections 40, 41 or 42 (as trustee, guardian, Administrator-General, Court of Wards, receiver, agent of non-resident and otherwise). This scheme has been adopted from the South African Act.' The adoption of this scheme has made for a considerable simpliﬁcation in drafting.
(iii) A new provision' has been inserted to make the representative assessee personally liable where he disposes of or parts with the assets in his possession after the tax has become payable.
Under the Act, a person liable as a representative assessee (particularly a guardian, trustee, or manager) can be assessed either under the special provisions applicable in such cases (sections 40, 41 and otherwise) or under the normal charging provision in section 3. We feel, however, that such persons should not be chargeable under section 3 when there are special provisions applicable to them. We have. accordingly, added a provision' for the purpose.
The position regarding the rate of tax applicable to income received by a trustee in cases where the shares of the beneﬁciaries are unknown or where the income is not received on behalf of a particular beneﬁciary, has been slightly amended' so as to provide that the tax on such income in the hands of the trustee and» otherwise will be at the rate applicable to an association ;o_f persons; a provi- sion has, however, been added to the affect that where the income is actually received by the beneﬁciary, the Income- tax Officer has the discretion to tax at the rate applicable 1 Vida clause 168, App. I.
' Vida clauses 169-I77, App. I.
3 See sections 69-75, South African Income-tax Act, 2941. ' Clause 172, App. 1.
5 Clause :70 (3), App. 1.
' Via': clause 174. (3.), App. 1.
Chapter XVI Special pro-
22to the beneﬁciary. We feel that the existing provision in section 41(1), 1st proviso, authorising the levy of tax at the maximum rate (in cases where the beneﬁciary has other income) is not fair. The sheer accident that a beneﬁciary has income from other sources, should not be a ground for taxing him at the maximum rate. .
(iv) There is at present no provision in the Act for the assessment of executors. We have inserted a new provision' for the assessment of executors, based on the corresponding pr-ovision of the Ceylon Act.
(V) The provisions of section 25A, it is now well settled, apply only to cases of total partition of the family. There is no provision in the Act as to the enquiries to be made and the procedure to be adopted in the case of partial parti- tion of a Hindu undivided family. We think that some provision on the subject isdesirable. We have therefore ampliﬁed the section so as to cover cases of partial partition of Hindu undivided families.'
(vi) It has been made clear' that the rate at which a State Government is to pay the tax on its tax free securities should be laid down by the Finance Act.
65. All the provisions of the Act applicable to ﬁrms have been gathered together in this Chapter. This will: enable T to the partners' and others to ascertain the law from one Chapter instead of searching for provisions dispersed all over the Act. .
The principal changes made in this Chapter are given . below :
(1) The provisions contained at present in thi Rules, regarding the regisﬁation aild cancellation of regist ation of ﬁrms, have been incorporated in the Act.
(2) The provision for fresh application for_ reg stration every year has been delejged, as it entails hard hip. A declaration that there has been no change in the onstitu- tion of the ﬁrm will suffice.' i (3) There was some fsdiﬁiculty in determini g when there is a change in the constitution of a ﬁrm d when there is a succession. Thegspeciﬁc circumstances hich re- Eult inda change in ?'the constitution of a ﬁrm have we been eﬁne ." - T (4) It has been noticed that Income-tax-OfIic s reject the applications for registration on the ground of echnical defects in the instrument of partnership. For xample, where the partnersiof ﬁrm A and ﬁrm B form a big er ﬁrm_----
1 Clause 178, App. I ' Sec clause 181, App. I.
' Vida clause 138, App. I.
' Sec clause 191(7),E App. I.
' See clause 194, App. 1.
23ﬁrm C, the registration of ﬁrm C is refused if the instru- ment of partnership of ﬁrm C does not itself specify the in- dividual shares of the partners, but merely mentions the constituent ﬁrms as the partners. In such cases, the shares of the partners in ﬁrm C, we feel, should be ascertained with the help of the instruments of partnership relating to ﬁrms A and B. We have, therefore, proposed a change in section 26A, so that in considering the application for regis- tration, the Income-tax Officer will be required to have regard to the instruments of partnership of the connected ﬁrms also.
-
(5) A clause enumerating all other provisions rele- vant to ﬁrms has been added.
The provision for registration of firms (section 26A and the rules made thereunder) has worked great hardship in practice. Practical experience of the working of the Act shows that the department is astute to find technical defects on the strength of which registration may be refused. Such refusal can obviously work enormous hardship, since the result of such refusal would be that tax would be attracted at a much higher rate in most cas 's than if the income were apportioned among the various p tners and taxed separate- ly in their hands. The reports qt income-ltax cases afford many illustrations of how even égenuineii firms have been refused registration merely because of some technical defect. We have tried to alleviate the hardship by liberalising the provisions to some extent, as indicated a ' ve. But we feel that if the provision for registration is at ' ll to_ be retained, there should be a complete change in th' approach of the income-tax authorities, and the }provisio§=should not be administered in a hyper-technical' spiri , as is done at present. If the law is not admihisteredéi in a liberal and reasonable spirit, the old adage '-'the letlier ki1leth" would fully apply.
ernment to another provision rdating iﬁrms which we tion of regis- feel is totally unjust. We are referring t section 23(5)(a)(i) ""4 5- of the Act, which provides for the levy 0 tax on registered : ﬁrms in addition to the tax leviedéon the dividual partners of registered ﬁrms. This is the lleast d' énsible provision of the present income-tax law. . Prior t the amendments made by the Finance Act,-1956,,a regis red ﬁrm did not pay any tax itself, but each ', tner's tire of the firm's proﬁts was added to his other in ome V jthe tax payable by each partner on the basis -of is total income (including h1S share of the ﬁrm's proﬁts) was determined and the levy was made on the partners individually.' Thus, there was We would also like to draw the attention of the Gov- Doub1Ei|:g,.
' no double taxation. But after the amendment made by the Finance Act, 1956, (see paragraph D of the First Schedule to that Act for the rates of tax), income-tax is now assessable on a registered ﬁrm, and. the par ers of be registered ﬁrm are again liable to be charged A their i dividual assess- ments to both income-tax and s r-taxi, respect of their ChaptcrXVII Special pro-
visions plicablc companies.
3P"
to Chapter XVIII Col-
lection and recovery EX.
24shares of the ﬁrm's proﬁts. There is, thus, double taxation in the case of a registered ﬁrm so far as income-tax is concerned, (though not as regards super-tax), and only par- tial relief against such double taxation is afforded by section 14(2)(aa).
without precedent, so far as we have been able to gather, in the history of income~tax legislation, either in this coun- try or in the othercountries whose laws we have examined. To assess a ﬁrm in respect of its proﬁts and to assess the individual partners again in respect of their shares of the ﬁrm's proﬁts is virtually double assessment on the same individuals in respect of the same income. This type of legislation cannot be supported on any considerations of justice or fairness or any sound principle of taxation. It would work as a dangerous precedent. We appreciate that it,is a matter of legislative policy how high the incidence of taxation should be; but there is no reason why' resort should be had to pure and simple double taxation on the same individuals, in respect of the same income under the same Act, as a mode of raising the revenue. As alteration in the tax structure is not within the scope of our prdposals, we have not made any change on this point in the draft clause in Appendix I.- But we strongly recommend that this provision [the system of taxing a registered ﬁrm under section 23(5)(a)(i) read with the annual Finance Act] should be abolished.
66. We felt that it would be useful to enumerate in one place all the provisions of the Act which pertain to companies. The provisions themselves have been putin the relevant places, e.g., residence has been put in the Chap- ter on 'Basis of charge', the additional super-tax payable by a company has been put in the Chapter on super-tax. and so on. But all the provisions of the Act which pertain to the assessment of companies have been listed here, fof easy reference. .
67. The provisions pertaining to collection and re overv of tax are contained at present in Chapters IV a d VI.
of The provisions pertaining to deduction of tax, and advance payment of tax are really provisions pertaining to recovery of tax. Therefore, the provisions pertaining to ded 'ction, advance payment of tax and recovery of tax have a brought together in this Chapter.
68. The principal changes made in this Chapter are as under :-- 9
(i) Some doubt was felt .;as to whether the provisions pertaining to deduction. at source or advance payment of tax were valid in the absenceiof a charge of tax. We' have made it clear by adding suitable provisions' that there is a "charge" for deduction of tax, and advance payment of tax etc. ' Vida clause 199(1) readwith clause 3(2), App. I.
I-
This provision for double taxation is been.
25We have also made it clear' that advance tax on div).- «iends is conﬁned to advance super-tax. So far as income- tax is concerned, the question of advance payment does not arise in' View of the provisions of section 16(2) read with section 18(5) and 49B. V We have also made 'changes' in the 'rate of interest in connection with advance tax and the date from which the interest is to run, so asto secure uniformity. The notes on the relevant clauses indicates in detail 'the changes made in this respect.
(ii) In regard to the provisions for recovery of tax. the principal change made is that the provisions pertaining to the procedure for recovery of tax by the Collector to whom a certiﬁcate is issued have been incorporated in a separate Schedule to the Act, which will constitute a self- congained Code. In drafting this Schedule, we have exa- mined the provisions of the various Revenue Recovery Acts of the various States as also of the various Municipal Acts. The procedure to be followed by the Collector is not very clear and varies from State to State. This va- rianeein procedure has been commented upon by the Su- preme Court.' Whatever the position may be in regard to recovery of tax levied by States, we consider that there shoulci be a uniform procedure in regard to recovery of 'Ce.-ntral taxes. (See detaiied discussions below under "Revenue Lavcs".}
(iii) Provision' has been made for an Income-tax 0fﬁ~ oer to send a certiﬁcate to the Collector of any district in India in which theassessee possesses property or resides. At present, the Income-tax Officer can send a certiﬁcate only to the Collector of the district in which he functions, and where the certiﬁcate is to be sent toanother Coiiector, the Collector to whom the certiﬁcate has been sent has to forward it to the other Collector. This procedure re-- sults in delaying proceedings for recovery.
(iv) It is the departmental ractice and it is also con- venient from the point of View 0 assesse,es---that the power to grant payments in instalments should rest with the In-- come-'tax Oiﬁcer, and that the power should continue even after the issue of a certiﬁcate to the Collector. We have inserted the necessary provisions on the isubject'.
(V) The scope of sections 46 (3) and 46(4), under which, in areas notiﬁed by the Commissioner, 'arrears can be rea- lised in the manner provided by the Mxjnﬁcipai Act of the State, has been narrowed down. Of the various remedies r provigied by Municipal Acts. 'ch power of distrainf: and sale IS the only one that is rea y effecﬁve, and that has 1 Vida clause 25(3), App. 1.
' See App. I, clauses 22:, Proviso and 224 for rate, and 223(1) for date.
T I; £3-shoﬂam oa'm'mj2Ha1a£vs. Aidilicnal Collector cf 3omb:;r--~(:g55} 28 1. . I.
' See clause 239, App. I.
' See clauses 929(2) and 2348), App. 3.
26been speciﬁcally dealt with in the draft'. It will be avail- able to any Income-tax Officer authorised for the p rpose by the Commissioner. The procedure to be adopted 1; the Income-tax Ofﬁcer. in the case of distraint of property has been dealt with in a separate Schedule.
Several Municipal Acts contain provisions for an ap- plication being made to a Magistrate having jurisdiction over the area and provide that the Magistrate will §there~ upon collect the tax in the manner provided for the reco~ very of fines or prosecute the defaulter for non-payrxient of the tax. These powers have in fact never been exercised, and we think it unnecessary to retain them'.
(vi) For expediting recovery, we think that it ould be desirable to have;a provision enabling the loco e-tax Officer to apply directly to a court (in whose custodyf; there is money belonging to the assessee) for payment of the mo-- may in its possession. This will save time, and dolaway with the necessity of proceedin through the Collector as at present. We have according y inserted a provisiop' for the purpose. g
(vii) One more mode of -' eovery is recovery by suit. This is implied under the p 'nt law, but we felt at it might be useful to ifnake a rspeciﬁc mention of it ' the Act, and have mentioned it aboordingly'.
(viii) At present one of Qhe modes of recovery imposition of a penalty under section 46 (1), the ,.- - penalty imposed not exceedin the tax payable. ject of this provision is to p am; the assessee from ing money which belongs to veroment without co pen-. sating the Government by a of interest for the elay-v ed payment. Under ﬁle ore' - , it may happen that while the ' where payment is delayed, ='t may not be --».=.~ in another case where 'also payment is delayed. It may also happen that 1111' the case of a particular the penalty imposed under safction 46 (1), is remitt appeal. This, we corlsider, would lead to discrim' tion between assessees who are V' tlarly situated. The sion in the Australiari Act in. behalf has appea us as being more equitable. We 'have, therefore, pro ' for interest at 10 per ent beitg payable by every ~- - who is 'in default in pent V the amount outst from the date on whiizh the mount falls due. (We that the rate of interest shou d be sufficiently high a as to induce assessees to-_ make prompt payment of arr are.) 2
2. 1 Sccclause 235(5), App. I. -r ' Detailed discussion below under the head "Municipal laws" may bf: seen, 5 Vida clause 235(4), App, I. _ i * Sec clause Q43 (la), A3: I. ' ' Soc clause 230 (x), I.
. 27_ We have also provided' for the interest being waived in cases where the tax is paid within three months of the default.
The corresponding provisions in the Canadian, U.K. and Australian Acts may be compared'.
(ix) The position 'regarding the action to be taken for the correction or cancellation of a recovery certiﬁcate issued by the Income-tax Oﬁicer to the Collector is very uncertain at present. If after the issue of a. certiﬁcate some mistake is detected or the amount is reduced or in- creased or the Income-tax Oﬁicer desires to- withdraw the certiﬁcate for some reason, the action to be taken is not easily ascertainable from the Act. _We have. therefore, ad- ded a provision' to make the position clear. Under the pro- vision proposed by us, the "assessee cannot challenge the correctness of a certiﬁcate before the Collector; but he will have the right to move the Income-tax Officer (who issued the certiﬁcate) in appropriate cases. We have also provid- ed for an appeal against an order of an Income-tax Ofﬁcer rejecting an application of the assessee raising objection to the certiﬁcate.
(x) Regarding section 46 (5), which confers on the Income-tax Oﬂicer a power to require the employer of an assessee to withhold the assessee's sala and remit the amount to the Income-tax Ofﬁcer towaxtrlls payment of the assessee's arrears, we feel that the power should not be available in respect of that portion of the salary which exempt from attachment under the Civil Procedure Code. We have changed the provision accordingly'.
69. As regards recovery under revenue Laws, a detail- Revenue ed discussion of the position appears to be desirable. Sub- Laws- section (2) of section 46 contains, the fprocedure to be fol- lowed by the Collector after receipt 0 the certiﬁcate from the Income-tax Ofﬁcer. The procedure is the same as that laid down for the recovery of arrears of land revenue in his State.
The proviso to sub-section (2) of section 46 confers upon the Collector all the powers which a court under the Code of Civil Procedure, 1908, exercises for the purpose of recovery of an amount due under a decree. This, of course, is without prejudice to any other powers of the Collector in that behalf.
[The provisions of sections 46 (3) and 46 (4) will be discussed later.] 1 See clause 230 (2), App. I.
' Cf section 54, Canadian 1. T. Act, 194.8 (where the rate is 6 p. c.) and section 495, U.K.l.T. Act,1g52 (the rate being 3 p. c. and Section 270, Australian Income-tax etc. Act, 1936-1953 (where t c rate is 10 p. c.).
3 Clause 233, App. I.
' Sec clause 235 (2), App. I.
3----1 Law Com. 58.
28. 70. The powers of the Collector are to be gathered from the laws relating to the realisation of land revenue obtaining in the appropriate State, supplemented by the powers exercisable under,the Code .of Civil Procedure. An examination of the revenue laws obtaining in the States now forming' part of India shows that under these laws the following processes for realization of arrears of revenue are available.
(a) distraint and sale of moveable property of the de- faulter; '
(b) attachment and sale of immoveable property of the defaulter;
(c) attachment of property belonging to the defaulter and management thereof;
(d) arrest and detention of the defaulter in civil pri- son.
All these modes of recovery do not obtain in all the States. Further, in the same State, there are variations depending upon the place of accrual of the revenue ar- rearsa according as the arrears arose in the capital city or outsi e.
71. Section 51 of the Code of Civil Procedure 1908, lays down the modes of execution and it contains as. many as ﬁve -methods of execution of a decree of Civil Court. Sub- clauses (b), (c) and (d) of that section are alone relevant for the purpose of income-tax law, and they are :---
(i) attachment and sale. orsale without attachment of any property (the word property is here used so as to include moveable and immoveable property);
(ii) arrest and detention in prison, and
(iii) appointment of a' receiver.
72. It will be seen by a comparison of the modes. avail- able under the revenue laws with those under the; Civil Procedure Code that the only additional power which the Code of Civil Procedure confers is the power to appoint .a receiver in execution of a decree. The Code of Civil Procedure lays down in Order XXI the procedure to be followed in respect of these modes. Revenue laws Aof the States also lay down the detailed procedure to be allow-
-ed by the Collector for realising arrears of land revenue.
73. The revenue laws relevant are :-- _ [Owing to the distribution of States before and after the S. R. C. Act it has not been possible to attempt a ' lassi- | ﬁcation oﬁ these Acts on the basis of the States a they now exist. Some of these Acts apply in one or more States. The list is also not exhaustive.]
1.'Madras City Land Revenue Act (XII of 1851), read with the Madras City Land Revenue (Amend- ment Act (W of 1863?).
as 01.:-«ago Q
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20. 29 Madras Revenue Recovery Act (II of 1864).
. Bombay City Land Revenue Act (II of 1876). . Bombay Land Revenue Code (V of 1879). . Bengal Land--Revenue Sales Act (XI of 1859) read Witgl the Bengal Land revenue Sales Act (VII of 186 ).
. Bengal Public Demands Recovery Act (III of 1913). . Calcutta Land revenue. Act (XXIII of 1850).
Uttar Pradesh Zamindari Abolition and Land Re- forms Act, 1950 (I of 1951).
Assam Land Revenue Regulation, 1886 (I of 1886).
Bihar and Orissa Public Demands Recovery Act (IV of 1914).
Punjab Land Revenue Act (XVII of 1887).
Madhya Pradesh Land Revenue Code, 1954 (II of 1955). ' Hyderabad_ Land Revenue Act (VIII of 1317 Fasli). Mysore Land Revenue Code, 1888 (IV of 1888).
Madhya Bharat Revenue Administration and Ryotwari Land Revenue and Tenancy Act (66 of 1950).
Rajasthan Public Demands Recovery' Act (V of 1952). -
Rajasthan Land Revenue Act (XV of 1956).
Travancore-Cochin Revenue Recovery Act (VII of 1951). ' Cogrg) Land and Revenue Regulation, 1899 (I of 1 99 .
Vindhya Pradesh Land Revenue and Tenancy Act 1953 (III of 1955).
'74. The following analysis gives a summary of the re- medies available for realisation of arrears of revenue in each of the States :
-I. Madras Acts.
1. Madras Revenue Recovery Act. (II of 1864).
(i) Distress and sale of moveable property.
(ii) Attachment and sale of immoveable property or management of it.
(iii) Arrest and detenticin.
302. Madras City Land Revenue Act (XII of 1851) read with Madras City Land Revenue (Amendment) Act (VI of 1867).
(i) Distress and sale of moveable property.
(ii) Attachment and sale of immoveable property..
II. Bombay Acts.
1. Bombay Land Revenue Code -(V of 1879)
(i) Attachment and management of land.
(ii) Eorfeiture of the occupancy or alienated hold- ing. 1
(iii) Distress and sale of moveable property.
(iv) Sale of immoveable property.
(v) Arrest and imprisonment of the defaulter.
2. Bombay City Land Revenue Act (II of 1876).
(i) Distress and sale of moveable property.
(ii) Attachment and sale of immoveable property.
(iii) Arrest and detention.
III. West Bengal Acts V .
1. Bengal Public Demands Recovery Act (III of 1913)
(i) Attachment 'and sale of moveable property.
(ii) Attachment and sale or sale only of immoveable property.
(iii) Attachment of a decree.
(iv) Arrest and detention.
IV. Bihar Acts.
1. Bihar and Orissa Public. Demands Recovery Act (IV of 1914). '
(i) Attachment and sale of moveable property.
(ii) Attachment and sale or sale alone of immove- able property. ' .
(iii) Arrest and Detention.
V. Orissa Acts.
1. Bihar and Orissa Public Demands Recovery Act (IV of 1914). .
As in Bihar.
2. Madras Revenue Recovery Act (II of 1864). As in Madras 1.
313. Central Provinces and Revenue Act (II of 1917).
(i) Arrest and detention.
(ii) Attachment and sale of moveable property.
' (iii) Attachment of estate, mahal or land and taking it under direct management.
(iv) Transferring the share of land to another- co- Sharer.
(v) Annuling the settlement of the estate, mahal or land. '
(vi) Selling estate, mahal or land.
(vii) Attaching and selling other immoveable pro- perty.
VI. Madhya Pradesh Acts. --
1. Madhya Pradesh Land Revenue Code, 1954 (II 0 1955).
(i) Attach-ment and sa1e_of moveable property.
(ii) Attachment and sale of holding.
(iii) Attachment and sale of other immoveable pro-
perty.
VII. Punjab Acts.
1. Punjab Land Revenue Act "(XVII of 1887). '
(i) Arrest and imprisonment.
(ii) Distress and sale of moveable property.
(iii) Transferring the holding.
(iv) Attachment of the estate or holding.
(v) Annulment of the assessment.
(vi) Sale of the estate or holding.
(vii) Proceeding against other immoveable property.
VIII. Uttar Pradesh Acts.
1. Uttar Pradesh Zamindari Abolition and Land Re- forms Act, 1950 (I of 1951) Sections 58 to 188 (chapters V to VIII) of the United Provinces Land Eevenue Act, 1901 have been repealed by this ct. .
(i) Arrest and detention.
(ii) Attachment and sale of moveable property.
(iii) Attachment 'and sale of the holding.
(iv) Attachment and of other' immoveable pro-. perty- J -1 . .
at 32 IX. Assam Acts. .
1. Assam Land Revenue Regulation (I of 1886).
(i) Sale of moveables.
(ii) Attachment of estate and management thereof.
(iii) Sale of estate.
(iv) Annulment of settlement.
(v) Attachment and sale of other immoveable pro- perty.
X. Mysore Acts.
1. Mysore Land Revenue Code 1888 (IV of 1888). '
(i) Forfeiture of the occupancy or alienated hold- mg.
(ii) Distraint and sale of moveable property.
(iii) Sale of immoveable property.
(iv) Arrest and imprisonment.
(V) Attachment of holding (consistin _of entire vil- lages or shares of villages) , management thereof. ' XI. Madhya Bharat Acts.
1. Madhya Bharat Revenue Administration and. Kyot- wari Land Revenue and Tenancy Act (66 of 1950).
(i) Attachment and sale of moveable property.
(ii) Attachment and sale of immoveable ﬁrogéerty (other than the land in respect of w ic the arrears have accrued). '
(iii) Attachment and sale of the land.
(iv) Taking the land under direct management or letting it in farm. ' XII. Travancore-Cochin Acts.
1. Travancore-Cochin Revenue Recovery)' Act (V11 of 1951). ' ' _ (i) Distraint and sale of moveable property.
(ii) Attachment and saleof immoveable property.
XIII. Rajasthan Acts.
1. Rajasthan Land Revenue Act (15 of 1956).
(i) Attachment and sale of. moveable property.
(ii) Attachment of the land.
(iii) Transfer of such attached land to ya co-sharler.
33(iv) Sale of such attached land. I
(v) Sale of other immoveable property.
2. Ralxjazthan Public Demands Recovery Act (V of 95 ).
The same modes as in the Rajasthan Land Revenue (I Act (15 of 1956).
XIV. Hyderabad Acts.
1. Hyderabad Land Revenue Act 'No. VIII of 1317 F.
(i) Distraint and sale of moveable property.
(ii) Distraint and sale of immoveable property.
(iii) Arrest and imprisonment.
(iv) Forfeiture of the occupancy.
(v) Temporary attachment of village or share of a village.
XV. Vindhya Pradesh. Acts. _
1. Vindhya Pradesh Land Revenue and Tenancy Act, 1953 (III of 1955). '
(i) Attachment and sale of moveable property.
(ii) Attachment and sale of the land in arrears.
(iii) Attachment and sale of other Iand. I
(iv) Attachment and sale of other imrnoveable pro- perty.
XVI. Coorg Acts.
1. Coorg Land and Revenue Regulation, 1899 (I of 1899)..
(i) Arrest and imprisonment.
(ii) Distraint and sale of moveable property.
(iii) Attachment and sale of immoveable property.
75. The following revenue laws do not provide for arrest and detention of the defaulter in civil prison when the amount of revenue due is not paid---
1. Calcutta Land Revenue Act (XXIII of 1850).
2. Madras City Land Revenue Act (XII -of 1851) read with Madras City Land Revenue (Amendment) Act (VI of 1867). \
3. Assam Land Revenue.Regu1ation, 1886 (1 015.1886).
4. Madhya Pradesh Land Revenue Code, 1954 (II of 1955). _
5. Madhya Bharat Revenue Administration and' Ryot- . - _ wari Land Revenue *nd Tengutcy Act (66 of. 1950).
6.
7.
8. Municipal laws.
34Rajasthan Land Revenue Act (15 of 1956).
Tiiagxgzlaricore-Cochin Revenue Recovery Act (VII of Vindhya Pradesh Land Revenue and Tenancy Act, 1953, (III of 1955).
. 76. For the purpose of sub-sections (3) and (4) of sec- tion 46 it 1s also necessary to have an analysis of the laws obtaining in the various States for recovery of arrears of municipal tax or local is also given below :--
pa 'ox-dO3U'|I§
15.
16. rates. An analysis of these Acts Bombay District Municipal Act (III of 1901).
. Bombay Municipal Corporation Act (III of 1888). ' . Bombay Provincial Municipal Corporations Act (LIX of 1949). « . Bombay Municipal Boroughs Act (XVIII of 1925). ' . Madras City Municipal Act (IV of 1919).
. Madras District Municipalities Act (V of 1920).
. Bengal Municipal Act (XV of 1932).
. Calcutta Municipal Act (XXXIII of 1951).
. Punjab Municipal Act (III of 1911). '
10. . Bihar and Orissa Municipal Act (VII of 1922).
12.
13.
14. Orissa Municipal Act (XXIII of 1950).
Assam Municipal Act (I of 1923).
United Provinces Municipalities Act (II of 1916).
Central Provinces and Berar Municipalities Act (II of 1922).
City of Nagpur Corporation Act 1948 (II of 1950). City 0())f Jabbalpore Corporation Act 1948 (III of 195 . .
17. Hyderabad Municipal Corporations Act (XJQKVI of 1950)
18. Hyderabad Municipal and Town Committees Act
19.
20. . Mysore Town Municipalities Act (XXII of 1951).
22.
23.
24. (XXVII of 1951).
Bangalore City Municipal Corporation Act (LXIX of 1949).
Mysore City Municipalities Act (VII of 1933).
Rajasthan Town Municipalities Act (XXIII of 1951). Rewa State Municipalities Act 1946. United Provinces District Boards Act (X of:1922).
i 35
25. Bombay Local Boards,Act (VI of 1923).
26. Madras District Boards Act (XIV of 1920).
27. Rajasthan District Boards Act. (II of 1954).
28.'Mysore Village'Panchayats and District Boards Act (IV of 1952).
' 29. Punjab District Boards Act (Xx of 1883).
~77. The various remedies available under Municipal Remedies Acts' are as follows : f°" '°°°'f°'.'Y of Munici-
)
1.' West Bengal. P31 d'""' ~ 1. The Bengal Municipal Act (xv of 1932).
(i) Distress and sale of moveable property.
(ii) If unsuccessful in collecting the_ amount of arrear by the employment of the ﬁrst mode, recovery may be made by certiﬁcate under the Bengal . Public Demands Recovery Act (III of 1913).
(iii) Instead of or in the case of failure to realise the amount by adopting the ﬁrst two modes, the ar- - rears may be recovered by bringing a suit in a court of competent jurisdiction against the person liable for the arrears.
2. The Calcutta Municipal Act (XXXIII of 1951).
(i) Distress and sale of moveable property.
(ii) If unsuccessful by adopting the first mode, the arrears may be recovered by a certiﬁcate under the B§i)1gal Public Demands Recovery Act (III of 191 .
(iii) Instead of or in the case of failure to realise the amount by adopting the ﬁrst two modes, the ar- rears may be recovered by bringing a suit in a court of competent jurisdiction.
(iv) If any tax (other than the consolidated rate) is due the Commissioner may either prosecute the defaulter or proceed to realise the amount by distraint and sale of the moveables.
' II. Madras.
1. The Madras City Municipal Act (IV of 1919).
(i) Distress and sale of the moveable property.
(ii) If distraint or sufficient' distraint is impracticable the defaulter is prosecuted before a Magistrate.
(iii) If the defaulter has heft India or cannot be found the amount may be; recoveijed as if it were an arrear of land revenue. _ 36
2. The Madras District Municipalities Act (V of 1920).
(i) Distress and sale of moveable' property.
(ii) If distraint or suﬁicient distraint is impracticable Ehe defaulter may be prosecuted before a Magis- rate.
(iii) If the defaulter has left India or cannot be found the amount may be recovered as if it were an arrear of land revenue.
3. The Madras District Boards Act (XIV of 1920). .
(i) Distraint and sale of moveable property.
(ii) If distraint or sufficient distraint is impracticable the defaulter may be prosecuted before a Magis- trate.
III. Bombay.
1. Bombay District Municipal Act (III of 1901).
(i) Distress and sale of moveable property.
(ii) Attachment and sale of immoveableproperty.
(iii) If the above mentioned powers have been sus- pended by the State Government, sums due may be recovered on application to a Magistrate (by distress and sale of moveable property within the limits of the jurisdiction of such Magis- trate).
(iv) If the person liable for payment of any sum (other than octroi or toll) is residing outside the State or has not sufficient property in the State then the amount may be recovere as if it were an arrear of land revenue under the provisions of the Revenue Recovery Act, 1890.
2. The Bombay Municipal Corporation Act (III of 1888). 4 I -
(i) Distress and sale of moveable property.
(ii) Attachment and sales of immoveable property.
(iii) Suit in a court of competent jurisdiction.
03. The Bombay Provincial Municipal Corporations Act (LIX of 1949). \
(i) Distress and sale of moveable property.
(ii) Attachment and sale of immoveable property.
(iii) Attachment of rent. '
(iv) Suit in a dnurt of fompetent jurisdiction.
33?
4. The gombay Municipal Boroughs Act (XVIII of 192 ).
(i) Distress and sale of moveable property.
(ii) Attachment and sale of immbveable property.
(iii) Recovery as arrears of land revenue (if the per- son liable is residing outside the State and has no property in the State).
5. Bombay Local Boards Act (VI of 1923).
(i) Distress and sale of moveable property.
(ii) Ap lication to a Magistrate for recovery (distress an sale of moveable property).
IV. Bihar.
1. The Bihar and Orissa Municipal Act (VII of 1922).
(i) Distress and sale of the moveable property.
(ii) Recovery as a public demand payable to the Chairman under the Bihar and Orissa Public Demands Recovery Act (IV of 1914).
(iii) Suit. ' i V. Orissa.
1. The Orissa (Municipal Act (XXIII of 1950).
(i) Distress and sale of the moveable property.
(ii) As an arrear of land revenue.
(iii) Suit.
VI. Punjab. .
1. The Punjab Municipal Act (III of 1911).
(i) Property tax may be recovered as an arrear of land revenue (without the power of arrest of the defaulter).
(ii) Application to the Magistrate (by distress and sale of moveable property).
2. The Punjab District Boards Act (XX of 1883).
(i) Application to a Magistrate (by distress apd sale of moveable property). ' A
(ii) As arrears of land revenue. » VII. Uttar Pradesh. .--
1. United Provinces Municipalities Act (II of 1916).
(i) Distress and sale of moveable property.
(ii) Bringing a suit in a 'court of competent jurisdic-
tion.
2. United Provinces District Boards Act (X of 1922).
(i) Distress and sale of moveable property.
(ii) Bringing a suit in a Court of a competent juris- diction.
VIII. Assam.
1. Assam Municipal Act (I of 19 )3.
(i) Attachment and sale of movable property. ' S é 38
(ii) liringing a suit in a court of competent jurisdic- 1011. .
IX. M adhya Pradesh.
1. The Central Provinces and Berar Municipalities Act (II of 1922).
(i) R_.ecove_ry_ on application to a Magistrate having ]uI'1Sd1Cl'.10n (by distress and sale of moveable property). -
(ii) Application to the Deputy Commissioner to re- cover arrears (of property tax only) as if they were an arrear of land revenue.
X. Hyderabad.
1. The Hyderabad Municipal Corporations Act (XXXVI of 1950).
(i) Distraint and sale of moveable property.
(ii) Attachment and sale of immoveable property.
(iii) Attachment of rent (for property tax only).
(iv) Suit. ' . 2. Hyderabad Municipal and Town Committees Act (XXVII of 1951).
(i) Distress and sale of moveable property.
XI. Mysore.
1. Mysore Town Municipalities Act (XXII of 1951).
(i) Distress and sale of moveable property.
(ii) Prosecution before a Magistrate.
(iii) Application to a Magistrate (Distress and ' sale I of moveable property).
2. Mysore Village Panchayats and District Boards Act (IV of 1952). '
(i) Distraint and sale of moveable property.
(ii) Suit. ' .
3. Mysore City Municipalities Act (VII .of 1933),
(i) Distress and sale of moveable property.
4. City of Bangalore Municipal Corporation Act (LXIX of 1949). --
(i) Distress and sale of the moveable property.
(ii) Prosecution before a Magistrate.
(iii) Recovery as an arrear of land revenue (if the person liable has left Mysore and cannot be found). ' . -
39XII. Rajasthan.
1. Rajasthan Town Municipalities Act (XXIII of 1951).
(i) Distress and sale of moveable property.
(ii) Application to a Magistrate (distress and sale of moveable property).
2. Rajasthan District Boards Act (II of 1954).' v
(i) Distress and sale of moveable property.
(ii) Bringing a suit.
XIII. Vtndhya Pradesh.
1. Rewa State Municipalities Act, 1946.
(i) Distress and sale of moveable property.
(ii) Bringing a suit.
78. From the foregoing analysis it is clear that the re- medies available in the different States under the revenue laws are not uniform and the procedure also varies in some details.
79. In Purshottam Govindjfs case' the Supreme Court Ne_ed . for.
held that section 46(2) is valid and does not offend articles "_mf°'m"Y'. 21, 22 and 14 cf the Constitution. Chandrasekhara Iyer J ., though he agreed with the majority view, observed that "for the enforcement of the levy of a Central Tax like the income--tax there should be uniformity of procedure and identity of consequences from non-payment". The learned Chief Justice in his judgment compared the Provisions of different laws adopted by the different States for the reco- very of land revenue and observed that even in "the same State there were two procedures to which defaulting assessees could be subjected according as they were in or outside the city of Bombay". The learned Chief Justice also pointed out the variation in the terms of imprisonment provided in the State Acts and that in some State (e.g. Assam) there was no provision for imprisonment. Though section -46(2) was upheld as valid, a perusal of the judg- ment convinces one that uniformity is desirable and that the observations of Chandrasekhara Iyer J. are justiﬁed.
80. We have therefore thought it incumbent upon us to Action - codify the law in this respect and include it in a separatepoﬂd R¢V°'; Schedule. The judgment ()f the Supreme Court also gives ""°1""'.')' an authoritative interpretation of the proviso to section 46(2). The meaning of the proviso maybe stated, in the words of the Supreme Court, as fo11ows:-- -
"On a_ proper reading, that sub-section does not pres- cribe two alternative modes of procedure at all. All that the sub-section directs the Collector to do is to proceed to recover the amount as if it were an arrear of land revenue, that is to say, he is to adopt the procedure prescribed by the appropriate law of his State for the recovery of land revenue, ' (1955) 28 I. T. R. 891.
40and that in this proceeding he is, under the pro- viso, to have all the powers a Civil Court has under the Code. The sub-section,does not prescribe two separate procedures. The statement to the con- trary in the judgment of the Bombay High Court in Sat Ali Ahmed v. Collector of Bombay', does not appear to us to be correct. In 'our opinion, the pro- viso does not indicate a different and alternative mode of recovery of the certiﬁed amount of the tax but only confers additional powers on the Col- lector for the better and more effective application of the only mode of recovery authorised by the body of sub-section (2) of section 46".
81. A power is distinct from the procedure for the exer- cise of the power. The procedure laid down by the Code for the exercise of the powers enumerated in section 51 is contained in Order 21 of the Code. The revenue laws of each state lay down the powers as well as the procedure. As held by the Supreme Court, the Proviso confers only additional powers on the Collector for the better
-and more effective application of the only mode of Action Pro-
posed (Muni-
.<:ipal laws).
recovery authorised by the body of sub-section (2) of sec- tion 46. The only additional power contained in section 51, C.P.C. is the power to appoint a receiver in execu- tion of a decree. In some of the Revenue Acts, the Collector possesses the power to attach an estate or a village or a part of it and mana e such attached property through his agent. Section 51 o the Civil Procedure Code is not res- tricted in its scope and a receiver may be appointed in any case even without attachment of the property. This addi- tional power is also now included by us in the proposed draft.
82. The process enforceable for the recovery of an arrear of municipal tax and'local rate, referred to in sub- sections (3) and (4)_of section 46, has nothing to 'db with the Collector. Distraint and sale of moveable property (and in some states attachment and sale of immovea e pro- perty also) or prosecution before a magistrate treat'. .the default in payment of the tax or the rate as an ence and imposing a ﬁne and recovery of the arrear and t e ﬁne under the provisions of the Criminal Procedure C e (S.
386) or recovery of the arrear as if it were a ﬁne i posed by a criminal court, are the modes laid down. The Acts which contain provisions for prosecution before a imagis- trate or recovery of the arrears by application to the Magis- trate for distraint and sale of moveable property are de- tailed below :-- -
1. Rajasthan Town Municipalities Act (XXTII of 1951) S. 97 (Only if there is suspension of the other powers by the Government). ' 1 I. L. R. 1950 Born. 350,155.
3.41
2. Calcutta Municipal Act (33 of 1951).
3. Punjab Municipal Act (III of 1911), (S. 81 applica- tion to Magistrate).
4. Madras City Municipal Act (IV of 1919) Rules 21(2) and 29--B of Schedule IV to the -Act.
5. Madras District Municipalities Act (V of 1920), Rules 21(2) and 36 of Schedule IV.
6. City of Bangalore Municipal Corporation Act (LXIX of 1949) [Rules 30(2) and 39 of Schedule III].
'.7. Mysore Town Municipalities Act (XXII of 1951) Section 96.
8. Bombay'District Municipal Act_ (III of 1901) S. 88 (Only if there is suspension of the.other powers of recovery by the Government).
9. Bombay I...oca1 Boards Act (VI of 1923) S. 115 (Only if the other powers of recovery are suspended by the State Government).
10. Madras District Boards Act (XIV of 1920), Rules 33(2) and 39 of Schedule IV.
11. Punjab District Boards Act (XX of 1883) S. 58-B [Only in the case of other sums (other than local rates and taxes) due].
12. Central Provinces and Berar Municipalities Act (II of 1922). Section 77.
83. All the processes are enforceable by the Income- tax Ofﬁcer if the requirements of sub-sections (3) and (4)
-of section 46 are satisﬁed.
84. In the draft we have restricted the power of the Income--tax Officer to the mode of recovery by distraintyand sale of moveable property. Even this power is, we are told, seldom invoked except in a few places. We have omitted the power to approach the magistrate either to recover the arrears as a fine or to prosecute the defaulter, as such a power is never in practice exercised. The procedure is cir-
-cumlocutory and is not suited to modern conditions of .society. The existing power of the Income-tax Officer to make a gamishee order is retained.
85. It may be of interest in this connection to mention 3' edge. in that in other countries the remedies for/recovery of In. at «Coun- come-tax are very simple as could be seerf from the follow- "1"-
ing analysis :---
United Kingdom--U. K. Income-tax Act 1952.
(a) Distraint by Collector is. 76).
(b) Recovery of small amounts of tax in court of Sum- 'r7iéz)1ry Jurisdiction as if it were' a civil debt (Sec.
Chapter XIX Tax deemed to have been . di ._ paxdon 9
(c) Suit in the High Court (Sec. 79). United States.
(Internal Revenue Code 1954) Chapter 64--Collection Sec. 6331--Levy and distraint and sale of property whether real, or personal; tangible or in- tangible.
Commonwealth of Australia.
Income-tax and Social Services Contribution Assessment Act 1936-53
(a) Section S. 209--Suit. _
(b) Gamishee Order by the Commissioner----S. 218. Canada. A ' Income-(tax Act 1948 (Secs. 118 to 121)
(a) Certiﬁcate by the Minister is registered in the Ex- -
chequer Court and such registration has the force
- of decree and is executable by the Court (S. 119).
(b) Garnishment (Sec. 120).
(c) Seizure of Chattels (Sec. 121). South Africa. ' V The Income-tax Act 1941 (Sec. 85)
(a) Statement by the Commissioner of the tax duly ﬁled with a clerk or registrar of a court is treated as a judgment and enforced by the Court as such. _
(b) Proceedings by the Commissioner for the seques. tration of the estate of the tax-payer.
(c) Enforcement by a Magistrate.
Ceylon.
' The Income-tax Ordinance Sec. 79
(a) Commissioner issues a certiﬁcate and is enforced by seizure and sale of moveable property. A
(b) Certiﬁcate' to the District Court who would en. force it by way of execution against the moveable and immoveable property of the defaulter.
(c) Proceedings for recovery before a magistrate.
(d) Gamishee Order.
86. A portion of the tax paid by the company is deem. ed to have been paid by the shareholder under sections 18(5) and 49B. The tax paid by the company in res ect of dividends is thus given a ,sp"e¢ia1 treatment in the 4 ct in J i 43 the assessment of the shareholder. We felt that it Would be useful and convenient to bring together the various pro- visions of the Act pertaining to such treatment. The pro- visions of the Act pertaining to the tax deemed to have been paid in dividends have, therefore, been gathered to- gether in this chapter.
87. The funds, have To avoid delay in refunds. We have inserted a provi- sion' [on the analogy of section 57(3) of the Canadian Act] that where the refund order is made more than three months after the application for refund, the Central Gov- ernment shall pay interest at the. rate of 2%. A similar recommendation was made by the Income-tax Investiga- tion Commission". We have also made it clear' that where refund is due as a result of an appellate order or as a result of decision by the High Court, no separate applica- tion is necessary. .
provisions of thepresent Act pertaining to re- been grouped together in this Chapter.
88. All the provisions pertaining to appeals have been brought together in this Chapter.
89. On principle, it may appear objectionable that an agency which is under the direct control of the Central Board of Revenue should be vested with jurisdiction to hear appeals from the orders of the Income-tax Oﬁicer. Justice should not only be done, but should appear to be done and should inspire conﬁdence in the persons concem- ed. - It is an elementary principle of the law that a person should not be a judge in his own cause. The Appellate Assistant Commissioner, being under the direct control of the Central Board of Revenue, a satisfactory authority to hear and dispose of appeals against the orders of the Income-tax Oﬁicer. One sugges- tion that was made long ago was that the Appellate Assis- tant Commissioner should be placed under the control of the Income-tax Appellate Tribunal, so as to make him in-
dependent of the authority and inﬂuence of the Central Board of Revenue. This question was examined by the Income-tax Investigation Commission, and that Commis- sion observed' that there Was no reason to think that by reason of' the subordination of the Appellate Assistant Commissioners to the Central Board of Revenue, they were inﬂuenced by the Central Board of Revenue in their deci- sions or that they were in any manner partial in the dis- charge of their duties, or that their judgments were affected by any considerations irrelevant to the decisions of the appeal. No doubt, in spite of this conclusion the Commission did make a recommendation that there should 'Vida clause 2 52, App. 1.
"Para. 279, pages 125, 126, I. T. I. C. Report, 'Vida clause 250, App. 1. . ,, , 'P31'38T8Ph 319, Pages_142, 14.3, I. T. II. C..Rcpc§-t; 194.8.
4-----I Law Com. /58 1 948.
Chapter XX Refunds.
Chapter XXI Appeals and Revisions.
Desi:-ability of . appeals being heard by Appellate Assistant Commission-
611..
may not be considered as-
44be an alteration in the then existing system and that Ap- pellate Assistant Commissioners should be removed from the control of the Central Board of Revenue and placed under the Appellate Tribunal. But this recommendation was not accepted by the Select Committee constituted in connection with the Income-tax Amendment Bill of 1952, which examined the question in the light of the recom- mendations made by the Income-tax Investigation Commis- sion. The Select Committee was not in favour of any change in the existing system. The Taxation Enquiry Commission' again examined the question in greater de.tail and also came to the conclusion that no change was neces- sary. In support of their conclusion, the Taxation Enquiry Commission gave figures to Show that in nearly 90%: of the appeals disposed of by the Appellate Assistant Commis- sioners the orders of the Appellate Assistant Commi sioner were either accepted by the assessee or conﬁrmed y the Tribunal. We have examined the further ﬁgures r the years 1953-54, 1954-55 and 1955-1956 furnished to us y the Central Board of Revenue and they establish that 2% of the orders of the Appellate Assistant Commissioner have either been accepted by the assessee or conﬁrmed yr the Tribunal. From this it follows that only about 8% 'of the appeals disposed of by the Appellate Assistant C' mis- sioners are reversed on appeal to the Appellate Tr' unal. The value of the ﬁltration made by the Appellate As istant Commissioners cannot be ignored, and if the decisi ns in 92% of the appeals disposed? of by them are accep d by the assessee or conﬁrmed by the Appellate Tribunal, at fol- lows that the disposals are not affected or vitiated any extraneous inﬂuence and give satisfaction to the asggssees concerned. Though we feel the force of the principl that appeals should be disposed qf by an independent a . ncy other than the one which is subordinate to the C ntral Board of Revenue, the ﬁgures 'furnished to us do n jus- tify any alteration in the existing system. We the efore agree with the conclusion of the Taxationx Enquiry Com- mission that a change in this behalf is neither nec ssary nor justiﬁed. We consider therefore that the Ap llate Assistant Commissioners should continue to functi n as _ at present. 9 f APDelIate 90. The position, however, of the appeals to the» Ap-
T"b""3'- pellate Tribunal and the disposals made by them is entirely different. We feel that the egxistin system of appe Is to the Appellate Tribunal and tgiereater a reference t the High Court on a question of raw either under section 6(1) or under section 66(2), is very; cumbersome and cause un- necessary delay in disposing of the appeals so as to ﬁ alise the assessments. We have obtained State-wise ﬁgurejs re- garding the institution of the appeals before the Appellate Tribunal and of the Reference Applications under s tion 66(1) and section 66(2) for the years 1955-56 and 19 -57.
6 6161'. E. C.Report(1953-19154.). Vol.5 ll, pages 232 to 234., Palvhfkaihs 2_ _ .
45 .
During the year 1955-56 the total number of appeals insti- tuted in the Appellate Tribunal was 8,553.

Uns 66 pp t U/S 66 (2) 1n respect I (I) - .
- of ref. apphcatxons u no ' Eu --'-2-' _5 E No. d1s'.'posed Ea 1; E 'gin .. H g ° '13 ..4Q_-: :1:
"' g 1: §"5 8 2 States go 5 in Total 5 M 9.' 3 3 §_--,_*;:' 45.3 1: :1 3 as w s C.' "" '" 1 o no 2% .§ 2 «E2, :2 go as 73 E 3 be 'J: .. -c -u 33 ° '*4: 8 'EE 5''' : as 0 o n... no ,6!  31 . 5o 58 3 7 Vindhya Ptadesh . . 4 4 1 , , , _ Madras 71 286 214, 5 66. 108 9;
Travancore-Cochin 2 23 5 5 9 1 ;
Mysore 3 59 57 . . 3 . .
Coorg 2 2 . .
West Bengal x 1 85 76 18 [2 Assam . . 20 19 . . 1 Delhi 4. 58 48 2 4. 6 Punjab I 2 55 36 . .
Rajasthan . 2 7 6 2 Madaya Bharat . . . 4. 4, Pcpsu . . 4. 4- .. . .

Ajmer 2 5 6 . . . . .
Bihar 5 44 49 13 17 I9 Orissa . 13 30 39 2 2 3 Jammu &. Kashmir 3 . .
TOTAL 347 i080 3x3 623 936 134 ' 232 218 1V0-rE.---Figures in Orders u/s 66 ( columns 7, 8 and 9 include cases in which High Courts, cases u/s 66 (3) and 66 (4.) is quite small.
[In cases in which the refe rejected by the Ap matter came up to the number of such was 232].
3) and 66 (4) were received. However, the number of rence applications were pellate Tribunal under section 66(1), the the High Court under section 66( ) and applications during the year 19 5 1956
91. A statement of the appeals instituted during the ear 1956-57 is given below (State-wise ﬁgures are not available) 2-
1956-57 ° Appeals' instituted inthe year 1956-57 APPCRI by Appeal by asscssee depgnmgm Bombay Bench A . . 2,636 ,38o Bench B . . . . - ' . , Bench C - - . .
Allahabad Bench I , I93 55 Madras Bench 1,823 75 Calcutta Bench I:185 I43 ' Delhi-Bench 908 9:
Patna Bench 529 3 Hyderabad Bench 419 ' 52 TOTAL 3,594 " 799 V TOTAL £493 .
47These ﬁgures comprise appeals by the assessees and 3180 by the Department. The appeals instituted by the assessee-S were 8,694 and by the Department 799, in all 9,493.
The number of Reference applications under section 66(1) ﬁled during the year (1956-1957) was 1,014, ~35 P91' statement below :--
State-wise statement showing institution, disposal and Pen' dency of Reference Applications_befare the<PHONE_NUMBER>133 Appellate Tribunal Bombay, during the year 1956-57-
Reference application u/s 6(1) High Court's orders u/s 66(2) in rcs_pcc_t of reference applications 31.5 No.d.1fsposed b€°§.Lb'ED._8£ 2: a 2 3B%§:e 52¢ States 'E E g Toml '<=>_g ,_, 'g-S 3, 8-?' .€._.~_'5».
Saurashtra 5 2 4. 1 .
Uttar Pradesh 23 8 66 1 2 Vindhya Pradcsh -- ---- 4 . . I .

West Bengal 20 162 160 6 18 22 Assam 1 1 1 12 I 1 1 Tripura -- --- . . . .
Delhi 4 31 28 . . . .
Punjab 7,1 42 40 . . .
Jammu & Kashmir 3 2 3 . . . .

Himachal Pradesh ---- 1 1 . . . .
Ajmcr 1 16 3 3 3 Bihar --- 57 48 1 1 7 18 Orissa 4 9 9 6 6 TorrAL 491 1014 360 625 985 148 205 282 Non-z.--Figures in columns 7, 8 & 9 elude Orders u/s 66(3) & 66(4) Were received. ever, 66 (3) and 66 (4,) is quite small.
. 'sin which High Courts €111: number of cases u/s 48 [Out of the applications rejected by the Tribunal, 205.
cases were taken up to the High Court under section 66(2)].
92. The average, _therefore, of the appeals instituted before the Tribunal may be taken up roughl at 10,000 per year. The largest number of appeals is rom Bombay. Madras, Uttar Pradesh and Bengal also contribute a large number of appeals. In other States, except in Bihar where the number is nearly 600 per year, the number of appeals instituted is comparatively small.
93. The Tribunal is constituted the ﬁnal fact--ﬁnding authority for four taxes,--income-tax, wealth-tax, expendi- ture-tax and gift-tax, and it is also proposed to make it the ﬁnal fact-ﬁnding authority under the Estate Dut Act. We are constrained to observe that men of the re§uisite calibre and independence are not being recruitedf r dis- charging so heavy a responsibility as that of the ﬁnal fact- ﬁding authority under the new pattern of taxation. ;There are many complaints that the disposal of appealsby the Appellate Tribunal is very unsatisfactory for a variety of reasons. Often, the judicial and independent app roach which is necessary in the ﬁnal fact-ﬁnding authority, is not displayed by the Tribunal. In several cases the determina- tion of complicated questions of fact and law is done! in a very perfunctory manner. Very often, the Tribunal does not clearly record its ﬁndings of fact or its reasons for arriv-
ing at its ﬁndings. In a number of cases, factual or legal"
contentions raised by the parties are not dealt with 'at all, resulting in applications for rectiﬁcation being mad sub- sequently to the Tribunal for considering the points 0 itted to be dealt with in the original order of the Tri unal.
While dealing with the references under section 66( ) and.
section 66(2), High Courts had occasion to comment'; upon the unsatisfactory nature of the orders passed by the ppel- late Tribunal and also on the unsatisfactory stateme ts of case drawn up by them in the references under sect' n 66. The High Courts had to remit the cases to the" Ap Tribunal for a further. and better statement of the cas with fuller particulars. To give satisfaction to the large n mber of assessees, a decision of an independent and good ap llate authority is an undoubted necessity, if justice is to b done to them. There is considerable delay" in disposing f the appeals 'and very often it is said that they, the Trib nals, spare very little time for the appellate work with hich alone they are concerned. Very often the Members f the Tribunals attend the sittings at any time they choose, here- by not conforming to regular office hours, for the di posal of the work. A Bench of two members of the Tri, unal hears the appeals, but in practice the contribution to the decision of the case by one of the members is often not appreciable. i I 1 'Sec extracts given in 4:: next
94. The following extracts from the decisions of courts Fixtftclsﬁom will show how unsatisfactorily the Appdlate Tribunals have -'"dg"'°'""
been functioning :--
Hanumantram Ramnath vs. C.I.T., i*Bombiay'.
"This reference must go back to the Appellate Tribunal for the ﬁnding of further facts. As this is the second refer- ence we have been constrained to send back out of the last ten which have come before us. and as in these cases not only is public time and money wasted, but there is also obviously a hardship cast upon the assessee, it is in my opinion necessary that certain matters should be stated for the guidance of the Appellate Tribunal in preparing fur- ther cases ............................... .."
Hira Mills Ltd. Cawnpore vs. I. T. 0., Cawnpore'.
"Those, as we understand them, are the facts to be gathered from the statement of the case and the accompany- ing judgments and orders. Perhaps we may properly ob- serve that it would be a practice more in conformity with section 66(1) of the Act and with general convenience, if the statement of the case itself had contained all the rele- vant facts, rather than that they should have had to be sought for in the judgments".
Badar Shoe Stores, In re.' "We deprecate the practice, which is becoming too common, of omitting a sufficient statement of facts from the statement of the case and of referring this Court to a miscellany of other documents for the collection of the full facts necessary for determination of the question of law submitted, and we shall take the op Vrtunity of referring to the unfortunate consequences -of th s practice at a later stage .......... .." ' P. M. Huthee Singh & Sons Ltd. vs. C.I.T.' "I must point out here that both in the statement of case and in the judgment there are certain inaccuracies. When a fact-ﬁnding authority is in the position of the Tribunal (whose ﬁndings of fact are considered conclusive), it is always very desirable forthem to. be accurate in their statement of facts. I would like to jdfm', _the learned Chief Justice in emphasizing the duty castiiipon the Ap ellate Tribunal with regard to ﬁndings of ficts. Under t e Act it is the ﬁnal fact-ﬁnding authority and I think it is the duty of the Tribunal when they submit a statement of case to the High Court to state the facts clearly, carefully '(ig45) 13 I. T. R. 203 at 206.
K1946) 14 I. T. R. 417 at 427.
'(x94.6) I4. I.T.R. 431 at 4.33.
*(i946) 14. I.T.R. 653 at 659.
50and precisely. After all the High Court only exercises an advisory jurisdiction. Its jurisdiction is to advise the Tri- bunal on questions of law submitted to it and that advisory jurisdiction cannot be exercised usefully unless the fact- ﬁnding authority submits the facts carefully, clearly and accurately. I am sorry to say that in the reference with which we are dealing both in the statement of case and in the judgment there are several inaccuracies which in some cases are patent. A little more care would have been sufﬁcient to make the Tribunal realise that the state- ment of facts prepared by them was not as correct and as satisfactory as it should have been. I hope that in future the Tribunal will bear this in mind when preparing the statement of case".
Messrs. Gobindaram Bros. Ltd. vs. C.I.T.' "The supplemental case returned to us by the Tribunal, and which is now before us is highly unsatisfactory. The Tribunal appears to be ,far more concerned with excusing the statements of factlin the ﬁrst case, which are unques- tionably contradictory, than with complying with the direc- tioni of this Court given under Section 66(4) of the Income- tax ct. -
"The matter was referred back to the Tribunal to record its ﬁndingof fact more clearly, and implicit in that direction is the takingof further evidence, if there is no otherway of determining facts in order that the Tribunal may make its ﬁnding clear. For the Tribunal to say that because a fact was not before it when they disposed of the asses_see's appeal "We are unable to include it in the case at this stage of the proceedings", is a most surprising statement and is one which indicates that the Tribunal does not appre- ciate the duties cast upon it when this Court refers a matter back under section 66(4). The reference back to the Tribu- nal was to record its ﬁnding more clearly and after a lapse of one year and ten months the matter now comes back with nothing new except the affidavit of Mr. Pralhadrai Brijlal, which is annexed to the supplemental case".
Bikaner Trading Company, Calcutta vs. C.I.T.' "We have so far endured with patience the type of statements of cases which have been submitted to 'this Court in connection with the references that have come up this session, but we think that the limit has been passed and we ought to make some observations.' One common feature -of these statements of cases is that the appeal was' heard by two members, whereas the statement of the case in almost every case was drawn up by different members. In drawing up the statement, they do not seem to have 10946) :4. I.T.R. 764, at 770.
'(1953) 24 I.T.R. 410 at 422.
51' always considered it necessary to refer to the appellate order, nor necessary to be exact in the statements they made, n9r necessary to make a full statement of the rele- vant facts.'. Most of the statements of cases are sketchy in the extreme and, were one to rely upon them alone, it would be impossible to answer any question at all. It has been 'a frequent experience this session to ﬁnd two members of a Tribunal deciding a particular case in a particular manner and one of those members, acting with a third member, stating a case for this Court which differed materially from the case made and found at the hearing of the appeal. We shall not say, out of respect for the Tribunal, that_ the members have acted in a careless manner, but we feel bound to say that the manner in which they have dischar- ged their duty of drawing up statements of cases for this Court can only be called carefree".
Calcutta Co. Ltd _vs. C.I.T.'.
"Unfortunately, the treatment of the question by the authorities below has been of a somewhat summary charac- ter presumably because it was raised and argued before them in a superﬁcial form. But even if such was the case, there is hardly any justiﬁcation for the Tribunal failing to realise at least what facts were required to be found and stated. The statement of the case is sketchy and bare and like most of the statements we have had to deal with dur- ing this session has hardly any appearance of a case seri- ously stated".
C.I.T. West Bengal vs. Hanwman Prasad Bagria'.
"In our opinion, the statement in the case referred are clearly insufiicient to enable us' to determine the question raised. The appellate order passed in the case is a striking example of what appellate orders should not be and the- statement of the case itself is an example of the con- sequences that must sometimes follow when the appeal is heard by two particular members of the Tribunal and the reference is made by two other members".
"This ﬁnding of the Income-tax Oﬂicer and the Appel- late Assistant Commissioner was reversed by the Appel- late Tribunal by an order which reads like an order pas- sed by Honorary Magistrates at summary trials".
(Italics are ours).
Dhirajilal Giridharilal vs. C.I.T., Bombay', "It is apparent from the following quotation from the judgment of the Tribunal that not only was its approach to the question raised before it tainted with suspicion, but it took into consideration a number of circumstances based purely on conjectures and surmises and for which there was not a scintilla of evidence on the record".
30953) 24 1»-T-R- 454 at 459-
'(I953) 24 I-T~R- 495 at 497, 493;
1(x_o54.) 26 I. T. R. 7:16 at 739 (S. ¢.).
i 52 Shantikumar Namtham Morarji vs. C.I.T.' "There is a ﬁnding given by the Accountant Member in the following words : "We understand that -no part of the borrowings were-utilised in the agency ﬁrm business and therefore the interest paid was not incurred for the purposes of the business". Mr. Palkhivala has rightly quarelled with the nature of this ﬁnding. With res ct to the learned Accountant Member. it is difﬁcult to nder- stand how a judicial tribunal' can record a ﬁnding the language in which this so-called ﬁnding has been rec rded. The duty of a fact-ﬁnding tribunal is to ﬁnd facts, and not to understand that certain faqts may exist or may have been established". ' Indian Steel and Wire Product Ltd. vs. C.I.T."
"Before parting with this case, I ﬁnd necess ry, to repeat once again what I had occasion to say duri g the last sittings of this Bench ..... .. ............ ..If this Court dannot depend on the Tribunal even for the accuracy of the sum- mary of the orders passed by itself, it becomes difﬁcult to deal with these references, particularly as this Court is bound by the statements contained in the stateme t of the case and should not be put to the necessity of ver fying and if necessary correcting the summaries given of the vari- ous orders. What makes the inaccuracy strange inf. the present case is that one of the members who was r'spon- sible for the statement of the case was himself a m mber of the Bench which had passed the appellate order ;relat- ing to the ﬁrst of the two chargeable accomting periods".
The Bhopal Trading Co., Kanpur vs. C.I.T.' "We are not undertaking the responsibility of fr" ming the questions ourselves as the statement of the case also the appellate orders are. as 75 too frequently the case, wholly unsatisfactory". -- _! C.l.T. vs. Malchand Surana'.
"I confess I do not feel altogether happy the wlay in which the facts have been found in this case or the:man- ner in which the case has been stated".
"Before I take up the question on the merits, I ould say a word in passing as r' ards the appellate or er of the Tribunal. The Whole of it appears to be based upon a misconception of both fact (land, law .......... .."
i "It is perfectly clear that the Tribunal failed to Eapply themselves to the real question before them and " deed their order, one regrets to ﬁnd, does not indicate tha they had any appreciation of what' the real question was..', .... .. ' 1(1g55) 27 I. T. R. 69, at 80 (Bombay H. C.). '(1955) 27 I. T. R. 43(j*at p. 445 14.46 (Calcutta H. C.).
'(1955) 28 I. T. R. 4.7 q , at p. 4.8. ( lahabad H. C.). r 95 (Calcutta H. C.).
5395. The present procedure leads to delay also. If the Tribunal refuses to make a reference to the High Court where it should have done so, the asesisee or the depart- ment have had to go to the High Count under section 66(2) and this has led to considerable delay in giving a ﬁnality to the assessment. The extracts given above would also show that the statements of cases submitted by the Tribu- nals to the High Court are scrappy, with the result that the High Court has had to ask for a supplementary state-
ment in several cases.
96. For these reasons we are strongly of the opinion Ab§liti°n 01' A that the Appellate Tribunal should be abolished and that a 'h°*'APP°"""° direct appeal should be provided both on questions of fact :;:E$'alpr°' as well as of law to the High Court fmm the orders of the Appellate Assistant Commissioner. The assessee should have the satisfaction that the facts of the case and the law applicable to it have been examined b a competent autho- rity. It would also save the time ol, the High Court, as it would avoid the necessity -for a reference to the High Court on a question of law either under section 66(1) or under section 66(2). We have therefore, provided' an ap- peal to the High Court from the decisions of the Appellate Assistant Commissioner. Where the amount in dispute is Rs. 7,500 or more, the appeal" will be on fact as well as 0? law. In other cases the appeal will be only on questions 0 law. « It is stated that the disposal by the High Courts may cause delay, particularly as the rules of the High Courts require printing in ﬁrst appeagls. To obviate this difficulty, we suggest that by a rule made by the appropriate autho- rity the printing of records inésuch cases may be dispensed with, and the Department and the assessee may be allowed to furnish typed copies of papers on which they intend to rely at the time of the hearing of the appeal before the High Court.