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Report No. 49

7. Distinction between taxable income and rate of tax.-

We must, first, refer to the abstract proposition that there is a distinction between income (or, for that matter, any other subject matter), on which tax is levied (on the one hand), and the rate of tax (on the other hand). In legislative practice in the field of income-tax, the distinction is well known. For example, the tax is on the total income1 of the assessee, but the assessee is entitled to a deduction from tax in respect of interest on certain securities declared income-tax free.2 Such interest is included in the total income of the assessee. But the assessee is entitled to a "deduction from the amount of income-tax with which he is chargeable on his total income, of an amount equal to the income-tax calculated on the amount so included, at the average rate of income-tax or at the rate of twenty-seven and a half per cent. whichever is less".

The expression "average rate of income-tax" is defined3 as meaning the rate arrived at by dividing the amount of income-tax calculated on the total income by such total income. True, the income for which the above provision is made, is undoubtedly within the taxing power of the Union, and there is no doubt that the Union can tax it fully, if it so chooses. But we are citing this example only to illustrate the abstract proposition mentioned at the opening of this paragraph.

1. Section 4, Income-tax Act, 1961.

2. Section 86A, ibid.

3. Section 2(11), ibid.

The Proposal for inclusion of Agricultural Income in the Total Income for the purpose of determining the Rat of Tax under the Income-Tax Act, 1961 Back

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