General

E-Capital gains.-Existing section 12B has been split up into several sections in the draft, in order to facilitate its understanding. The charging provision comes first, followed by the year of charge and mode of computation of the gains. Detailed provisions for fixing the cost of the assets follow next, and provisions, in the nature of exemption come at the end.

Draft clause 45.-The changes made are verbal only. The existing words "the tax shall be payable" have been replaced by the words "shall of chargeable to income-tax" as in other sections. The words "save as otherwise provided" have been added merely as a drafting improvement.

The existing reference to the date 31st March, 1956 has been omitted as obsolete.

But it has been made clear that the transaction must have been effected "in the previous year". Though this might amount to a repetition of a provision already contained in the Act, namely, that income chargeable as capital gains is deemed to be the income of the previous year in which the transaction took place,1 still such clarification appears to be useful in the main section also.

1. See existing section 12B(1) main para, latter half.

Notes to clause 46

This clause fixes the previous year to which the income should be related.

Notes to clause 47

Existing section 12B(1), 1st proviso, and earlier part of the 2nd proviso, have been combined together. The latter part of the 2nd proviso really appertains to the definitions of "actual cost" and "written down value" and is placed there.

Sub-clause (i)- needs no comments.

Sub-clause (ii)- The existing provision reads "any distribution under a deed of gift". The term "distribution" may not, it is apprehended, cover a gift to a single donee.

It has, therefore, been replaced by "transfer". The words "deed of" have been omitted, so as to include oral gifts.

Sub-clause (iii)- The existing provision requires that the subsidiary company should be "registered under the Indian Companies Act, 1956". (Before its amendment in 1956, the wording was "registered under the Indian Companies Act, 1913".) Obviously, however, the intention is that the subsidiary company should be an "Indian company". The wording has been changed accordingly. (It may be noted, that the existing wording would, if construed strictly, exclude companies registered under a pre-1956 law, and this narrows down the scope. On the other hand, it would slightly widen the scope by being silent about the registered office being in India-a requirement mentioned expressly in the definition of "Indian company".)

Notes to clause 48

Sub-clause (1)- Item W-The words "wholly and exclusively" have been substituted for the existing word "solely". This will secure uniformity in language with analogous provisions, e.g., existing section 10(2)(xv).

Item (ii)- Existing section 12B(2)(ii) speaks of "the actual cost to the assessee of the capital asset" (with certain inclusions and exclusions) being deducted from the consideration. But there are cases where "actual costs" is replaced by written down value, e.g., see existing section 12B(1), 2nd proviso. In some cases, it is replaced by the fair market value, see section 12B(2), 3rd proviso. Further, the amounts to be added to the actual cost (as representing improvements) vary in various cases, according to the date of acquisition of the asset etc. In order to cover all these cases, it seems desirable to use some convenient expression to denote the deductible cost. The expression "statutory cost" has been used for the purpose. The manner of arriving at the statutory cost is dealt with separately for the sake of simplicity.

As to the amounts spent on improvements (additions and alterations), they have not been mentioned in the draft in the present clause, but have been dealt with elaborately in the draft clauses to follow,1 explaining in detail what is "statutory cost" in various situations. The reason is, that the date after which the improvements should have been made will vary in various situations. To take an example, where the fair market value of the asset on 1st January, 1954, is substituted under existing section 12B(2), 3rd proviso, it is only improvements made after 1st January, 1954 that can be taken into account, and it would not suffice to say that improvements made after acquisition by the assessee will be added to the actual cost.

1. Vide draft clause 50-51.

Notes to clause 49

This clause enumerates the various modes by which a person might have acquired a capital asset which he subsequently transfers for consideration. The various modes enumerated in this section are contained in section 12B itself and are grouped in the clause for the purpose of clarity.

In the following clauses1 the method of calculating the statutory cost of the capital asset is laid down.

Assets for which depreciation allowance is admissible have been dealt with separately. The rules for depreciable and non-depreciable assets differ; e.g., (i) in the case of depreciable assets, the written down value is taken as the actual cost in ordinary cases; (ii) even where the assets are acquired before 1-1-1954 and the market value on that date is substituted, subsequent depreciation has to be adjusted in the case of such assets.

Item (iv)(d) of the draft clause uses the words "revocable or irrevocable trust", since there is no reason for differentiating between the two.

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