Report No. 12

Chapter VII

Income on which no Income-Tax is Payable

Notes to clause 81

General

1. It should be remembered that exemption from tax is totally different from exclusion from total income dealt with in Chapter III. In the latter case the income excluded does not form part of the total income, while in the former case it forms part of the total income but no tax is payable thereon though for other purposes such as rate, etc., it continues to be part of the total income.

2. Exemptions from income-tax strictly so called can be classified as follows:-

(i) Exemption enjoyed by an income which, though it forms part of the total income, is not subject to tax. (Such income would count for determining the rate; but once the rate is determined, the income is not itself taken into account in calculating the quantum of tax).

(ii) Sums on which rebate of tax is allowed at the average rate of tax.

3. The existing Act does make a distinction between categories (i) and (ii) above. But the distinction is obviously necessary. The draft, therefore, deals with the two categories in separate chapters.

4. In the draft, exemptions which are really in the nature of rebates in respect of expenditure have been placed under category (ii).

5. The case of earned income relief presents some special features and has been discussed in the notes to the clause relating thereto.

6. Exemptions in respect of super-tax have for the sake of clarity, been dealt with separately in Chapter XI on super-tax.

Clause 81. Existing section 15A, earlier part, has been embodied in this clause, with minor verbal changes.

The latter part of the section has of course been omitted, as it becomes obsolete in view of the recent legislative practice not to provide for earned income relief.

The earlier part has however been retained here, leaving it to the Government to omit it if it is decided permanently to abolish earned income relief.

Notes to clause 82

The clause does not need any comments.

The exemption from super-tax has been dealt with in the Chapter on super-tax.

Notes to clause 83

The clause does not need any comments.

The exemption from super-tax has been dealt with in the Chapter on super-tax.

The question of providing for grossing up of dividends of co-operative societies [on the lines of the provision for companies-existing section 16(2)] has not been considered, as the provision in respect of companies has itself provoked a lot of controversy.

Notes to clause 84

The clause does not need any comments.

The exemption from super-tax has been dealt with in the Chapter on super-tax.

Notes to clause 85

Existing section 15C has been embodied in this clause. The few verbal changes that have been made are explained below:

Sub-clause (2)- The conditions specified in existing section 15C(2) are cumulative. This is clear from the existing language and has been made still more clear in the draft.

Sub-clause (6)- Existing section 15C(6) uses the expression "financial year". This has been replaced in the draft by the expression "assessment year" which is more appropriate.

The existing sub-section speaks of the four "assessments" immediately succeeding. What is meant is, the four "assessment years". The draft makes this clear. An assessment made in a particular year is not necessarily identical with that assessment year, since sometimes an assessment is made late, after the assessment year has expired.

The exemption from super-tax has been dealt with in the Chapter on super-tax.

Notes to clause 86

This merely reproduces existing section 15C(4) and as the subject matter is different it is made a separate section.

Notes to clause 87

Items (i) and (ii)- The second and third provisos to existing section 8 have been embodied in these items with slight verbal changes. The expression "receivable" has been replaced by the word "received".1

1. Compare draft clause 18.

Item (iii)- embodies existing section 14(2)(a), with slight verbal changes.

Item (iv)- deals with the exemption contained in existing section 14(2)(aa). The existing wording is slightly involved. An attempt has been made in the draft to simplify the expression by making a few verbal changes, and splitting up the provision into clauses. Item (v)-does not need any comments.