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Report No. 12

Chapter VIII

Rebates and Reliefs

Notes to clause 88


The provisions contained in the existing Act which are in the nature of rebates of income-tax on certain expenditure have been collected together in this Chapter. (The discussion at the beginning of notes to the previous Chapter explains the scheme adopted in the draft in respect of exemptions from tax.)1

1. See notes to draft clause 81-"General".

Sub-clause (1), paragraphs (a) and (b).- These deal with rebate in respect of life insurance premiums. The following drafting changes have been made-

(i) The words "in the previous year" have been added in the draft for existing section 15(1), for the sake of precision.

(ii) The existing section 15(1) speaks of sums paid "to effect" an insurance, but when speaking of deferred annuities it uses the words "in respect of a contract for a deferred annuity. For the sake of uniformity, the expression "to effect" has, in the draft, been used for both the cases. See items (i) and (ii) of paragraph (a).

(iii) While sums paid as ordinary premium might be covered by the existing words "to effect" an insurance, sums paid for the purpose of keeping alive a policy or preventing it from lapsing may not be covered by those words. In the draft, therefore, the words "keep in force" have been added both in respect of insurance and in respect of contracts for deferred annunities. See items (i) and (ii) of paragraph (a) and also paragraph (b).

Sub-clause (1), paragraph (c)- The words "in the previous year", have been added to secure precision.

The words "provided that the sum so deducted shall not exceed one-fifth of the salary", existing in section 7, sub-section (1), First Proviso have in the draft been replaced by the words "in so far as the sum so deducted does not exceed one-fifth of the salary". Where the deduction exceeds one-fifth of the salary, the existing language would, if construed strictly, exclude the deduction in toto. The obvious intention, however, is to limit the exemption to one-fifth and not to completely disallow the exemption in such cases.

The limit of one-fifth contained in the existing section has been repeated in the draft; but, since existing section 15(3) has been amended recently (vide Finance No. (2) Act 1957) so as to raise the limit under that section from one-fifth to one-fourth, it would be desirable to make a corresponding increase in the limit under existing section 7(1) First Proviso, also.

Sub-clause (I), paragraphs (d) & (e)- do not need any comments.

Sub-clause (2)- Existing section 15(2A) has been split up for the sake of simplicity. Further, the negative form of the existing provisions has been converted into a positive one, vide the opening lines.

The words appearing at the end in the existing provision, "and which is not the sum actually assured" really indicate a benefit over and above the assured sum. This is made clear in the draft. The existing words "either before or after death" unnecessarily increase the length of the provision; the words in the draft; "under the policy" will meet both the situations. It is clear that the existing words "which is to be or may be received" are to be confined to payments made by that company under the policy.

The existing words "either by the person paying the premiums or by any other person" have been replaced by the words "by any person", for simplicity.

Sub-clause (3)- Existing section 15(3) has been reproduced here in a simplified form.

The existing sub-section does not, expressly mention sums exempt under section 58R for the purpose of counting the maximum aggregate that can be exempted; but the effect of the words at the end of section 58R, main para, "in the case of an employee be treated for all the purposes of this Act as if it were a sum to which the provisions of section 15 apply" is that the employee contributions are also to be counted for the purposes of section 15(3). For this reason, sub-clause (3) masses a reference to all the sums exempt under any item of the draft clause, which will include sub-clause (1)(d) also.

Notes to clause 89


What the Act contemplates in section 15B is really a rebate (at the average rate) in respect of tax. The provision has, therefore, been placed in the present Chapter on Rebates.

The First Proviso to existing section 15B(1) has been dealt with in the Chapter on Super-tax, where the exemption for super-tax in respect of donations has been dealt with separately1.

1. Vide draft clause 109(a).

Sub-clause (2)- does not need any comments.

Sub-clause (3)- The changes made are all verbal and consequential on the scheme adopted in the Act in respect of exemptions.

Sub-clause (4)- does not need any comments, since the changes are minor and verbal.

Sub-clause (5)- The existing section 15B(2) requires that certain conditions should be fulfilled by an institution or fund to which the section applies. Condition No. (iv) contains the word "or" at the end and is followed by condition No. (v). It is not clear whether the last condition No. (v) is an alternative to condition No. (iv) only, or whether it is to take the place of all the conditions (i) to (iv). Since condition No. (iii) contains the word "and" at the end, it can be argued that conditions Nos. (i) to (iv) are to be taken together and condition No. (v) is to be taken separately.

But this does not seem to have been the intention; the result of such construction would be to eliminate a very important requirement, namely, the requirement in condition No. (i) that the income should be exempt under the category for "Charitable Institutions". The first three conditions should be fulfilled by all the institutions or funds, while the fourth and fifth conditions are alternatives to each other. This intention has been brought out in the draft by combining the contents of existing condition No. (v) with condition No. (iv).

Condition No. (i) at present requires that the institution should be one "the income whereof is exempt under clause (i) of sub-section (3) of section 4". But in cases where an institution has no property, the application of this condition becomes difficult. The wording has, therefore, been slightly altered. Further, institutions though not strictly falling under section (4)(3)(i), such as universities or educational institutions not existing for profit, should be regarded as standing on the same footing as purely charitable institutions, and they have, therefore, been included in the draft (just as their income has been exempted-See the draft clause inserted on the subject.1 Institutions depending on voluntary contributions have also been included in the draft.

1. Draft clause 11(24).

Existing condition No. (iv), when mentioning Universities, requires that they should be established by law, but when speaking of other educational institutions recognised by or affiliated to universities, it does not add the requirement that the university should be established by law.

The intention, obviously, is to require that the affiliating or recognising university must itself be established by law. This has been made clear in the draft.

Sub-clause (6)- does not need any comments.

The exemption in respect of super-tax has been dealt with separately in the Chapter on super-tax1.

1. Vide draft clause 109.

It would be conducive to simplicity and will lessen the work of the administration, if provision is made for the issue of a certificate (after enquiry by the Income-tax Officer or the Inspecting Assistant Commissioner having jurisdiction over the institution or trust) that the institution or trust satisfies the conditions of this section. Donations made to such institutions or trusts will automatically be entitled to the exemption if the other conditions of the section are fulfilled. This would obviate enquiry every year by different Income-tax Officers before whom the exemption is claimed by donors in different jurisdictions.

Notes to clause 90

The existing provision is confined to "Profits in lieu of salary". In the draft it has been extended to "Perquisites" also. Perquisites may sometimes be in cash, and the provision might be useful in such cases.

The power to grant relief in respect of super-tax has been dealt with separately in the Chapter on Super-tax1.

1. Vide draft clause.

Notes to clause 91

Existing section 25, sub-sections (3) and (4), deal with two things:-

(i) total exemption for income of the year in which a business is discontinued or succeeded to, and

(ii) substitution relief, whereunder, the income of the year of discontinuance or succession can be substituted for the income of the immediately preceding year.

The first concession has been already dealt with in a previous chapter;1 the second concession has been dealt with in the clause under discussion. A few drafting changes have been made in order to secure clarity.

1. Vide draft clause 13 in chapter III.

As to the position concerning super-tax, see the Chapter on super-tax.1

1. Vide draft clause 100.

The provision embodied in the draft is applicable only to a business assessed under the 1918 Act. It is for consideration whether this concession is at all necessary after the lapse of such a long time1.

1. Cf. the discussion in the Report of the Income-tax Investigation Commission, 1948 pp. 153-155, paras 345-350.

Income-Tax Act, 1922 Back

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