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Report No. 12

12. Changes proposed in the Act.-

We now proceed to indicate the lines on which the Act has been redrafted and the important changes effected by us.

13. The changes made by us fall into two categories:

(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".

Recommendations not embodied in Appendix 1.-There are certain changes which have not been embodied the draft clauses in Appendix I, but which we regard as desirable. Our recommendations as to such changes will be found either in the discussion in the body of this Report or in the notes to the relevant clause in "Notes on clauses", or, in the list of recommendations annexed to this part of the Report.

14. Chapter I: Preliminary.-

As in the present Act, the preliminary Chapter contains only two sections. One is the section headed 'Short title, extent and commencement' and the other is the section containing 'definitions'.

Several new definitions were found necessary and have been inserted. Of these, the following deserve notice-

"Assessment".-A definition of assessment has been added to make it clear that "assessment" includes re-assessment.

"Assessment year".-This expression has been used by decisions of courts and is well-understood as meaning the financial year for which the assessment is being made at the rates prescribed by the Finance Act of the year concerned. A definition of 'assessment year' has therefore been inserted in the Act.

"Average rate of Income-Tax," "Average rate of Super-Tax".-These are two new definitions which were found necessary. In respect of several incomes which are included in the total income, abatement of the tax is given at the average rate of income-tax. The present Act provides a complicated process for the computation of the abatement, 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 expressions and to refer to them in the appropriate sections instead of repeating a long clause every time.

"Non-resident" and "Resident".-The basis of charge under the Act varies according as a person is a resident of India or a non-resident. The expressions 'Resident' and 'Non-resident' have specific meanings for the purpose of the Act. It was, therefore, felt necessary to introduce these two new definitions in the Act.

"Tax".-A definition of 'tax' has been introduced. Under this definition, 'tax' means both income-tax and super-tax chargeable 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. Changes in existing definitions: "Assessee".-

The definition of "assessee" 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 sum1.

1. The notes of Clause 2(5), in the Notes on clauses, contain a detailed discussion.

"Capital Asset".-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 redrafted 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.

"Income".-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 gains" in the substantive sections. Wherever practicable, only the expression "income" has been used in the substantive sections.

16. Scheme of substantive provisions.-

The substantive provisions of the Act relating to one topic or subject matter are at present spread all over the Act. This has naturally led to considerable difficulty in ascertaining a person's liability under the Act. For example, section 42 which deems certain incomes to accrue or arise in India is separated from section 4 which deals with the charge to tax of incomes accruing or arising in India. Similarly, while most incomes excluded from the total income are dealt with in section 4(3) of the Act, there are some provisions pertaining to exclusion in other sections e.g. sections 14(1), 25(3) and 25(4) etc. We have, therefore, in grouping the sections in various Chapters, taken care 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 contained mainly in Chapters I, III and IX in the existing Act. Chapter III deals with several subjects. It deals with the basis of charge, the computation of total income under various heads, the rebates on life insurance premia and other matters and the provisions pertaining to salaries, wages and other matters. In the draft of the Act which we have prepared, the substantive provisions pertaining to income-tax and super-tax have been classified and grouped in eleven Chapters which deal with the following subjects:

(i) Basis of charge. (Chapter II)

(ii) Incomes which do not form part of the total income. (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-off or carry-forward of losses. (Chapter VI)

(vi) Incomes on which no income-tax is payable. (Chapter VII)

(vii) Rebates and reliefs. (Chapter VIII)

(viii) Double taxation relief. (Chapter IX)

(ix) Provisions against avoidance of tax. (Chapter X)

(x) Super-tax. (Chapter XI)

(xi) Determination of tax in certain special cases. (Chapter XII).

18. Chapter II: Basis of charge.-

All the provisions which concern the charge of income-tax have been brought together in this Chapter. The definition of 'previous year' is one of the essential 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 referring to every "person" in the charging section. This is in conformity with the laws of other countries.1

1. See section 2(1), Canadian Income-tax Act, 1948; section 5(1), South African Income-tax Act, 1941; and section 17, Australian Income-tax Etc. Act, 1936-53.

19. 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 of the assessee. To avoid any confusion, the scope of total income of residents and non-residents has been put in two different sub-sections.1

1. See clauses 4(1) and 4(a), App I.

20. Several provisions of the Act refer to income which is "deemed" to accrue in India, or is deemed to be received in the previous year. We have brought all these provisions together and placed them in proximity to each other.1

1. See clauses 7-10, App I.

Income-Tax Act, 1922 Back

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