Report No. 12
Basis of Charge
Notes to clause 3
Sub-clause (I)-(1) The word "person" has been substituted for the words "individual", "Hindu Undivided Family" etc. and the definition of "person" is being widened for the following reasons:-
(a) As already explained1, the combined effect of the definition of "person" in section, 2(9) of the Income-tax Act and section 3(42) of the General Clauses Act is that a "person" includes (a) Hindu Undivided Family; (b) local authority; (c) company; and (d) association or body of individuals whether incorporated or not. No specific mention has been made of corporations other than companies included within category (d).
1. See notes to clause 2 definition of "person".
The problem which has troubled the courts is whether such corporations are within the charging section. It can be met by the suggested amendment by introducing the word "person" in the section. In Commissioner of Income-tax, Madras v. Salem District Urban Bank Ltd., (1940) 8 ITR 269 a co-operative bank was treated as an individual by an artificial interpretation of the word "individual". Similarly, in Commissioner of Income-tax, Madras v. The Bar Council, Madras, (1948) 11 ITR-1 a bar council and in the Baronetcy case1 a corporation sole, were treated as individuals. It seems desirable to make the position clear.
1. Currimbhoy Ibrahim Baronetcy Trust v. C.I.T., 5 ITC 484 (Bom).
(b) There is also the problem of private religious trusts in favour of deities or mutts which are treated as artificial jurisdical person in law, vide existing section 41. The point for consideration is whether it is proper to bring them under "individual" by a strained construction or whether it would be more appropriate to include them under "person". These difficulties can be solved if we adopt the word "person" in section 3, the charging section. It may be noted incidentally that in the existing section 3 it occurs only in the expression "association of persons".
(c) All the foreign Acts employ the term "person" in the charging section, and it is better to resolve all doubt about the chargeability of particular classes of persons by using the comprehensive term "person" in section 3.
(2) The next point for consideration is the difficulty noticed in sustaining the legality of the recovery of the tax on the current income under sections 18 and 18A. The charge created under section 3 applies to the income of the previous year, while the provisions of sections 18 and 18A apply to the income of the assessment year also. To meet this difficulty a proviso has been added on the lines of the Ceylon Income-tax Ordinance to cover the provisions of the Act relating to charging the tax in particular cases in respect of income, profit and gains of a period other than the previous year.
This will cover sections 24A, 25(1) and 44B (3) of the Act, whereby the income of the assessment year itself is made chargeable at the rates prescribed by the Finance Act of the assessment year. Sub-clause (2) is intended to make it clear that there is some kind of liability to pay tax in cases where tax is deductible at source or payable in advance. It seems desirable to make a reference to this obligation to pay tax in advance etc. in the charging section itself, so as to bring out more directly a position which is implied in existing sections 18 and 18A.
(3) After the phrase "in respect of the total income of the previous year" the words "or years, as the case may be have been added. Under the definition of "previous year in the existing section 2(11) a person may have separate previous years in respect of each separate source of income. The proposed addition is intended to meet such cases.1
1. Cf. C.I.T. v. Savumiamurthy, (1946) 14 ITR 186.