Report No. 12
Determination of Tax in Certain Special Cases
Notes to clause 121
The main provision of existing section 17(2) has been embodied here, with verbal charges italicised, to state the rule in an exact and accurate manner.
Notes to clause 122
The clause is new. Reference is made to the provision contained in existing section 58G to make the Chapter self-contained.
Notes to clause 123
Existing section 10(5A) provides for two things. The earlier portion deems compensation etc. paid to managing agent etc. to be profits and gains of business, and has been incorporated in the draft chapter on computation of total income. The latter portion gives the method of computing tax on such income and has been incorporated here.
Sub-clause (1)- While the tax on the compensation etc. is to be dealt with in the special manner provided for by the section, the tax on the remaining part of the income has to be calculated at the (average) rate applicable to the whole of the total income. This has been made clear in the draft, by stating the position, separately for the two kinds of income.
The Explanation is new and is intended to deal with a case where a firm, though assessed as an unregistered firm in the assessment year, was assessed as a registered firm in any of the three preceding assessment years.
Sub-clause (2)- is new. It seems desirable to provide for a rebate to the partner of a registered firm where the firm is in receipt of the compensating etc. in question. There is no such provision at present.
Notes to clause 124
The provisions of section 17(1) have, in the draft been put into four sub-sections, for simplicity. These deal with-
(i) the basic provision.
(ii) the option given to the non-resident, and the time limit therefor,
(iii) the consequences of the option, and
(iv) power to extend the time-limit for the option.
When using the expression "tax", the words "including super-tax" have been omitted, as the definition of tax, in the draft, includes super-tax.
Sub-clause (1)- does not need any detailed comments.
Sub-clause (2)- The opening portion of existing section 17, sub-section (1), 1st Proviso, has been simplified by stating directly the date 30th June, and omitting the reference to the assessment year ending on 31st March, 1952, which has become obsolete.
Sub-clauses (3) & (4)- It has been made clear that any option exercised under the present Act will continue to have effect for the purposes of the new Act also. Consequential changes have been made.
Notes to clause 125
The substance of existing section 17(6) has been incorporated in this clause.
The process of calculating tax has been split up in two sub-clauses, for simplicity.
The existing words in section 17(6)(ii), "on the whole income-tax equal to the amount which bears to the income-tax" etc. have, in the draft, been replaced by a mathematical formula, to make the provision easy to understand.
It is presumed that, in calculating the income-tax on the amount of capital gains, the total income is to be reduced for purposes of rate also. Hence, when explaining the symbol Y, the words "had the total income so reduced been his total income" have been added.
The proviso to section 17(6)(ii) has in the draft been split up into two clauses. Clause (i) states the minimum amount that can be taxed.
Clause (ii) embodies the rule relating to the maximum tax to be charged. Where the capital, gains do not exceed five thousand rupees, the tax will obviously be zero when this clause is applied (see the words "if any"), and it becomes unnecessary to deal specifically with such a case, as has been done in the existing section.
Suggestion-It would be logical if a provision is made in the Act to the effect that capital gains are completely excluded from the total income for the purpose of super-tax. This would simplify the form of the provision contained in existing section 17, subsections (6) and (7).
Notes to clause 126
Section 17(7), even after its amendment by the Finance (No. 3) Act, 1956, refers to super-tax only and is not easy to understand.
The draft seeks to state the position clearly. The reduction of the total income by the amount of capital gains is presumably effective for determining the rate also, as is shown by the words "calculated on its total income" even in the existing section. This has been stated more clearly in the draft in sub-clause (b).