Report No. 12
Notes to clause 161
Existing section 35(1) deals with three things:-
(i) the power to rectify mistakes;
(ii) the period within which such rectification can be made; and
(iii) the procedure (i.e., the issue of notice etc.) to be followed.
For the sake of clarity, these three things have, in the draft, been split up into separate sub-clauses.
The second Proviso, which bars action in respect of orders passed more than one year before the commencement of the Indian Income-tax (Amendment) Act, 1939, has been omitted, as obsolete.
Sub-clause (1).- The various authorities that can amend their orders have been dealt with separately in paragraphs (a), (b) and (c) along with the nature of the orders that can be amended by each authority.
Since the order under this section is essentially in the nature of an amendment, the phrase "with a view to rectifying any mistake the • may amend" has been Ved. Incidentally, this has enabled the use of the short expression "amendment" in subsequent sub-clauses, thus avoiding the lengthy expression "rectification of mistakes".
Sub-section (2) of section 35, relating to the rectification of mistakes by the Appellate Tribunal, has been omitted since the Tribunal is proposed to be abolished.
Sub-clause (2).- The verbal changes are consequential on the scheme adopted in the draft to break up section 35(1) into various sub-clauses (See notes above under the head "General").
Sub-clause (3).- Apart from verbal changes which are consequential, the words "or otherwise increasing the liability of the assessee" have been added to make the provision comprehensive.
Sub-clause (4).- This is new and embodies a practice followed even now, and is also necessary as an appeal is now provided.
Sub-clause (5).- does not need any comments. Sub-clause (6).-does not need any comments.
Sub-clause (7).- The verbal changes that have been made are consequential.
Notes to clause 162/font>
For the sake of clarity, the various special cases of rectification, dealt with in existing section 35(5) and subsequent sub-sections, have been embodied separately in this draft clause.
The wording of existing section 35(5) etc. is not happy. The words "shall be deemed to be a rectification," creating an artificial fiction, have been replaced in the draft by words conveying the substance-that the Income-Tax Officer has power to amend.
The provisions contained in existing sub-sections (6), (7) and (10) of section 35 have been omitted, for the reason that no scope for the application of any of these provisions would remain in respect of assessments made under the new Act. The new Act will apply only to assessment years subsequent to its enforcement. Thus, any recomputation of total income consequential on assessment or modified assessment of excess profits tax or business profits tax under section 35(6) will be confined to cases arising under the old Act, that is to say, for assessment years prior to the enforcement of the new Act.
The reason is, that neither excess profits tax nor business profits tax is in force now, and it is only for past assessment years that these taxes have any relevancy. Similarly, the recomputation of the total income of the share-holders consequential on the modification of the assessment of the company under section 23A, will necessarily be in respect of assessment years prior to the new Act. The reason is, that section 23A (as it stands in the present Act as amended up-to-date and as embodied in the draft) does not have any relevancy on the assessment of the total income of the share-holders.
Any action under section 35(7) will be confined to past assessment years. On the same reasoning, any action under section 35(10) will necessarily be related to the assessment years prior to the new Act, since the recomputation of tax (by reduction of the rebate) under that sub-section is applicable only in respect of the assessment years 1948-49 to 1954-55. These sub-sections have, therefore, been omitted.
Sub-clause (1).- The following drafting changes may be noticed:-
(i) Section 35(5), as it stands at present, creates an ambiguity, namely, whether the words "where it is found on the assessment or re-assessment of the firm" are to be linked up with the words "under section 31, section 33" etc. The intention, obviously, is that the assessment or re-assessment need not have been made under the specific sections referred to in the sub-section. This has been made clear in the draft, by separating the situations into paragraphs (a) and (b) in this sub-clause;
(ii) reduction or enhancement of income resulting from an amendment under section 35 itself is not at present covered by section 35(5). This has now been added in the draft;
(iii) as already explained in the notes under the clause1 corresponding to existing section 35(1), action under section 35 is essentially in the nature of an amendment. Further, the extension of the provisions of section 35(1) to the special cases dealt with in section 35(5) and subsequent sub-sections is purely artificial, and it would be better if the word "rectification" is not used in respect of these special cases. Hence the word "amendment" has been used in this and the subsequent subsections;
1. Clause 161.
(iv) the existing sub-section speaks of the period "referred to" being "computed" in a certain manner. Sections 35(8), 35(9), etc., however, speak of the period "specified" being "reckoned" from a certain date. For the sake of uniformity, the expressions used in section 35(8) have, in the draft, been used in all the sub-clauses.
Sub-clause (2).- This is new. The existing section is silent on the question whether an order similar to that under section 35(5) can be passed in the case of a member of an association where the assessment of the association itself is revised. It seems desirable to add such a provision, and this sub-clause is intended to achieve that object. Since the provision is new, a proviso has been added to save the rule contained in existing section 14(2)(b) which enacts that tax is not payable by an assessee on any amount on which the tax has already been paid by the association.
Sub-clause (3).- The only change that requires explanation is the omission of clause (b) of existing section 35(8). This clause is meant for a case where a company is assessed under section 23A and in consequence it becomes necessary to compute or recompute the total income of the shareholder. As already explained above, section 23A (as it stands in the present Act as amended up-to-date and as embodied in the draft) has no relevancy now on the income of the shareholders. Clause (b) of section 35(8) has, therefore, been omitted. Other changes are consequential.,
Sub-clause (4).- Existing section 35(9) provides that where a company does not pay the tax on its profits "within three years after the financial year in which the dividend was declared", the Income-tax Officer may proceed to recompute the amount of tax deemed to have been paid by the shareholders. This presupposes that the assessment of the company has taken place and the company has failed to pay the tax. There may, however, be cases where the assessment of the company itself is delayed.
In such cases, it would not be proper to insist that the company should pay the tax within three years from the year in which "the dividend was declared". It would seem desirable to allow, in such cases, a period of at least one year from the end of the financial year in which the assessment of the company is made. Necessary alteration has been made in the draft sub-clause on this point. Other changes are verbal and consequential.
Sub-clause (5).- This embodies existing section 35(11) introduced by the Finance Act, 1958.
Sue-clause (6).- This is new. Cases sometimes arise when an assessee claims deduction for a bad debt in respect of a particular previous year, and the Income-tax Officer is of opinion that the deduction should have been claimed for an earlier previous year. Under the existing law, the assessee cannot obtain any deduction for such earlier years. The draft sub-clause is intended to remove this hardship by conferring the necessary power on the Income-tax Officer.
Notes to clause 163
This reproduces existing section 29. The words "or other person" have been omitted, since the definition of "assessee", even in the existing Act, covers all persons by whom any tax etc., is payable. Moreover, in cases where A is liable to pay tax on the income of B, A will either be a "representative assessee",1 or other person who would fall under the definition of assessee.
1. Vide Chapter on Liability in special case.
Notes to clause 164
Existing section 24(3) has been embodied here, since it deals with the steps consequential on the assessment of the income of assessee. Instead of the words "to have set off" the words "to have carried forward and set off", have been substituted, for the sake of precision.
Notes to clause 165
Existing section 23(6) has been placed here, since that again deals with a step consequential on assessment.
The existing words "whenever the Income-tax Officer makes a determination in accordance with the provisions of sub-section .(5)" have been replaced by the words "whenever a registered firm is assessed or an unregistered firm is assessed under section " since the existing words do not correctly describe the nature of the action taken by the Income-tax Officer. In essence, the Income-Tax Officer makes an "assessment", as is clear by the words "the total income shall be assessed" in section 23(5)(a)(ii) and by the words "in the case of an unregistered firm, the Income-tax fficer may proceed to assess the total income" in section 23(5)(b).
Notes to clause 166
The various kinds of returns submitted in respect of salary, dividend etc., have been dealt with here in one clause.
Sub-clause (1).- Existing section 20A, dealing with the return to be submitted by a person paying any interest, says that the return is to be furnished to "prescribed officer". Rule 43A of the rules made under the Act provides that the return should be made to the Income-tax Officer in whose jurisdiction a person responsible for paying interest resides. It would be convenient if this rule is embodied in the section itself. One modification, however, seems desirable to be made in the rule while embodying it in this section.
The return should be furnished to the Income-tax Officer having jurisdiction to assess the person submitting the return, (that is, irrespective of the residence of such person) so that the Income-tax Officer can verify the items during the course of his examination of accounts without any additional labour. The necessary addition has therefore, been made in the draft sub-clause.
Sub-clause (2).- Clause (a) of existing section 21 provides that the return to be furnished in respect of salaries should contain the name etc., of the person who receives the salary from the "authority, company" etc. It is silent about a person receiving salary from the Government, even though the opening line of the section says that the prescribed person in the case of "every Government office" has to submit the return under this section. This lacuna has been supplied in the draft.
No addition is proposed in respect of foreign Governments as it may be difficult to enforce the requirement of return from such Governments.
Clause (b) of section 21 speaks of the amount of the income "so received or so due" "by" each such person (that is, the person receiving salary). The clause, as it stood before its amendment in 1939, spoke only of income "received by" such person, the words "or so due" were added in 1939 to cover the case where salary has become due. At the time of the amendment, however, a small grammatical inaccuracy, seems to what have crept in. The income was described as income "due by" such person while what was intended, obviously, was income due "to" such person. Necessary verbal changes have, therefore, been made in the draft to remove this inaccuracy.
Sub-clause (3).- This does not require any comments. The provision contained in existing section 58T has been referred to here, in view of its subject-matter.1
1. Cf. draft clause 314 also.
Notes to clause 167
This embodies existing section 20. The words "or that no tax is payable" have been added to deal with a situation not covered by the Act-namely, where the company is not taxable for the year concerned.