Report No. 12
Notes to clause 4
(1) The income of residents and non-residents has been dealt with separately for the sake of simplicity and clarity.
(2) The first proviso to section 4(1) has been omitted as it concerns the assessment year 1939-40 and is now unnecessary.
(3) The second proviso to section 4(1) relating to persons not ordinarily resident should be omitted, as it is proposed to abolish the category and the exemption granted in respect of such persons1 If, however, the provision is to be retained, it can be kept as shown in the relevant clause on the subject.2
1. Vide notes to draft clause 6.
2. Draft clause 11 (4)(iv).
(4) The third proviso to section 4(1) concerning the exemption for unremitted foreign income upto Rs. 4,500 has been transferred to the clause relating to income which does not form part of total income:1
1. Vide draft clause 11(4)(i).
(5) The fourth proviso to section 4(1) relating to residents who are not resident in two out of three preceding years has also been transferred to that clause.1
1. Vide draft clause 11(4)(ii).
(6) The fifth proviso to section 4(1) relating to exemption" for foreign income of residents who deposit tax etc. within three months (where the fourth proviso does not apply) has also been transferred to the clause relating to (exclusions from total income, after omitting portions which have become obsolete.1
1. Vide draft clause 11(4)(iii).
(7) The words "by or on behalf of" have been used in respect of foreign income received in India [vide draft sub-clauses (1), (a), (d), (e), (f) and (g)] to cover cases where the income is received not by the assessee himself but by any other person on his behalf.
(8) Explanation 1 to section 4(1) has been incorporated in draft sub-clause (3).
(9) Explanation 2 to section 4(1) is transferred to the new clause relating to deemed income.1
1. Vide draft clause 9(ii).
(10) Explanation 3 to section 4(1) has also been transferred to that clause.1
1. Vide draft clause 9(iii).
(11) Explanation 4 to existing section 4(1) relates to income which accrued in a Part B State or merged territory before the extension of the Income-tax Act thereto and is brought into any other part of India after the extension of the Indian Act. These provisions, it appears, have become almost obsolete.
The Explanation provides that profits accruing in a merged territory after 1-4-1933 shall be chargeable under section 4(1) (b) (iii) only if such income is remitted into another part of India other than the merged territory. Para 8 of the Merged States (Taxation Concessions) Order, 1949, enacts that Explanation 4 would not apply if the assessee was not a resident in atleast three out of six assessment years viz., 1943-44 to 1948-49. Even in the case of persons who were resident in atleast three out of six years.
Explanation 4 would not operate, if the income had been assessed under the State law on accrual basis and had also been included in the total income for rate purposes [under section 14(2)(c)] Thus, Explanation 4 to section 4(1) would apply only in the case of person who were resident in India in at least three out of six assessment years 1943-44 to 1948-49 and whose income accruing in the State has escaped assessment either in the State or in India.
The Explanation should therefore be omitted. If, however, it is deemed to retain it, should appear in a simplified form. Draft sub-clause (1), (e), (f) and (g) have been drafted to indicate how the Explanation should be incorporated. The language has, however, been altered so as to make the provisions easy of application. The existing Explanation uses the words "taxable territories" and the definition of these words in section 2(14A) does not show in clear words the background in which the special provisions relating to merged territories and Part B States were introduced.
The provision has now been so drafted as to relate it to the assessment year with effect from which the Indian Act was extended to merged territories and Part B States. A provision may be inserted in the Miscellaneous Chapter to guard against the possibility of any income being taxed twice-once under the existing Act and again under the provision as proposed.
(12) Existing section 4(2) is transferred to the new clause on deemed income.1
1. Vide draft clause 10.
(13) Existing section 4(3) forms the subject-matter of a separate clause dealing with income which does not form part of total income1
1. Vide draft clause 11, 12 and 13.
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