Report No. 12
Notes to clause 181
Existing section 25A is really intended to lay down the proposition, that until there has been a complete partition of the joint family property and the Income-tax Officer records a finding to that effect, the family should be treated as joint and assessed as a Hindu undivided family. The way in which the section begins, however, clouds the main proposition, because the section begins with procedural matters and relegates the main proposition to the last sub-section. The various sub-sections have, therefore, been rearranged in order to emphasise the main proposition contained in the section.
Sub-clause (1).- It has been held by the Privy Council1 that section 25A applies only where there is a total partition. This is certainly the position under the existing section. But it would be desirable to apply the procedure contained in the section to partial partition also. The draft, therefore, makes this alteration in the section, with consequential changes.
1. Sundar Singh Majethai's case, (1942) 10 ITR 457 PC.
Sub-clause (2).- The proviso to section 25A(1) has been combined with the main para.
Sub-clause (3).- Provision has been made that the Income-tax Officer while passing an order under this section, should record a finding as to the date of the partition. This, besides avoiding many complications, will facilitate the assessment for the periods before and after partition.
Sub-clause (4).- Some confusion is caused by the language of existing section 25A(2), which, while opening with a reference to a case of partition, goes off at a tangent to deal with the case of succession. For the sake of clarity, these two cases should be dealt with separately, even though the substantive rule to be applied may be the same. Draft sub-clause (4) confines itself to partition. Succession is dealt with in the separate clause1 corresponding to existing section 26(2).
1. See draft clause 180(4).
The existing provision in section 25A(2), main para, to the effect that the Income-tax Officer shall make assessments on the members or group of members accordingly "in accordance with the provisions of section 23" creates an impression that a special assessment for the purposes of this section has to be made on the member etc. This is, however, not the intention. The section is merely intended to lay down the liability of the members for pre-partition income, and does not require that the assessment made in ursuance of his liability should be made separately from the individual assessment of each member. This part of the sub-section has, therefore, been omitted.
There is some amount of confusion, in existing section 25A(2), as to how far a member (or "group of members") is liable for pre-partition tax. While the main para, of that subsection says that each member is liable for a "'share of the tax on the income so assessed" according to the portion of the joint family property allotted to him, the proviso says that the liability shall be "joint and several". The position is not quite clear. The intention, however, seems to be this, that a member is jointly and severally liable, and that for the purpose of computing his "several" liability the property received by him is to be taken into account. To make this clear, the language of the proviso has been modified and the position has been stated in a different form in the draft. For clarify, cases of partition during previous year have been dealt with separately from the cases of subsequent partition.
In order to make the section comprehensive, partial partition has also been dealt with, as pointed out above in the notes under sub-clause (1). The words "total income received by.....the family......shall be assessed", will, in relation to partial partition, have the effect of including the income received by the family in the assessment of the family even after the partial partition.
Sub-clauses (5) and (6).- See under sub-clause (4) above.
Sub-clause (7).- This is new. The rule embodied in the draft is, that where a family was carrying on a business at the time of partition, the assessment may be made by the Income-tax Officer of the area in which the principal place of business was situated before the partition; in other cases the place of residence of the last manager will govern the decision of the question.
Sub-clause (8).- This is new. The existing section is silent as regards penalties and other sums.1 The sub-clause is intended to make the position clear.
1. Cf. C.I.T. v. Sanichar Sah, (1955) 27 ITR 307, (Pat); Raju Chettiar v. Collector of Madras, (1956) 29 ITR 241 (Mad); Subba Rao v. C.I.T. Hyderabad, (1957) 31 ITR 867 (Andh).
Explanation.- Clause (a) of the Explanation is intended to codify a rule already established. Section 25A applies only where there is such division of the property as its nature admits of; mere severance of status does not fall under this section1. This is also clear from the words "allotted at the partition" in existing section 25A(2).
1. Bansidhar Dhandhania v. C.I.T., (1914) 12 ITR 126; Gordhandas T. Mangaldas v. C.I.T., (1943) 11 ITR 183; Jaganuath Ram v. C.I.T., (1951) 19 ITR 353; Bhim Raj Bonn Dhar v. C.I.T., (1954) 26 ITR 185.
Clause (b), defining "partial partition", does not need any comments.
Notes to clause 182
All the provisions relating to shipping business, as contained in sections 44A, 44B and 44C, have been placed in one clause.
The provisions have been re-arranged so as to state the liability first, followed by the method of assessment, exception, and savings.
Sub-clause (1).- The expression "financial year" has been substituted for the expression "year", for the sake of precision.
Sub-clause (2).- The existing section is silent about the carriage of mail by the ships covered by the section. It seems desirable to add a reference to mail1.
1. Cf. section 15, sub-section (1), South African Income-Tax Act.
Existing section 44B(2), latter part, provides that one-sixth of the amount assessed shall be deemed to be the amount of profits and gains accruing to the principal on account of carriage of passengers etc. But since it is only income which accrues in India that is taxable, this part of the section has been re-drafted. It has also been made clear that section 44B will apply whether the amount is payable in or outside India.
Sub-clause (3).- Does not need any comments.
Sub-clause (4).- Existing section 44B(3), earlier part, provides that the Income-tax Officer shall determine the sum payable as tax at the rate applicable to the total income of a company. Since, however, there are different rates applicable to different kinds of companies (by virtue of the annual Finance Act), it seems desirable to make the provision more precise, by indicating exactly the category under which such ship-owners are to be placed. The draft sub-section, therefore, makes it clear that the rate applicable to a company which has not made the prescribed arrangements for the deduction of super-tax on its dividends under existing section 18(3D), will be the rate to be applied under section 44B.
Sub-clause (5).- Does not need any comments.
Sub-clause (6).- Section 44B, latter part, provides that a port clearance will not be granted until the officer concerned is satisfied that the tax has been duly paid under this section. In the draft, the words "the tax assessable under this section" have been used to make it clear that this sub-section will apply whether the tax has been duly assessed and has, therefore, become payable, or whether the tax is "assessable". In other words, this sub-section will apply even if the tax has not actually been assessed by reason of any default of the master of the ship etc.
Sub-clause (7).- The word "year" has been replaced by the words "financial year" in the draft, for precision. Further, it has been made clear that the payment of tax will be treated as advance payment of the tax "leviable in the relevant assessment year", in order to make the provision more precise.
Sub-clause (8).- Does not need any comments.
As regards the words "relevant assessment year", notes above under sub-clause (7) may be seen.
Notes to clause 183
Existing section 42(1), first proviso, lays down a rule which relates to the recovery of tax on a non-resident, not from his agent but from his assets in India. The emphasis here is on the assets; this provision has, therefore; been excluded from the draft clauses dealing with representative assessment, and has been placed here.
The words "without prejudice to " have been added in order to make it clear that the remedies conferred by the other sections referred to are not affected by the special provisions of this section.
The words "whether in his name " had to be added here, since section 42(1), 1st Proviso, in the scheme of the existing Act, is connected with section 42(1), main paragraph, and the main para, uses these words.