Report No. 12
Notes to clause 184
Section 24A has been embodied in this clause. For the sake of simplicity, the provision has been split up into a number of sub-sections.
Sub-clause (1).- The provision for assessment in the current financial year, embodied in section 24A and other similar sections, really constitutes an exception to the general principle embodied in section 3 that it is the income of the previous year that is taxable.
The chargeability of the income in the current assessment year is made clear by specific words in this sub-clause, and it is also made clear that to this extent the section overrides section 3. (As a matter of fact the draft clause for section 3 is itself subject to the other provisions of the Act). [See also notes to sub-clause (2) below].
It may be added that the language of this section has also been criticised by the Income-tax Investigation Commission1. The alterations made in the draft, though they do not follow the lines suggested by the Commission, remove the ambiguities and lacunae to which the attention of the Commission was directed.
1. See I.T.I.C. Report, 1948, p. 35, para 58.
Since the section will apply only to natural persons, the expression -person" has been replaced by the expression "individual".
Sub-clause (2).- The period whose income is chargeable is mentioned separately in this sub-clause. The existing provision says that the total income to be assessed is "of the period from the expiry of the last previous year of which the income has been assessed in his hands to the probable date of his departure from the taxable territories, or where he has not been previously assessed, on his total income of the period up to the probable date of his departure from the taxable territories".
Now, in so far as this period covers a previous year which has been completed before the commencement of the financial year in which the Income-tax Officer takes action under this section, the section has no importance, because assessment for such earlier previous years can be made even under the normal provision in section 3. It is only in respect of a previous year which falls wholly or in part within the financial year that the section needs to be relied upon. In the draft, therefore, the words just now quoted have been omitted.
Of course, it is still necessary to cover cases where a completed year of income forms part of the period from the end of the last previous year to the date of departure. For example, a person whose previous year ends on the 31st December may leave India, say, in February, 1958. The year of income commencing on the 1st January, 1957 has to be covered, because the assessment year for that income will be 1958-59, which has not yet started. In such cases the complete year of income 1957 as well as the fraction from 1st January, 1958 to February, 1958 may be governed by this section. Hence, draft sub-clause (2) does not make any other modification as regards the taxable period.
Under the existing section, the position regarding rate of tax has been stated in a very elaborate manner. It says that the assessment shall be made, "as regards each completed previous year" at the rate at which such income would have been charged had it been fully assessed. Now, as already explained, the incomes of years completed before the commencement of the assessment year in which the Income-tax Officer takes action are governed by the normal provision in section 3, and it does not make any difference whether they are dealt with under section 3 or under this section.
Under section 3, the rate applicable is the rate for the relevant financial year; such cases should, therefore, be left to be governed by section 3, and hence the words just now quoted are unnecessary and have been omitted in the draft. The remaining "previous year", that is, the period from the end of the previous year for the assessment year to the date of the departure will continue to be governed by this section.
As a matter of fact, the words just now quoted are misleading from one point of view, because, if interpreted strictly, they would mean that a person leaving India in February, 1958 and having his previous year ending with the 31st day of December, 1957 would be chargeable at the rate applicable to the assessment year' 1958-59. Obviously, this is not the intention, and the provision as embodied in the draft will obviate any possibility of any such wrong result being deduced from this section.
Sub-clause (3).- The criticism of the existing section, made above in the notes to sub-clause (2), applies in respect of the provisions for estimating the total income also. The power to estimate should not be confined, as in the existing section, to a fraction of a previous year; even a completed previous year might fall within the period for which the income has to be "estimated" The sub-clause has therefore been widened to give a wider power to the Income-tax Officer in this respect.
Sub-clause (4).- In view of the simplification made in sub-section (1), it has become possible to simplify this sub-section by removing the elaborate description of the period for which return is to be called.
The words "(along with such other particulars as maybe provided in the notice)" have been omitted in the draft, since the provision that it is a notice under section 22(2) implies that other particulars are also to be furnished, where required. The words "subject to the provisions of this section" have been added for precision, particularly in view of draft sub-clause (3).
Sub-clause (5).- It appears desirable to make it clear that the special assessment made under section 24A is in addition to any regular assessment which may happen to take place in the same assessment year. This has been made clear by this sub-clause. Existing section 25(1), latter portion, may be compared.
Sub-clause (6).- This is new. The special provision limiting the period of notice to seven days, embodied in sub-clause (4), is applicable to the emergency assessment by virtue of the section itself. Where, however, the normal assessment for any past previous year has not, yet, been made on the assessee who leaves India, it may sometimes be necessary to finish the assessment before the assessee leaves India. In such cases the normal period of 30 days provided for in section 22 may be difficult to be complied with. The draft sub-clause, therefore, allows the Income-tax Officer to reduce the period in such cases. This new provision will ultimately be for the benefit of the assessee, since he cannot obtain a clearance certificate under existing section 46A until his assessments have been finalised.
Sub-clause (7).- A time limit of three months will be allowed to the Income-tax Officer except where the delay is occasioned by any conduct of the assessee.
Notes to clause 185
This clause embodies a part of section 25 of the existing Act. The latter part of section 25(2), imposing a penalty, is transferred to the Chapter on penalties.
The section has been simplified without affecting the substance. Main drafting changes are: -
(i) The words "notwithstanding anything contained in section 3", have been added to make it clear that the ordinary rule requiring assessment of the previous year's income in the next assessment year is modified in this section;
(ii) the words "discontinued in any year" have been replaced by "discontinued in any assessment year's for the sake of precision;
(iii) words excluding a business etc., charged under the 1918 Act have been added, since section 25(1) does not apply to such business, vide the words "to which subsection (3) is not applicable", in existing section 25(1);
(iv) it has been made clear that the power to charge tax in the current assessment year is to be exercised at the discretion of the Income-Tax Officer;
(v) the existing words "assessment may be made in that year on the basis of the income in addition to the assessment, if any, made on the basis of the income of the previous year" give rise to a controversy, namely, whether the income of the normal previous year is to be combined with the income of the current assessment year, when making the assessment. It has been considered desirable to alter the wording on this point to make the intention clear. The draft, therefore, uses the words "the total income of the period from the expiry of the previous year to the date of discontinuance", and avoids any reference to the normal previous year in sub-clause (1). Draft sub-clause (4), however, makes it clear that any assessment made under the normal provision will not be affected by the special procedure given in this section.
Sub-clause (2).- Does not need any comments.
Sub-clause (3).- Does not need any comments.
Sub-clause (4).- See notes under sub-clause (1).
The remaining portion of section 25 has been embodied in the draft at the appropriate places.
Notes to clause 186
Sub-clause (1).- Section 44 of the existing Act deals the assessment in case of discontinuance of business by firms and dissolution of associations. The part dealing with firms is being incorporated in a separate clause (vide separate Chapter relating to firms). The part dealing with associations has been incorporated here.
A reference to the legal representative of a member who is deceased has been added to provide for cases where a member dies after dissolution and before assessment.
The changes made by the Finance Act, 1958 have been given effect to.
Sub-clause (2).- This is new. The object is to allow the Income-tax Officer to continue assessment proceedings already started before the dissolution etc. so that time may not be wasted in the re-issue of notices etc.
Sub-clause (3).- Section 44(3), as inserted by the Finance Act, 1958, authorises the Income-tax Officer etc., to impose a penalty under clause (a) or (b) or (c) of section 28(1) in respect of a dissolved firm or association. Instead of making an elaborate provision on the lines of that sub-section, it is considered sufficient to say that the provisions relating to tax will apply to penalties also. Sums other than penalties have also been covered in the draft. The provision as drafted will, thus be more comprehensive, though less elaborate in form.
Sub-clause (4).- This is new and is intended to make it clear that the limitation on the liability of the legal representative is not to be affected by the provisions of this section. This becomes necessary in view of the fact that in draft sub-clause (1) a reference to legal representative has been added.
Notes to clause 187
Existing section 12AA is applicable in all cases where the time taken by the author of a book is more than twelve months. Clauses (a) and (b) dealing separately with a case where the time taken is "less" than 24 months and a case where the time is "more" than 24 months, are unnecessary in the opening portion, since this distinction is relevant only in connection with the mode of separately allocating income. The distinction does not affect the applicability of the main principle of the section. A slight recasting of the language has, therefore, been attempted in the draft on this point.
Clause (a) of the existing section uses the words "less than twenty-four months" and clause (b) uses the words "more than twenty-four months". For the sake of precision, the former wording has been replaced by "not more than twenty-four months", so that clauses (a) and (b) can collectively exhaust all cases, including a case where the time taken is exactly 24 months.
It may be observed here that existing section 12AA was inserted in 1953. The Taxation Enquiry Commission1 recommended the spread-over of income not only for copyright but also for patents. The Commission suggested that proceeds of sale of patent rights should be spread over a period of six years. Section 318 of the U.K. Income-tax Act, 1952, also allows such spread-over in the case of patents. It is for consideration whether the section should not be extended to patents.
1. T.E.C. Report, 1953-1954, Vol. II. Ch. III, para 7, p. 42.
Notes to clause 188
Existing section 8, third proviso, has been incorporated here with two changes:-
(i) The rate at which the State Government will pay tax should be laid down by the Finance Act specifically; this has been made clear in the draft,
(ii) Since the word "receivable" in existing section 8, main para, has in the draft been replaced by word "received", necessary drafting changes have been made here also.