Report No. 12
Notes to clause 221
Section 18A(4) is embodied here with the following changes:-
(i) the words "income to which sub-sections (1), (2) or (3) apply" have been replaced by the words "income subject to advance tax" in conformity with the scheme adopted in the draft
(ii) The proviso to the existing sub-section provides for pay.-sent of 6 per cent simple interest. In view of the fact that the rate of interest in the other sub-sections of section 18A is now reduced to 4 per cent.1 the rate has, in the draft, been reduced to 4 per cent. in this case also.
1. See existing section 18A(5), item (ii) and section 18A(6), 1st Proviso.
Notes to clause 222
Sub-clause (1).- Existing section 18A(5) relating to interest payable by the Central Government on tax payable in advance has been embodied, here. The sub-section, as amended in 1953, raises a difficult question of interpretation. The main part of the subsection provides that interest should be paid (at 4 per cent.) on any sum paid after 1st April, 1955, "from the date of payment to the date of the provisional assessment" or to the regular assessment as the case may be; but the second proviso inserted in 1953, says that for the period beginning with 1st April, 1952, the interest is payable from the beginning of the next financial year to the date of the regular assessment.
There is thus a change as regards the period for which interest is to be paid. Another change made in 1953 is as regards the amount on which interest is payable. While the main para, provides that interest is payable "on any amount payable in accordance with the provisions of this section .and paid accordingly", the second proviso, inserted in 1953, provides that for the period beginning with the 1st April, 1952, interest is payable only on the amount by which the aggregate of the instalments paid during the financial year in which they are payable exceeds the tax under the regular assessment.
Now the question is, whether, these changes inserted by the 1953 Act in the shape of the second proviso are to govern the whole of the post-1952 period; or whether they are to apply only in respect of the post-1952 and pre-1955 period. If the second proviso is taken as over-riding the main para, the former view is correct. If, on the other hand, the proviso is taken as limited to the period between 1952 and 1955 (on the theory that a proviso is not to replace the main section), the second view can be supported.
The main draft of the clause under discussion embodies the former view, which seems to be the prevailing view. But, if the latter view is adopted, it can be given effect to by the alternative draft given below:
1. The alternative draft is intended to incorporate the view that section 18A(5), 2nd Proviso, is applicable only for the period 1952-1955 and does not override the main sub-section.
(1) The Central Government shall pay simple interest at four per cent. per annum on any amount payable as advance tax in accordance with the provisions of section [18A(1), (2), (3) and (4)1 and paid accordingly, from the date of payment to the date of the provisional assessment made under section [23B], or, if no such assessment as been made to the date of the regular assessment
Explanation 1.- Same as in the main draft.
Explanation 2.- Same as in the main draft.
Notes to clause 223
Interest payable by the assessee has been dealt with in this section. The 1st proviso to existing section 18A(6) has been combined with the main paragraph.
One important change made is that interest is not to run from the 1st day of January of the year in which the advance tax is paid but from the 1st day of April in the next financial year. This change has been made in view of the fact that interest payable by the Central Government runs from the 1st day of April of the next financial year; [vide existing section 18A(5)].
Existing section 18A(6), 4th proviso, which provides that in the case of a business etc. newly set up, the interest is computed in certain cases from the 1st April of the financial year next following, has been omitted, since the rule embodied in that proviso has, in the draft, to apply in all cases and no separate provision is necessary.
Notes to clause 224
The only change made in the existing section 18A(7) is the reduction of the rate of interest payable by the assessee (in cases of under-estimate) from 6 per cent to 4 per cent. This change has been made in view of the fact that the rate of interest under section 18A(5) and section 18A(6) is also 4 per cent, under the existing Act.
Notes to clause 225
Sub-clause (1).- It would be useful here to summarise the existing position regarding interest payable by the assessee with reference to an advance tax. The position can be analysed as follows:-
(a) interest in a case of estimate seems to be dealt with in the following provisions for different situations:-
(i) faulty estimates (that is estimated income falling short of 80 per cent. of the income regularly assessed)-Section 18A(6);
(ii) deliberate under-estimate of tax in the first three instalments-Section 18A(7)(a);
(iii) under-estimate, where estimate is necessary under section 18A(3)-Section 18A(8);
(b) If there is a deliberately false estimate of the income, the assessee may also become liable to a penalty under section 18A(9)(a); and similarly, if there is a failure without reasonable cause to file an estimate when required under section 18A(3), the assessee is also liable to pay a penalty under section 18A(9)(b);
(c) in cases where the aspect of estimate is not material and the emphasis is on nonpayment of advance tax due either by virtue of an order under section 18A(2) or section 18A(3), interest can be charged under section 18A(8) and the assessee is also liable to be dealt with under section 18A(10).
Sub-clause (2).- This is new. It seems desirable to make it clear that section 18A(6), 3rd and 5th Provisos, apply to interest payable under this section. Hence this sub-clause.
Notes to clause 226
This clause does not need any comments.
Notes to clause 227
The drafting changes are very minor and do not need any comments.
Notes to clause 228
Existing section 18A(12) has been embodied here, and for the sake of clarity it has also been provided that the expression "total income" occurring in the previous clauses should not include capital gains. Even though the clause dealing with incomes subject to advance tax1 excludes capital gains, the general provision has been repeated here for convenience.
1. See draft clause 215(1).
Notes to clause 229
The provisions relating to recovery of tax by the Department, contained in the present sections 45 and 46, have been broken up for the sake of simplicity into various clauses in the draft. The general provision relating to dates etc. of payment is placed first; the penalty provisions contained in existing section 46(1) is placed next. Then follow the various modes of recovery, namely,
(2) other modes of recovery,
(3) recovery by the State Government,
(4) special provisions for recovery of Indian tax in Pakistan and vice versa.
Miscellaneous provisions come at the end.
Sub-clause (1).- Existing section 45, main para, provides that any amount specified in a notice of demand under section 23A(3) or section 29 or section 31 or section 33 shall be paid within a particular time1 etc. Since, however, under section 29, a notice of demand is to be issued in all cases where any tax, penalty or interest is due under the Act, it does not appear to be necessary to mention any section except section 29. The draft, therefore, mentions section 29 only. The time-limit for payment has been mentioned in a simplified form.
1. It may also be pointed out that section 23A(3), referred to in existing section 45, has been repealed by the amendment made in 1957.
Sub-clause (2).- This is new. It appears desirable to incorporate an express provision in the Act authorising the Income-tax Officer to extend the time for payment or allow payment by instalments. Hence this sub-clause.
Sub-clause (3).- Refers to the provisions for treating the assessee as in default.
Sub-clause (4).- This is new and is consequential on sub-clause (2) of the draft which is also new.
Sub-clause (5).- It has been made clear that the power to treat an assessee who has appealed as not in default, is confined to the amount in dispute and it has also been made clear that this power can be exercised even though the time for payment has expired.
Sub-clause (6).- Does not need any comments.
Notes to clause 230
Existing section 46(1) provides that where an assessee is in default the Income-tax Officer may levy a penalty not exceeding the amount in default. Under existing section 46(1A), the Income-tax Officer may make the initial order for an amount lower than the total arrears and may go on enhancing the penalty (in the case of a continuing default) subject to the limit that the total penalty shall not exceed the total arrears. These two subsections embody a position which is not satisfactory. In the first place, they leave the matter to the discretion of the Income-tax officer.
In the second place, sub-section (1A) is not happily drafted. It creates a number of doubts as to the exact amount to which the Income-tax Officer may impose the penalty at a particular time. Speedy collection of tax would be facilitated, if interest is to run automatically from the date of default. Taking into account these considerations, the draft proposes simple interest1 at the rate of 10 per cent. from the date of default to the date of payment, and does away with the necessity of any express order by the Income-tax Officer. It would also reduce the number of appeals.
1. Cf. section 270 of the Australian Income-tax etc. Act, 1936- 1958 (rate being 10 p.c.) Also see section 54(1) of the Canadian Income-tax Act, 1948 where the rate is 6 p.c.) and section 495(1), U.K. Income-tax Act, 1952 (where the rat is 3 p.c.).
Under the scheme adopted in the draft, existing sub-section (1A) becomes unnecessary and has been omitted.
Sub-clause (2).- This is intended to provide1 that if arrears are paid within three months, the interest levied or leviable on the arrears will be remitted.
Sub-clause (3).- Does not need any comments.
1. Cf. section 495(2), U.K. Income-tax Act, 1952.s