Report No. 12
Notes to clause 5
The definition of "previous year" has been embodied in a separate clause, since it is a lengthy one. No change of substance has been made, but drafting changes have been attempted to achieve simplicity, and to state the position regarding various situations separately. Further, the provision at present contained in Rule 5(i) of the Schedule, regarding insurance business has been brought here for the sake of comprehensiveness.
Notes to clause 6
(1) The clause relating to category "not ordinarily resident" has been retained in the draft but is recommended to be omitted in order to simplify the law. This recommendation was made by the Income-tax Investigation Commission1 and also by the Taxation Enquiry Commission.2 The only difference in the taxation between a person who is ordinarily resident and not ordinarily resident is relating to the foreign income, and provision for determining the tax on foreign income in the case of a person not ordinarily resident is contained in second proviso to section 4(1). But for this difference, both of them stand on the same footing for the purpose of taxation. The retention of persons not ordinarily resident as a separate category is unnecessary.
1. Vide p. 15, para. 36, ITIC Report 1948.
2. Vide pp. 28-29, TEC Report 1953-1954, Vol. II. Ch II.
(2) The condition for residence in the case of a person who has been in India within the four preceding years has now been somewhat altered so as to require presence of the person in India for atleast thirty days in the previous year. The ambiguity caused by the phrase , "otherwise than by an occasional or casual visit" in the existing section 4A(a) (iii) will now be avoided.
(3) Section 4A(a) (iv) of the Act, authorising the Income-tax Officer to treat a person as a resident if he is satisfied" that the person, having arrived in India during year, is "likely to remain" for not less than three years has been omitted, as it gives a vague discretion to Income-tax Officer. The words "has maintained", in existing section 4A(a) (ii), have been replaced in the draft by the words "causes to be maintained", which express the intention better.
(4) Draft sub-clause (4).-This is new and has been inserted to make provision for fixing the residence of "persons" who are not individuals, Hindu undivided families, firms, associations or companies.
(5) Draft sub-clause (5).-This is new. In C.I.T. v. Savumiamurthy, (1946) 14 ITR 185, the Madras High Court has held that since there can be a separate previous year for each source of income, the residential status of the person has also to be separately determined with reference to each such source. As this procedure will be cumbersome and entail complications in practice, the newly added sub-clause provides that a person who is resident for one source of income shall be treated as resident for a such sources1.
1. A similar recommendation was made by the Income-tax Investigation Commission, (1948). Vide its report, pp. 148-149, para 534.
(6) Existing section 4A(c), latter part, dealing with the determination of the residence of a company on the basis of its income in India, is proposed to be omitted, since such test does not appear to be a proper one. (After the draft was prepared the Finance Act 1958, by section 4, has omitted it).
(7) Draft sub-cause (6).-Though the category of persons not ordinarily, resident is recommended for abolition, the existing special provisions applicable to such persons are retained in the draft. [For example, see section 4(1), 2nd proviso. See also sections 42(2) and 44D, which treat such persons on the same footing as non-residents]. These sub-causes will, therefore, be useful for the purposes of the provisions just referred to.
Existing section 4B(c) which provides that a company, firm or other association is ordinarily resident if it is resident, has been omitted in the draft, as unnecessary. The distinction between "ordinarily resident" and "not ordinarily resident" is significant only when there is a possibility of an entity being resident and yet not ordinarily resident. In the absence of anything to the contrary, a resident would have to be regard as ordinarily resident, and no express provision is necessary for the purpose.
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