Report No. 12
Notes to clause 296
General
Existing section 58G, sub-section (2), has been embodied in this clause. The proviso has been expressed as an item of the main sub-section.
Section 58G(2) talks of exemption from the payment of income-tax and says that the accumulated balance shall be "excluded" from the computation of the employee's total income. It is thus a case of total exclusion and has been treated so in the draft.
So far as super-tax is concerned, the exemption in section 58G(2) was originally applicable to super-tax also, but the words "and super-tax" were omitted by the Indian Income-tax (Second Amendment) Act, 1933 (18 of 1933). The reason for removing these words from this sub-section apparently was that the exemption for super-tax was dealt with separately in a separate sub-section-section 58G(1) which was introduced by the same amendment Act. This, "exemption" from payment of super-tax has, under the scheme adopted in the draft, to be treated as a rase of exclude from total income1, and, therefore, the draft clause under discussion regards the exclusion as effective both for income-tax and for super-tax.
1. Cf. Notes to clause 104.
In other words, existing section 58G(2) has, in the draft, been expressed as applicable both for income-tax and for super-tax and existing section 58G(1) earlier part, has not, therefore, been reproduced in the draft2. It is, of course, true that section 58G(1), earlier half, (that is, exemption for super-tax) does not require continuous service while section 58G(2) (exemption for income-tax) does require such service. But it does not appear necessary to make any such distinction. The draft, therefore, does not make any such distinction.
The draft clause requires five years' continuous service, before exclusion can be claimed. This will now be applicable in both cases, but it does not put a fresh burden on the assessee because, even now under section 58G(3) if the employee leaves before five years he has to pay not only income-tax but also super-tax on the basis that the exemption was not available.
Existing section 58G(1), latter part, has been incorporated in a separate clause1.
1. Vide clause 297(2).
Notes to clause 297
Sub-clause (l).- Slight verbal changes have been made for the sake of clarity.
Sub-clause (2).- Slight verbal changes have been made for precision.
Existing section 58G(1), consists of two parts. The earlier portion, exempting the accumulated balance from super-tax, has already been accounted for in the draft, as the exemption has been treated as an exclusion from total income, common to income-tax and super-tax1.
1. See notes to draft clause 296.
The latter part enacts the exception in respect of annual accretions up to 1st April, 1983. That has been reproduced in the draft with two drafting changes. First, the words "Which is not included in his total income" have been added by way of introduction. Secondly, instead of the existing negative form "except ", a positive form of language has been used to emphasise the liability to pay the amount referred to in the provision.
The provision in question was enacted only to make an adjustment necessitated by the course of legislation, (see note below), and hence the aspect of payment receives a higher emphasis compared with the aspect of liability.
The Provident Funds Chapter was introduced in 1929. Section 58E provided for the inclusion of the annual accretion in the total income. Section 58F exempted the annual accretion from income-tax, subject to certain conditions. Though the intention of the legislature was, thus, to assess the annual accretion to super-tax, by the omission of section 58F from the sections not applicable to super-tax mentioned in section 58, the provisions of section 58F became applicable to super-tax. The annual accretion, therefore, remained exempt from super-tax also up to 1933.
The legislature noticed this defect in 1933 and rectified it by including section 58F in section 58. Simultaneously section 58G(1) was introduced and 58G(2) was made not applicable to super-tax. The resulting position is that though the accumulated balance is exempt from payment of super-tax, the employee receiving the accumulated balance has to make good the super-tax that he would have paid between 1929 and 1933.
Notes to clause 298
Existing section 58H has been embodied here. The section provides that at the time of payment of the accumulated balance, the trustees shall deduct therefrom any income-tax payable under section 58G(3). So far as this requirement is concerned, the words "in cases where section [58G(3)] applies," have been added in the draft, to make it clear that deduction is permissible only where the liability for payment of tax has arisen.
The existing section further provides for the deduction of any income-tax and super-tax payable on an employee's total income as determined under section 58J(3). This requirement does not appear to be intelligible. Section 58J(3) does not really apply at the time of payment of accumulated balance to the employee and is confined to the taxation, at the time of recognition, of sums transferred to the employee's account in the recognised provident fund. This requirement has, therefore, been omitted in the draft.
Notes to clause 299
Existing section 58J is incorporated in this clause. Sub-section (4) of that section has been incorporated in the clause dealing with relaxation of conditions1.
1. Compare draft clause 291(5).
No other comments are needed.
Notes to clause 300
No comments are needed.
Notes to clause 301
No comments are needed.
Notes to clause 302
No comments are needed.
Notes to clause 303
No comments are needed.
Notes to clause 304
No comments are needed.
Notes to clause 305
"Recognised provident fund".- No change has been made in the existing definition. Section 9 of the Employees Provident Funds Act, 1952 (19 of 1952) provides that provident fund established under a scheme under that Act shall be deemed to be a recognised provident fund for the Income-tax Act. It does not appear necessary to repeat this provision in the Income-tax Act, since some of the provisions in this Chapter (for example, withdrawal) may not in terms apply to such funds.
"Employer".- In existing section 58A, clause (b), the words "maintaining the provident fund for the benefit of his or its employees" are applicable not only to the "individual" referred to in item (ii) but also to the " Hindu undivided family, company" etc., referred to in item (i). To make this clear, the substance of these words has been placed in the beginning of the definition.
Other definitions.- Do not need any comments.
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