Report No. 12
41. Chapter V: Incomes of other persons included in the assessee's total income.-
Income which belongs to other persons is, in certain circumstances, liable to inclusion in the total income of the assessee, e.g., under sections 16(1)(c) and 16(3). These have been grouped together in this Chapter. The language of section 16(1)(c) leads to some confusion. The provisions pertaining to settlement of income and transfer of property have therefore been separately dealt with.
42. Chapter VI: Aggregation of Income and set off or carry forward of losses.-
The method of computation of the total income, the method of computing the loss and the right to carry forward such loss to later years all pertain to the computation of total income after the income under each head has been separately computed. All these provisions have, therefore, been grouped together in this Chapter.
Under section 24 as it stands at present, a loss under a head other than capital gains is set off also against a loss under the head "Capital gains". Since the rate of tax in the case of capital gains is lower than the rate for other heads, this provision for the compulsory set off of other losses against capital gains is unfair to the assessee. The benefit which he derives from the set off is smaller than what he would have derived if the loss were set off against other income. We have, therefore, altered the provision1 by barring the set off of a loss under any head (other than capital gains) against income under capital gains, so that for the purposes of set off, capital gains now becomes a completely independent category.
1. Vide clause 37(1) and 75(1), App I.
43. The second proviso to section 24(1) does not bring out clearly the intention of the legislature. We have now put the proviso in the form of an independent section1 so as to leave no doubt as to its meaning. The provisions pertaining to set off and carry forward of the losses of registered and unregistered firms in the assessment of the firms and their partners have also been put in separate sections.2
1. See clauses 78(1) and 76(1), App I.
2. See clauses 76 to 79, App I.
44. It is now well-settled by a series of decisions1 that a cash credit whose nature and source have not been explained is to be treated as the income of the year in which it occurs. There are similar decisions2 regarding investments whose nature and source are not explained. These decisions have been codified in two sections3 of this Chapter.
1. See clause 70, App I and the notes thereto.
2. See clause 71, App I and the notes thereto.
3. Clauses 70-71, App I.
45. Chapter VIII: Incomes on which no Income-tax is payable.-
As stated at the outset, the present Act does not make a clear distinction between the three categories of exemptions:
(i) Incomes which do not form part of the total income and are altogether excluded from computation;
(ii) Incomes which form part of the total income, but which are exempt from tax;
(iii) Expenditure incurred by an assessee, on which an abatement is given.
The present Act uses the words "the tax shall not be payable" in respect of all the three categories; e.g.-
(a) Any sum received by a member of a Hindu Undivided Family as a member of such family-Section 14(1).
(b) The taxed share of a partner of an Unregistered Firm-Section 14(2)(a).
(c) Payments made to effect insurance on the life of the assessee or on the life of a wife or husband of the assessee-Section 15(1).
46. It would be inappropriate to use the same language in respect of the three categories. We consider that the expression "tax shall not be payable by an assessee" is inaccurate in respect of expenditure incurred by the assessee, as such expenditure is not part of his "income". We have, therefore, separated these three categories and put them into three different Chapters.1 We have already dealt with the first category in the Chapter2 in which all the exclusions from total income have been gathered together. The incomes which are included in the total income but exempt from income-tax have been gathered together in this Chapter. The provisions of the Act which allow a rebate in respect of expenditure incurred by the assessee, e.g., sections 15(1), 15B, etc., have been grouped together in the Chapter3 headed "Rebates and reliefs".
1. Chapters III. VII and VIII, App I.
2. Chapter II, App I.
3.Chapter VIII, App I.
47. In respect of several of the incomes referred to in the Chapter under discussion the exemption is confined to income-tax and is not applicable to super-tax. To avoid confusion, the expression "income-tax shall not be payable" has been used in this Chapter. The exemptions applicable to super-tax have been specifically mentioned, in the Chapter relating to Super-tax.1
1. Chapter XI, App I.
48. In view of the present scheme of taxation (under the Finance Act, 1958) under which no deduction is allowed for earned income, we consider it unnecessary to continue section 15A in the Act. We have therefore omitted the latter part of section 15A, leaving it to the Government to omit its earlier part also.
49. Chapter VIII: Rebates and Reliefs.-
We have discussed above1 the unsuitability of the present language in regard to abatement of tax on expenditure by the assessee. We have made the necessary verbal changes.
1. Vide paras. 45 and 46 above.
50. This Chapter provides for a deduction, from the income-tax payable on the total income, of an amount equal to the income-tax calculated at the average rate of income-tax on the amounts on which the assessee is entitled to a rebate, for example, life insurance premia, and contributions, to Provident Fund. The language of this Chapter has been borrowed from the U.K. and Ceylon Acts.1
We have slightly widened2 the provision in section 60(2), (relating to power of the Central Government to grant appropriate relief where salary is paid in arrears and other matters), so as to cover "perquisites" also. The power will thus be available where a perquisite, enjoyed in the form of cash, is paid in arrears.
1. See section 219(1), U.K. Income-tax Act, 1952, and section 14(b) of the Ceylon Income-tax Ordinance.
2. See clause 90, App I.