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Report No. 12

Notes to First Schedule

Rule 1.- The existing Schedule uses the expression "year" and defines it in rule 5(1). In the draft, however, the expression "previous year" has been used. The definition of "previous year" as adopted in the draft1 deals specifically with insurance business, so that the expression "preceding year" need not be used in the substantive provisions.

1. Draft clause 5.

Instead of the expression "income profits and gains", the shorter expression "profits and gains" has been used, on the lines of the existing section 10.

Rule 2.- Slight changes have been made to simplify the language. For example, the existing Schedule, rule 2 proviso, clauses (a), (b) and (c), repeat the word "plus". This has been replaced by the words "aggregate of the following".

Rule 3.- The following drafting changes have been made:-

1. The first proviso to the existing Schedule, rule 3(a), has been omitted, as it was applicable only to the "first such computation" made under the rule.

2. The second proviso to the existing Schedule, rule 3(a) says that if any amount reserved for policy holders is not paid to or expended on behalf of the policy holders, then the proportion previously allowed as a deduction is to be treated as a part of the surplus. The proportion has been described as "one-half or four-fifths as the case may be". The reference to "one-half" in the Act is not intelligible on first reading, because the deduction allowed is four-fifths under the main para of existing Schedule, rule 3(a). The text of the rule, as it stood before the amendment made by Act 25 of 1953, contained the words "one-half" and the intention apparently was to cover also cases where a deduction was allowed before the amendment of 1953.

Ordinarily speaking, by the time the new Act comes in force cases of deductions under the existing Act as it stood before 1953 will have been exhausted. However, as a matter of caution, the reference to "one-half" has been retained in the draft.

The words "under this Act or under the Indian Income-tax Act, 1922" have, however, been added in the draft, in order to deal with cases where a deduction under the existing Act is to be adjusted in the surplus under the new Act.

3. Existing rule 3, clause (b), uses the words "securities or other assets". But the appropriate word seems to be "investments"; that is the word used in the existing Schedule, rule 6, last sentence. The draft, therefore, uses the word "investments".

4. Existing Schedule, rule 3, clause (c), has been incorporated in the draft sub-clause (c), with minor drafting changes made for the sake of precision.

Rule 4.- This does not need any detailed comments.

Rule 5.- The changes made are all of a drafting nature and do not affect the substance of the existing law and practice.

Para (a).- The existing Schedule, Rule 6, says that the balance disclosed in the accounts is to be adjusted so as to exclude from it any expenditure "other than expenditure that may under section 10nbe allowed for in computing the profits etc. of a business". It is only expenditure that is excluded; deduction for depreciation is not, it seems, to be questioned, and must be allowed as entered in the accounts.1 Para (a) is intended to make this clear.

1. Cf. C.I.T. v. Calcutta Insurance Company, (1952) 21 ITR 404.

(It does not appear to be necessary to make any similar specific provision for deductions in the nature of loss on resale of assets etc., since disputes regarding the quantum of such deductions are not likely to arise frequently).

See also notes to Para (b) below.

Para (b).- Depreciation having been provided for in sub-clause (a), it becomes possible to use the wide wording adopted in this sub-clause, viz., that all "deductions" not allowed under section 10 should be added back.

The additions made by draft paragraphs (a) and (b) could have been made in the draft for life insurance also, but it has not been considered necessary to make such changes there, for two reasons; first, the existing rule 3 is lengthy enough, and secondly, since the bulk of life insurance business will now be carried on by the Life Insurance Corporation, a statutory body, the need for any detailed clarifications will not be felt.

Para (c).- This merely simplifies the latter half of existing schedule, Rule 6, by incorporating the provisions of existing Schedule, Rule 3(b), so as to render the reference to that rule unnecessary.

Rule 7.- The definition of "preceding year" has been omitted; it is covered by the definition of "previous year" as adopted in the draft.

The definition of "securities" has been replaced by a definition of "investment".

Notes to the Second Schedule

The detailed procedure for recovery of tax has been given in this Schedule. The draft is mainly based on the provisions of the Bengal Public Demands Recovery Act, 1913, which appears to be the most comprehensive of the Provincial and State Acts on the subject. Slight changes of substance have been made at one or two places, and the provisions have been embodied in a re-arranged form.

Notes to the Third Schedule

The Schedule does not need any comments. The provisions relating to attachment by the Collector will apply to distraint etc. effected by the Income-tax Officer himself.

Income-Tax Act, 1922 Back

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