Report No. 12
51. Chapter IX: Double Taxation Relief.-
The provisions of the Act which pertain to double taxation relief have been gathered together in this Chapter.
52. Chapter X: Provision against avoidance of tax.-
This Chapter deals with the provisions against avoidance of tax by means of transactions with nonresidents and by dealings in securities-cum-dividends and in other ways. We have also dealt in this Chapter with the provision pertaining to avoidance of tax in the hands of a resident principal.
53. As regards transactions in securities the present law (section 44F) deems the interest to accrue de die in diem. As a tax avoidance provision it would be very appropriate to tax the interest wholly in the hands of the person transferring the securities before the due date of maturity. We have altered the provision1 accordingly.
1. Vide clause 97(3), App I.
54. Chapter XI: Super-tax.-
The provisions pertaining to super-tax are contained in Chapter IX of the Act. There are a few other provisions not included in that Chapter which pertain to super tax, e.g., section 23A which provides for the levy of additional super-tax in the case of certain companies. All the provisions relating to super-tax have been brought together in this Chapter. In regard to super-tax, the basic provision that the total income for super-tax shall be the same as the total income for income-tax has been retained,1 but the provisions which exclude certain incomes from computation of the total income have been made into separate sections.2
1. Vide clause 99, App I.
2. Vide clauses 104 to 108, App I.
In connection with section 23A, we may draw attention to the latest pronouncement of the Privy Council,1 on an identical provision of a foreign statute. It decides that if having regard to the smallness of profits or past losses or any other relevant factor or circumstances the payment of a dividend or a large dividend than that declared would be unreasonable, no order should be passed under section 23A. We have not made any change in the existing section on this point; but we think that the Income-tax Officer should not pass an order under section 23A where the declaration of a dividend or a larger dividend would be unreasonable on account of current business requirements.
1. C.I.T. v. Williamson Diamonds Ltd., 1958 AC 41 (PC).
We may also draw the attention to the inconsistency inherent in the present provisions relating to tax on distributed and undistributed profits. Section 23A of the Income-tax Act taxes undistributed profits, while the provision usually inserted in the annual Finance Act has the effect of increasing the tax on excessive distribution of profits. This inconsistency must be removed. A detailed discussion of the subject appears in the notes to the relevant draft clause. We have, of course, not made any change in the existing section on this point; but we recommend that the Government should take steps as indicated.
55. We have placed under a separate group provisions relating to rebate on super-tax on certain types of expenditure or reliefs in respect of certain incomes as in the case of newly established industrial undertakings.1 The Act is not clear as to whether certain incomes exempted from super-tax are to be included in the total incomes for purposes of rate or are to be excluded altogether; for example, the exemption [in section 14(3)] in respect of cooperative societies. In our draft we have borne in mind the distinction between an item which is excluded from the total income2 and an item on which only a relief is applicable at the average rate of super-tax.2
1. See clause 109 to 112, App I.
2. Contrast clauses 104-108, on the one hand, with clauses 109 to 112, on the other, in App I.
56. Chapter XII: Determination of tax in certain special cases.-
In this Chapter we have dealt with cases which are not covered by the normal rules regarding the computation of total income or the rate of tax applicable thereto. The topics dealt with here include the computation of tax for income comprising exempt incomes, liability in respect of compensation payable, the rate of income-tax and super-tax applicable to non-residents, the made of computation of income-tax on capital gains, and so on. We have made it clear1 that in the case of compensation payable to and received by a registered firm, the special mode of computation mentioned in the Act applies to the partners. The position is not clear in the Act.
1. Vide clause 123(2), App I.
57. In respect of capital gains the provisions of the present Act are not easily intelligible, and we have therefore clarified the position by expressing the computation of tax on capital gains in the form of a mathematical formula.1
1. Vide clause 125, App I. Cf. section 6(1) of the South African Income-tax Act, 1941 for the device of mathematical formula.
58. Procedural provisions.-
The provisions pertaining to income-tax authorising and procedure are at present contained mainly in Chapters II, HA, IV, V and VA. All these provisions have been brought together, with section 64 which pertains to the place of assessment and section 54 which pertains to disclosure of information by public servants. These provisions have been divided into the following Chapters:
(i) Income-tax authorities (Chapter XIII).
(ii) Procedure for assessment (Chapter XIV).
(iii) Liability in special cases (Chapter XV).
(iv) Special provisions applicable to firms (Chapter XVI).
(v) Special provisions applicable to companies (Chapter XVII).
(vi) Collection and recovery of tax (Chapter XVIII).
(vii) Tax deemed to have been paid on dividends (Chapter XIX).
(viii) Refunds (Chapter XX).
(ix) Appeals and Revisions (Chapter XXI).
(x) Penalties imposable by Income-tax authorities (Chapter XXII).
(xi) Offences and prosecutions (Chapter XXIII).
(xii) Recognised provident funds (Chapter XXIV).
(xiii) Approved superannuation funds (Chapter XXV).
(xiv) Miscellaneous (Chapter XXVI).
59. Chapter XIII: Income-tax authorities.-
The provisions pertaining to Income-tax authorities are contained in sections 5, 54 and 64 of the present Act. The provisions contained in sections 37, 38 and 39, pertain to the powers of Income-tax authorities. We have, therefore, grouped all these sections in this Chapter.
The present classification of these provisions is not very happy. We have, therefore, classified the provisions pertaining to Income-tax authorities as under:
(a) Appointment and control,
(c) Powers, and
(d) Disclosure of information.
60. Effect has been given to the observation of the Supreme Court in a recent case1 by providing that the assessee should be given an opportunity, wherever possible, of being heard before a case is transferred from one Income-tax authority to another.
There is at present no provision in the Act as to the Income-tax authority who should take proceedings where there has been a transfer of the case from one Income-tax authority to another. A doubt has been expressed as to which Commissioner is to exercise jurisdiction when a case has been transferred from an Income-tax Officer under the jurisdiction of one Commissioner to an Income-tax Officer under the jurisdiction of another Commissioner. We have provided specifically for such cases by inserting a new section on the subject.1 The new provision will also meet cases of transfer of a case from one Income-tax Officer to another. A few minor changes made in the various sections have been indicated in the Notes on clauses.
An important addition to the provision relating to disclosure in section 54 (3) is the new provision2 enabling the Income-tax Officer to disclose the substance of the particulars on which he relies (for the purpose of an assessment) to the assessee without, of course, disclosing the name of the person to whom the particulars pertain. This is intended to give effect to the decision of the Supreme Court in the case of Dhakeshwari Cotton Mills Ltd., (1945) 26 ITR 775. One other provision added to this section3 enables the Income-tax authority to disclose the facts necessary for the purpose of enabling an officer of the Central Government to levy or realise any tax imposed by it.
A provision has also been added4 authorising the disclosure to civil courts of certain documents (like balance-sheets, profit and loss accounts etc.) prepared by companies under the Companies Act, or documents of which copies can be obtained under the Registration Act. As none of these are private documents, there is no harm in permitting their disclosure in cases where the documents are relevant in a proceeding before a civil court. Similarly, we have also added a provision5 authorising the disclosure of accounts filed by the assessee before an Income-tax authority when the accounts are required by a civil court for the purposes of proceedings to which the assessee is a party. We do not see any reason why the mere fact that the accounts are lying with the Income-tax authorities should debar their production in court.
One important change which we have made concerning section 5 may also be noticed. Section 5(8) provides that officers and persons employed in the execution of the Act shall observe the orders, instructions and directions issued by the Central Board of Revenue.
As some of the orders and instructions affect assessees in general, we have added a provision6 to the effect that orders and instructions of a general nature should be published.
We have also added a clause providing for the return of documents produced by an assessee before any Income-tax authority.7
1. Pannalal Binjarj v. Union of India, (1957) 31 ITR 565 (589): AIR 1957 SC 397 (410).
2. See clause 134, App I.
3. See clause 141(3)(c), App I.
4. Clause 141(3)(n), App I.
5. Clauses 141(3)(f)(ii) and (iii), App I.
6. Clause 130(1), 2nd Proviso, App I.
7. See clause 136(4), App I.
61. In view of the fact that we have recommended the abolition of the Appellate Tribunal, the provisions pertaining to the Appellate Tribunal have been omitted from this Chapter.