Report No. 12
Incomes which do not form Part of Total Income
Notes to clause 11
(1) This clause deals with the various kinds of income excluded in computing the total income of an assessee. Simplification has been sought to be achieved by the following devices:
(i) re-arrangement of the various clauses of section 4(3) so as to bring out their common features (e.g., existing section 4(3)(x)(b), section 4(3)(xiv) etc. have been placed in proximity to each other, as they deal with income of foreigners or employees of foreign Governments etc.)1;
1. E.g. vide clause 11(5) to 9.
(ii) analysis of the essentials of each clause, and their restatement in a form that can be easily followed; e.g., vide the draft sub-clause1 dealing with casual receipts and the draft sub-clause2 relating to local authorities;
1. Clause 11(3).
2. Clause 11(22).
(iii) incorporating in the draft clause, provisions regarding exclusions from total income at present contained in other sections of the Act1;
1. E.g., Clause 11(11) to (14).
(iv) omission of obsolete provisions;
(v) general simplification of language.
(2) Provisions relating to income from property held on trust for religious or charitable purposes, and income of religious and/or charitable institutions has been dealt with in a separate section on account of its importance1.
1. See draft clause 12.
Income of a business chargeable under the Act of 1918 and discontinued after the commencement of the present Act is, under section 25, sub-sections (3) and (4), excluded from total income. This has been dealt with in another separate section1.
1. See draft clause 13.
(3) The changes made by the Finance Act 1958, have been given effect to at the appropriate places.
(4) The changes made are mainly of a drafting nature, designed to simplify the expression as explained in para (1) above. The following sub-clauses however, deserve special notice, as the changes made there are not purely formal:-
Sub-clause (7).-Items (ii) to (v) of this sub-clause correspond to sub-clauses (b) to (e) of section 4(3) (x) of the existing Act. The requirement that the recipient must not be an Indian citizen is contained, at present, only in two sub-clauses of section 4(3) (x). Sub-clauses (b) and (d) relating to Consuls etc., and Trade Commissioners do not mention it. In the draft, however, this has been made applicable to all cases, for the sake of uniformity.
Sub-clause (8).-In the existing section 4(3)(xiv), the exemption is conditional on the stay of the employee of a foreign enterprise for a period not exceeding in the aggregate "ninety days in any year". The words "any year" are, in the context, vague. It has, therefore, been made clear that the stay should not exceed ninety days in the previous year, and it should not have exceeded ninety days in any financial year prior to the previous year.
There is no reason why this exclusion should be available to Indian citizens. The provision has therefore been altered so as to confine it to foreigners.
Sub-clause (9).-It seems desirable to extend the benefit of this clause to services rendered by a foreigner even before the actual commencement of the business. Explanation is intended' to achieve this object.
Sub-clause (15).-"Wholly and necessarily" has been replaced by "wholly and exclusively"; cf existing section 7(2)(iii) as redrafted.7 The object is to liberalise the allowance. See the recommendation of the U.K. Royal Commission on the Taxation of Profits and Income.1-2
1. Vide also notes to draft clause 15-17, para 6.
2. U.K. Royal Commission on the Taxation of Profits and Income, Final Report June, 1955 (Cmd. 9474), p. 47, para. 140.
Sub-clause (17) and (24).-These correspond to certain exemptions enjoyed, at present, under a notification issued under section 60. In view of the importance of the subject-matter of the exemptions, they have been included in the draft sub-clauses.
Exemption for members of Nepalese Forces [Existing clause (xi)].- This has been omitted. There are no Indian State Forces now, and there is no member of the Nepalese Armed Forces now serving in India.
Sub-clause (18).-This item will, of course, have to be omitted if it becomes obsolete by the time the new Act comes into force.