Amendments at a glance , Rate structure , Amendments to Income-tax Act , Amendments to Wealth-tax Act , Amendments to Companies (Profits) Surtax Act - Income Tax - 22/1969

Circular No 22 Dated 17/7/1969 · Amendments at a glance · Rate structure · Amendments to Income-tax Act · Amendments to Wealth-tax Act · Amendments to Companies (Profits) Surtax Act Finance Act, 1969 Amendments at a glance Section/Schedule Particulars Finance Act 2 and 1st Sch. Rate structure 2-13 Income-tax Act 2(18) Definition of "a company in which the public are substantially interested" and tax treatment of public companies whose equity shares are listed in a stock exchange as widely-held companies 15-18 16(iv) Increase in the standard deduction for motor-car owned by a taxpayer and used for his employment 50-52 40A(3) Expenditure in businesses or professions for which payment exceeding Rs. 2,500 is to be made by a crossed cheque or draft 32-33 40A(4) Provision for protecting payer against legal proceedings merely on the ground of payment not having been made in cash or in any other manner 34-35 80C(2)(a)/ Enlargement of the tax relief on personal savings through (b), (4)(i) life insurance policies, etc. 41-43 (prov.)/(ii) 80J(4)(iii), Extension of "tax holiday" concession to new industrial under- (5)(iii) takings commencing production, etc., after 31-3-1971 at any time during the five-year period up to 31-3-1976 39-40 80L(1)(i), (ii) Increase in the amount of dividends from Indian companies exempt from tax in the case of share-holders of all categories 44 80MM Exemption from tax of Indian companies on 40 per cent of their income by way of royalties, etc., received from any person carrying on a business in India in consideration of provision of technical know-how under an approved agreement 45-47 80P(4) Increase in the quantum of deduction in respect of business income in the case of co-operative societies 36 80RR Deduction for authors, etc., of 25 per cent of the income derived from their foreign sources in India in foreign exchange 48-49 208 Exemption limits for advance tax 20 209(a)(iii) Computation of advance tax 21 211(1), (2) Instalments of advance tax 22 212(3A) and Payment of lower amount of advance tax on taxpayer's own rule 39 estimate of his current income 23, 31 212(3A) Statutory obligation on taxpayers to pay higher amount of advance tax 24 212(3A), Charging of interest in cases of short payments of advance 215(1)/(5) tax on the taxpayer's own estimate 25-26 217(1), (1A) Charging of interest where no estimate of the advance tax payable is furnished 27-28 273 Penalty for false estimate of advance tax or default in furnishing the estimate of advance tax under section 212(3A) 29-30 5th Sch. Treatment of the cotton textile and jute textile industries as priority industries for the purpose of grant of development rebate 37-38 Wealth-tax Act 2(e), 5(1)(iva), Extension of the levy of wealth-tax to wealth comprising agri- (viiia), (ix) cultural property 53-58 18(1) Penalties for failure, to furnish return and to produce accounts, etc., called for by notice 59-61 Surtax Act 3rd Sch., prov. Removal, in the case of widely-held domestic companies of the ceiling on their aggregate liability to income-tax and surtax at 70 per cent of their total income 62-63 Rate Structure Finance Act, 1969 Rates of income-tax for the assessment year 1969-70 2. The rates of income-tax for the assessment year 1969-70 in the case of all categories of taxpayers (corporate as well as non-corporate) are specified in Part I of the First Schedule to the Finance Act. These rates (summarised in Annexure I to this circular) are the same as those specified in Part III of the First Schedule to the Finance Act, 1968, for the purpose of deduction of tax at source during the financial year 1968-69 from "salaries" and for computation of "advance tax" payable during that financial year. Accordingly, where the total income of a taxpayer consists only of income under the head "Salaries" from which tax has been correctly deducted at source during the financial year 1968-69 (and there is no variation in the taxable income on assessment), it will not be necessary to raise any additional demand or grant any refund on completion of the assessment for the assessment year 1969-70. Finance Act, 1969 Rates for deduction of tax at source from "salaries" and for computation of "advance tax", during the financial year 1969-70 3. The Finance Act, 1969 follows the principle adopted in the Finance Acts of the two earlier years that, in prescribing the rates of tax and in making new provisions in the taxation laws, measures which have the effect of bringing about a change in the tax liability or which provide a tax incentive or disincentive in any sphere should apply, prospectively, to current incomes due for assessment in the next following assessment year, and not retrospectively to incomes earned in the past, except where there are special circumstances justifying the retrospective operation of any particular provision. In conformity with this principle, changes in the rate schedule of tax which were considered necessary or desirable, have been made operative, prospectively, in relation to income falling due for assessment in the next following assessment year 1970-71. The rate schedule of tax incorporating these changes is set forth in Part III of the First Schedule to the Finance Act and is summarised in Annexure II to this circular. These rates apply for the purposes of deduction of tax at source from "salaries" in the case of individuals and from retirement annuities payable to partners of registered firms engaged in certain professions (chartered accountants, solicitors, lawyers, etc.), during the financial year 1969-70; computation of advance tax payable in that year in the case of all categories of taxpayers; and the charge or calculation of income-tax in special cases. These special cases are : section 132(5), first proviso [calculating income-tax on undisclosed income represented by seized assets in certain cases]; section 172(4) [levy of tax on provisional basis on the income of non-residents from shipping of cargo or passengers from Indian ports] section 174(2) [assessment of persons leaving India]; section 175 [assessment of persons likely to transfer property to avoid tax]; and section 176(2) [assessment of profit of a discontinued business]. The points of difference between the rate structure of tax specified in Part III of the First Schedule (for the financial year 1969-70), on the one hand, and that specified in Part I of the First Schedule (for the assessment year 1969-70), on the other, are explained in the following paragraphs 4 to 10. Finance Act, 1969 4. Individuals, HUFs, unregistered firms, association of persons, etc. - Increase in the rates of basic income-tax on incomes over Rs. 10,000 - At present, the rates of basic income-tax on the incomes of these categories of taxpayers rise, progressively, from 5 per cent on income in the slab : Re. 1—Rs. 5,000 to 75 per cent on incomes above Rs. 2,50,000. A Union surcharge at 10 per cent of the basic income-tax is also chargeable in all cases. On income in the slab Rs. 10,001—Rs. 15,000, the rate of basic income-tax at present is 15 per cent, on income in the slab Rs. 15,001—Rs. 20,000, 20 per cent, in the slab Rs. 20,001—Rs. 25,000, 30 per cent; and in the slab Rs. 25,001—Rs. 30,000, the rate is 40 per cent. In order to bring about a smoother progression in the tax rate on personal incomes, the rates of basic income-tax on income in the slabs Rs. 10,001— Rs. 15,000 and Rs. 15,001—Rs. 20,000 have been increased, respectively, by 2 per cent and 3 per cent. The increased rate is thus 17 per cent as against 15 per cent in the slab Rs. 10,001—Rs. 15,000 and 23 per cent as against 20 per cent in the slab Rs. 15,001—Rs. 20,000. The full effect of these increases will fall on taxpayers having income of Rs. 20,000 or more, and taken together with the Union surcharge of 10 per cent of the basic income-tax (which continues to be leviable at all levels of income), the additional tax will amount in each such case to Rs. 275 per year. [Paragraph A of Part III of the First Schedule to the Finance Act] Finance Act, 1969 5. Co-operative societies - Prescription of a simplified rate schedule of tax - Co-operative societies are at present entitled to several concessions under the Income-tax Act in the computation of their taxable income and they also enjoy the benefit of concessional rates of tax on their chargeable income under the annual Finance Acts. The present rate structure of tax in the case of co-operative societies is historically linked to the rate structure of tax in the case of individuals, subject to certain variations. Under the provisions of section 80P, co-operative societies are entitled to deduct from their taxable income the whole of their income from specified business activities, namely, banking, cottage industry; marketing of agricultural produce of their members; supply of agricultural implements, seeds, etc., to their members; processing, without the aid of power, of the agricultural produce of the members; and in the case of a primary co-operative society, the income from supplying milk raised by its members to a federal milk co-operative society. Co-operative societies, in general, are also entitled to deduct, from their taxable income, the first Rs. 15,000 of their income from business activities other than those specified above (but not of income from insurance business). A co-operative society is also entitled to deduct from its taxable income, the whole of the amount of interest and dividends received by it from any other co-operative society and also the income from letting of godowns and warehouses for storage, or for processing or facilitating the marketing of commodities. A co-operative society having a gross total income not exceeding Rs. 20,000 and which is not a housing society or an urban consumers' society or a society carrying on transport business or manufacturing operations with the aid of power, is also entitled to deduct from its taxable income, the whole of its income from house property and interest on securities. Where a co-operative housing society allots or leases its buildings to its members under a co-operative house-building scheme, the income from such house property is assessable directly in the hands of the members and not in the hands of the society. Finance Act, 1969 6. At present, a co-operative society whose chargeable income (as computed after deducting incomes exempt from tax, as stated above, including the first Rs. 15,000 of business income, in the generality of cases) does not exceed Rs. 4,000, is not liable to pay any tax. A co-operative society having a chargeable income exceeding Rs. 4,000 is liable to tax thereon at progressive rates rising from 5 per cent on the initial slab of Re. 1—Rs. 5,000, to 40 per cent on income in the slab over Rs. 25,000. A Union surcharge at 10 per cent of the basic income-tax is also levied in all cases. Up to Rs. 20,000 of the chargeable income, the rates of tax in the case of a co-operative society are the same as in the case of an individual. On the chargeable income of a co-operative society in the slab Rs. 20,001—Rs. 25,000, the rate of basic income-tax is 25 per cent as against 30 per cent in the case of an individual. The chargeable income of a co-operative society above Rs. 25,000 bears income-tax at a flat rate of 40 per cent as against rates rising progressively from 40 per cent to 75 per cent in the case of an individual. Finance Act, 1969 7. With a view to rationalising and simplifying the scheme of taxation of the income of co-operative societies, the Finance Act, 1969 has made the following changes : 1. The amount of business income exempt from tax in the generality of cases of co-operative societies has been increased by Rs. 5,000 from Rs. 15,000 to Rs. 20,000. This has been brought about by amendment of sub-section (2) of section 80P. Further, the benefit of this exemption up to Rs. 20,000 has been extended also in respect of incomes derived by co-operative societies from insurance business. This result is brought about by the omission of sub-section (4) of section 80P. The above-mentioned changes will be operative with effect from 1-4-1970, i.e., for the assessment year 1970-71 and subsequent years. 2. A new simplified rate structure of tax, different from that in the case of individuals, has been prescribed in the case of co-operative societies for the purpose of computation of advance tax payable by them during the financial year 1969-70. Under the new rate structure of tax, the rate of basic income-tax on the chargeable income of a co-operative society (as computed after deducting the incomes exempt from tax) in the slab Re. 1—Rs. 10,000 is 15 per cent; on the chargeable income in the slab Rs. 10,001—Rs. 20,000, 25 per cent; and on chargeable income above Rs. 20,000, it is 40 per cent. A Union surcharge at 10 per cent of the basic income-tax will be leviable in all cases as at present. Unlike the position under the existing rate schedule, under which a co-operative society having a chargeable income not exceeding Rs. 4,000 is not liable to pay tax, the new rate schedule does not contain any such exemption. This is consequential to the increase, from Rs. 15,000 to Rs. 20,000, in the amount up to which business income will be deductible in computing the taxable income of a co-operative society, in the generality of cases as stated at ( 1 ) above. Finance Act, 1969 8. The combined effect of the amendment to section 80P and the prescription of the simplified rate schedule of tax in the case of co-operative societies will be that on a gross total income up to Rs. 30,000, the incidence of tax on co-operative societies on the revised basis will be either the same as, or marginally less than, under the earlier provisions. On a gross total income above Rs. 30,000, the incidence of tax on the proposed basis will be marginally higher than formerly, the additional tax payable being not more than Rs. 275 in any case. This increase is in line with the similar increase in the incidence of tax on personal incomes as stated in paragraph 4 above. [Section 10 of, and Paragraph B of Part III of the First Schedule to, the Finance Act] Finance Act, 1969 9. Registered firms - At present, registered firms are chargeable to tax on their total income separately but the tax payable by them is allowed as a deduction in computing the individual shares of the partners in the income of the firm. Under the rate schedule of tax in the case of registered firms for the assessment year 1969-70, the first Rs. 25,000 of their total income does not bear any tax, but, on the balance, tax is chargeable at rates of basic income-tax rising progressively from 6 per cent on income in the slab Rs. 25,001—Rs. 50,000, to 20 per cent on income above Rs. 1,00,000. Registered firms are also liable to pay ordinary surcharge at 20 per cent of the basic income-tax (10 per cent in the case of a registered firm deriving income mainly from a profession) and a special surcharge of 10 per cent of the aggregate amount of the basic income-tax and the ordinary surcharge. The Finance Act, 1969 enlarges the area of taxation of the current income of registered firms by reducing the amount of the initial slab of income exempt from tax from Rs. 25,000 to Rs. 10,000. the rate of tax on income in the slab Rs. 10,001—Rs. 25,000 is prescribed at 4 per cent. The rates of basic income-tax in the income slabs above Rs. 25,000, as also the rates of ordinary surcharge and special surcharge continue unchanged. Finance Act, 1969 10. In consequence of the levy of basic income-tax on incomes of registered firms in the slab Rs. 10,001—Rs. 25,000 at 4 per cent, a firm with a total income of Rs. 25,000 and above, will be liable to pay, in each case, an additional amount of tax (including surcharges) of Rs. 792 (Rs. 726 where the firm derives income mainly from a profession). The partners of the firm will, of course, recoup a part of this additional tax as it is allowed as a deduction in computing their individual shares in the income of the firm. [Paragraph C of Part III of the First Schedule to the Finance Act] Finance Act, 1969 11. Other categories of taxpayers - In the case of local authorities, the Life Insurance Corporation of India and companies (other than the life Insurance Corporation), the rates of income-tax specified respectively in Paragraphs D, E and F of Part III of the First Schedule to the Finance Act, 1969, for the purpose of the computation of the "advance tax" payable by them during the financial year 1969-70, are the same as the rates of income-tax specified, respectively, in Paragraphs D, E and F of Part I of the said First Schedule for incomes assessable for the assessment year 1969-70. Finance Act, 1969 12. General - As already stated in paragraph 3 above, the changes in the rates of income-tax set forth in paragraphs 4 to 10 are operative only for the purpose of deduction of tax at source from "salaries" and retirement annuities payable to partners of registered firms engaged in specified professions, during the financial year 1969-70; computing "advance tax" payable during the said financial year; and for charging or calculating income-tax in special cases. Finance Act, 1969 Rates for deduction of tax at source from incomes other than "salaries" and retirement annuities payable to partners of registered firms engaged in specified professions 13. Part II of the First Schedule to the Finance Act specifies the rates at which tax is to be deducted at source from income other than "salaries" and retirement annuities payable to partners of registered firms engaged in specified professions. These rates are the same as those specified in Part II of the First Schedule to the Finance Act, 1968. Amendments to Income-tax Act Finance Act, 1969 Nature of amendments 14. The amendments made by the Finance Act, 1969 to the Income-tax Act, 1961, may be broadly classified under the following heads : 1. Rationalisation and simplification of its provisions. 2. Incentives for industrial development. 3. Measures for facilitating personal savings and investment. 4. Measures for providing tax relief in certain directions. The substance of these provisions is explained in the following paragraphs. Provisions for rationalisation and simplification Finance Act, 1969 Treatment of public companies whose equity shares are listed in a recognised stock exchange in India as widely-held companies 15. The Income-tax Act makes a distinction in tax treatment as between a domestic company in which the public are substantially interested (widely-held domestic company) and one in which the public are not substantially interested (closely-held domestic company). Closely-held companies are required, subject to certain exceptions, to distribute dividends up to the statutory percentage of their distributable income, failing which they are liable to pay an additional income-tax with reference to their undistributed profits. Closely-held companies are (subject to certain exceptions) also liable to income-tax on their incomes at rates which are higher than in the case of widely-held domestic companies. Finance Act, 1969 16. A public company is treated for the purpose of income-tax as "a company in which the public are substantially interested" only if it satisfies the various tests laid down in the definition of that term in section 2( 18 ). One of these tests is that not less than 50 per cent of its equity capital should have been beneficially held throughout the relevant accounting year by Government, a statutory corporation, any other company in which the public are substantially interested (or a wholly-owned subsidiary of such a company) or by members of the public (excluding a director of the company or a closely-held company). Another test is that the shares in the company were dealt with in any recognised stock exchange in India at any time during the relevant accounting year or were freely transferable by the shareholders to other members of the public. A further test required to be satisfied by the company is that its affairs or shares carrying more than 50 per cent of its total voting power were, at no time during the relevant accounting year, controlled or held by five or fewer persons. In applying this test, persons who are relatives of one another, and persons who are nominees of any other person together with that other person, are treated as a single person. The application of all these tests, which have to be satisfied by a company cumulatively, involves an enquiry into the control and distribution of the ownership of its equity shares throughout the relevant accounting year, which is time-consuming and gives rise to uncertainty about the company's tax liability, besides leading to litigation. Finance Act, 1969 17. The Finance Act, 1969 has accordingly amended section 2( 18 ) to secure that a public company whose equity shares are listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956, and the rules made thereunder will be treated as "a company in which the public are substantially interested" without applying to it any of the above-mentioned tests. These tests (other than the one relating to the shares in the company being the subject matter of dealings in a recognised stock exchange in India, which has been deleted in consequence of the new provision stated above) will be applied only in the case of a public company whose equity shares are not listed in a recognised stock exchange in India. Finance Act, 1969 18. The amendment of section 2( 18 ) takes effect from 1-4-1970 and will, therefore, be operative for the assessment year 1970-71 and subsequent years. [Section 3 of the Finance Act] Finance Act, 1969 Rationalisation and simplification of the existing scheme for payment of advance tax under the Income-tax Act 19. The Finance Act, 1969 has made several changes in the provisions relating to advance tax contained in the Income-tax Act. These changes take effect, generally, from 1-4-1969; but those relating to charging of interest for non-furnishing of estimate of the advance tax payable or short payment of advance tax on the taxpayer's own estimate and levy of penalty for false estimates or failure without reasonable cause to furnish an estimate of the advance tax payable, etc., are operative from 1-4-1970, i.e., for the assessment year 1970-71 and subsequent years. The main features of the changes made by the Finance Act, 1969 in the provisions in the Income-tax Act relating to advance tax are explained in the following paragraphs. Finance Act, 1969 Exemption limits for advance tax 20. No advance tax will be payable in cases where the income subject to advance tax does not exceed the following limits : Rs. a. In the case of a company or a local authority [In these cases, the limit is the same as before] 2,500 b. In the case of a registered firm [Formerly, the exemption limit was Rs.27,500] 30,000 c. In the case of a person other than a company, local authority or a registered firm— ( i ) for non-residents 5,000 ( ii ) for others 10,000 Formerly, the exemption limit in the case of non-residents was Rs. 2,500 and in other cases, it was Rs. 6,500. [Section 208 of the Income-tax Act as amended by section 12 of the Finance Act, 1969, with effect from 1-4-1969] Finance Act, 1969 Computation of advance tax 21. In computing the advance tax payable, the tax deductible at source on the gross amount of income which is subject to such deduction and which has been taken into account in computing the total income will be set off against the tax calculated on the income subject to advance tax and the balance will be the advance tax payable. Under the law prior to its amendment by the Finance Act, 1969, such set off was allowable for the tax deductible at source only on that part of the income subject to deduction of tax which was included in the total income. The following examples will make the position clear : Example 1 : Widely - held domestic company. Particulars of last completed assessment Rs. Rs Business income 2,00,000 Inter-corporate dividends 2,50,000 Less : Deduction of 60% thereof allowable under section 80M in computing the total income 1,50,000 Dividend income included in the total income 1,00,000 Total income last assessed 30,00,000 Computation of advance tax under the amended law Income-tax on Rs. 3,00,000 @ 55% 1,65,000 Less : Tax deductible at source @ 22%, on the gross amount of inter-corporate dividends of Rs. 2,50,000 (which has been taken into account in computing the total income of Rs. 3,00,000) 55,000 Net advance tax payable 1,10,000 [Under the law prior to its amendment by the Finance Act, 1969, the tax deductible at source on inter-corporate dividends of Rs. 1 lakh only, which is included in the total income, could be set off against the advance tax calculated on the last assessed income.] Example 2 : Indian company Particulars of last completed assessment Rs. Rs. Business income 1,00,000 Gross amount of interest 50,000 Less : Interest paid on own borrowings 30,000 Net interest included in the total income . 20,000 Total income last assessed 1,20,000 Computation of advance tax under the law as amended Income on the total income of Rs. 1,20,000 @ 55% 66,000 Less : Tax deductible at source at 20 per cent from the gross interest of Rs. 50,000 (which has been taken into account in computing the total income of 1,20,000) 10,000 Net advance tax payable 56,000 [Under the law prior to its amendment, the tax deductible at source on the net amount of interest of Rs. 20,000 only, which is included in the total income could have been set off against the advance tax calculated on the last assessed income.] [Section 13 of the Finance Act, 1969] Finance Act, 1969 Instalments of advance tax 22. Under the amended law, advance tax will be payable during the financial year 1969-70 and subsequent years by all categories of persons in three equal instalments, as against four instalments for certain categories of cases and three for others, under the law prior to its amendment. The due dates of instalments under the new scheme are : 1. In the case of a person deriving 75 per cent or more of the income subject to advance tax from a source or sources for which the previous year ends on or before December 31 June 15, September 15 and December 15. 2. In any other case September 15, December 15 and March 15. Under the proviso to section 211(1), the Central Board of Direct Taxes (Board) may, by a notification in the Official Gazette, authorise any class of assessees for whom the last instalment of advance tax falls due on December 15, as stated at ( 1 ) above, to pay such last instalment on March 15 of the financial year, subject to such conditions as may be specified in the notification. The Board will, in issuing such a notification, take into account the nature of dealings in the business carried on by such assessees, the method of accounting followed by them and other relevant factors. [Section 15 of the Finance Act, 1969] Finance Act, 1969 Payment of lower amount of advance tax on taxpayer's own estimate of his current income 23. Hitherto, a person required to pay advance tax in accordance with the demand notice issued under section 210 could pay a lower amount of advance tax only if the current income ( i.e., income of the previous year relevant to the assessment year next following the financial year) as estimated by him was less than the income on which the demand for advance tax was based. This provision has been liberalised to permit the payment of a lower amount of advance tax than that demanded, also if, for any other reason, the taxpayer considers that the advance tax payable by him on his current income would be lower than the amount demanded. For instance, where advance tax has been demanded from a domestic company at the rate of 65 per cent on its last assessed income, on the footing that it is a closely-held non-industrial company, but the company has, during the current year qualified for being treated as a widely-held company, or as a closely-held industrial company, it will be permissible for it to pay advance tax calculated at the rate of tax applicable to widely-held companies or to closely-held industrial companies, as the case may be. Finance Act, 1969 New provision laying statutory obligation on taxpayers to pay a higher amount of advance tax than that demanded in certain cases 24. The Finance Act, 1969 has inserted a new sub-section (3A) in section 212, under which persons from whom advance tax has been demanded by an order under section 210 will be under an obligation to estimate their current income and pay advance tax thereon if such tax exceeds the advance tax demanded by more than one-third of the latter amount. The higher amount of advance tax in such cases will be payable on such of the due dates of instalments of advance tax as have not expired. It will be open to the taxpayer to revise his estimate. [Section 16 of the Finance Act, 1969] Finance Act, 1969 Charging of interest in cases of short payments of advance tax on the taxpayer's own estimate 25. Section 215 provides for the charging of interest, at the time of regular assessment, from persons who have paid advance tax on their own estimate in an amount which falls short of the assessed tax by more than 25 per cent thereof. The interest is calculated on the amount by which the advance tax paid falls short of 75 per cent of the assessed tax. This provision continues to be applicable to assessments for assessment years up to and inclusive of the assessment year 1969-70. However, under the provisions of section 215 as amended by the Finance Act, 1969, with effect from 1-4-1970 ( i.e., for the assessment year 1970-71 and subsequent years), the interest will be calculated on the amount by which the advance tax paid falls short of the assessed tax, instead of the shortfall from only 75 per cent thereof. The condition of liability to the penal interest remains unchanged, that is to say, interest will be chargeable only in cases where the shortfall in payment of advance tax is more than 25 per cent of the assessed tax. Finance Act, 1969 26. The amended provision will apply also in cases where there is a short payment of advance tax on an estimate furnished by the taxpayer under the new sub-section (3A) of section 212 referred to in paragraph 24 above. [Section 18 of the Finance Act, 1969] Finance Act, 1969 Charging of interest where no estimate of the advance tax payable is furnished 27. Section 217 provides for the charging of interest, at the time of regular assessment, in the case of a person who was not assessed to tax previously but did not furnish an estimate of the advance tax payable by him in accordance with section 212(3). The interest is to be calculated on an amount equal to 75 per cent of the tax determined on regular assessment. This provision continues to be applicable up to and inclusive of the assessment year 1969-70. However, the provisions of section 217 have been amended by the Finance Act, 1969, with effect from 1-4-1970, i.e., for the assessment year 1970-71 and subsequent years. Under the amended provisions, the interest chargeable from a person who had previously not been assessed to tax for not furnishing the estimate of advance tax payable by him will be calculated on the entire amount of the assessed tax, instead of on 75 per cent thereof. Finance Act, 1969 28. Further, under the amended provisions, interest will also be chargeable in the case of a person from whom advance tax has been demanded by a notice under section 210 but who has not complied with the requirement under the new sub-section (3A) of section 212 of furnishing an estimate of his current income and of paying the advance tax on that basis, if such tax exceeds the advance tax demanded by more than one-third of the latter. In such a case, the interest will be calculated on the amount by which the advance tax actually paid falls short of the assessed tax. [Section 20 of the Finance Act, 1969] Finance Act, 1969 Penalty for false estimate of advance tax or default in furnishing the estimate of advance tax under the new sub-section (3A) of section 212 29. Section 273 provides for imposition of penalty on a person who furnishes a false estimate of advance tax under section 212 or who defaults without reasonable cause, in furnishing an estimate of the advance tax payable by him under section 212(3). The Finance Act, 1969 has substituted a new section for the existing section 273 with effect from 1-4-1970, i.e., for the assessment year 1970-71 and subsequent years. Under the new provisions, penalty will be imposable also in a case where a person furnishes a false estimate of the advance tax payable by him under the new sub-section (3A) of section 212, or fails, without reasonable cause, to furnish such an estimate. The scale of penalty for such defaults will be as under : 1. In a case where a false estimate has been furnished under the new sub-section (3A) of section 212, the base for calculating the penalty will be the amount by which the advance tax actually paid falls short of 75 per cent of the assessed tax or the advance tax demanded by a notice under section 210, whichever is less; the quantum of the penalty will be a minimum of 10 per cent and a maximum of one and one-half times of such shortfall. 2. In a case where a person has failed, without reasonable cause, to furnish the estimate of advance tax payable by him under the new sub-section (3A) of section 212, the base for calculating the penalty will be the amount by which the tax demanded by a notice under section 210 falls short of 75 per cent of the assessed tax; the quantum of the penalty will be a minimum of 10 per cent and a maximum of one and one-half times of such shortfall. Finance Act, 1969 30. The new provisions of section 273 are applicable for the assessment year 1970-71 and subsequent years. The levy of penalty for defaults in the matter of advance tax for the assessment year 1969-70 and earlier years will be governed by the provisions of section 273 before its amendment by the Finance Act, 1969. [Section 22 of the Finance Act, 1969] Finance Act, 1969 Consequential amendment in rule 39 31. In consequence of the changes made in the scheme of advance tax payments, through the Finance Act, 1969, the Board has made certain amendments to rule 39 of the Income-tax Rules relating to estimate of advance tax and also Form No. 28 (demand notice under section 156 for payment of advance tax) together with the Enclosure thereto, and Form No. 29 (estimate of advance tax under section 212) prescribed under the Rules. These amendments have been notified in the Gazette of India, Extraordinary, dated 23-5-1969 in Notification No. SO 2000 of that date. Finance Act, 1969 Expenditure in businesses or professions for which any payment exceeding Rs. 2,500 at a time is to be made under section 40A(3), by a crossed bank cheque or draft 32. A provision was made by the Finance Act, 1968 in section 40A(3) for disallowance of expenditure in businesses and professions for which payment is made (after a date to be notified by Government) in an amount exceeding Rs. 2,500, unless the payment is made by a crossed bank cheque or draft. This provision is not to apply in the cases and circumstances notified in the Income-tax Rules. Under the Government's Notification No. SO 623, dated 14-2-1969, the above-mentioned provision has been given effect in relation to payments made after 31-3-1969. The cases and circumstances in which this provision will not be operative have also been specified in the Income-tax Rules under Notification No. SO 624, dated 14-2-1969. These exceptions (set forth in new rule 6DD of the Income-tax Rules, 1962) were notified after considering the views expressed by Chambers of Commerce and other public bodies on the draft Rules published earlier, and cover broadly the following categories of payments : 1. Payments made to the Reserve Bank of India, the State Bank of India, other banking institutions including co-operative banks and land mortgage banks, agricultural credit societies, the Life Insurance Corporation of India, Unit Trust of India and specified financial institutions. 2. Payments made to Government in cases where, under the rules framed by it, such payment is required to be made in legal tender. 3. Payments which, under a contract entered into by the taxpayer before 1-4-1969, have to be made in legal tender. 4. Certain categories of payments made through the banking system, e.g., letters of credit, mail or telegraphic transfers, inter-bank book adjustments and bills of exchange made payable only to a bank. 5. Payments made by book adjustment by the taxpayer in the account of the payee against money due to the taxpayer for any goods supplied or services rendered by the taxpayer to the other party. 6. Payments made to cultivators, growers or producers for purchase of agricultural or forest produce, animal husbandry products (including hides and skins), products of dairy or poultry farming; products of horticulture or apiculture; fish or fish products; or the products of any cottage industry run without the aid of power. 7. Payments made in a village or town not served by any bank to any person ordinarily residing or carrying on any business or profession in any such village or town. 8. Payments of terminal benefits, such as gratuity or retrenchment compensation, to low-paid employees or members of their families. Besides, there is a residuary exception to the operation of the provisions of section 40A(3) in a case where the taxpayer establishes that the payment could not be made by a crossed bank cheque or draft due to exceptional or unavoidable circumstances and also furnishes evidence as to the genuineness of the payment and the identity of the payee. Finance Act, 1969 33. It may be noted that the provision in section 40A(3) is applicable to all categories of expenditure incurred in businesses and professions, including expenditure on purchase of raw materials, stores or goods, salaries to employees and also other expenditure or professional services, or by way of brokerage, commission, interest, etc. In general, it may be stated that the provision applies to all payments for which a deduction is admissible in computing the taxable income of the payer. By this test, therefore, the provision does not apply to the advancement of loans or repayment of the principal amount of any loan, as these do not constitute expenditure deductible in computing taxable income. However, payments of interest in amounts exceeding Rs. 2,500 at a time have to be made by crossed bank cheque or draft in order to qualify for deduction in computing the taxable income. Similarly, the provision does not apply to payments made by commission agents ( arhatiyas ) for goods received by them for sale on commission on consignment basis, because such a payment is not an expenditure deductible in computing the taxable income of the commission agent. For the same reason, the requirement does not also apply to advance payments made by the commission agent to the party concerned against supply of goods. However, where a commission agent purchases goods on his own account and not on commission basis, the requirement will apply to payments made for such purchases. Finance Act, 1969 Provision protecting payer against legal proceedings merely on the ground of payment not having been made or tendered in cash or in any other manner 34. At the time of consideration of the Finance Bill, 1968 in Parliament, apprehensions were expressed in certain quarters that difficulties might arise in the operation of the provisions in section 40A(3) unless persons who make payments by crossed cheques or bank drafts were protected from legal action on the ground that the payment was not made in legal tender. In order to secure the smooth operation of the provisions of section 40A(3), the Finance Act, 1969 has made a further provision, in new sub-section (4) of section 40A, to the effect that where a taxpayer makes a payment in an amount exceeding Rs. 2,500 by crossed bank cheque or draft in order to avoid disallowance of the expenditure under section 40A(3), no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or any other manner. This provision is effective from 1-4-1969, that being the date from which the requirement of section 40A(3) of making payments in respect of expenditure in businesses and professions in amounts exceeding Rs. 2,500 by crossed bank cheques or drafts has become effective under Notification No. SO 623, dated 14-2-1969. Finance Act, 1969 35. It may be noted that the provision in the new sub-section (4) of section 40A does not preclude the recipient of the payment from taking recourse to the remedies open to him under the law for realising the amount due to him in a case where he fails to obtain payment on the cheque issued by the payer. The provision is intended merely to protect persons making payment by a crossed bank cheque or draft in order to comply with the provisions of section 40A(3) from being subjected to legal proceedings for not making the payment in cash or in any other manner. The protection extends even to cases where the recipient of the payment would have been entitled to be paid in cash or in any other manner under any law for the time being in force or under any contract. It may be recalled that under one of the exceptions in the new rule 6DD referred to in paragraph 32 above, payments made in legal tender under contracts entered into by the taxpayer before 1-4-1969 will not be subjected to disallowance under section 40A(3). [Section 5 of the Finance Act] Finance Act, 1969 Increase in the quantum of deduction in respect of business income in the case of co-operative societies 36. The Finance Act, 1969 has amended section 80P. Under one of the amendments, the amount of deduction in respect of business income (other than from specified business activities in respect of which the whole of the business income is exempt) admissible in computing the total income of a co-operative society has been increased from Rs. 15,000 to Rs. 20,000. The other amendment deletes sub-section (4) of section 80P. The result of this deletion is that co-operative societies deriving income from insurance business will also be eligible for the deduction of Rs. 20,000 in the computation of their taxable income. The rationale and effect of these changes have been explained already in paragraphs 5 to 8. The amendments to section 80P will be effective from 1-4-1970 and will, accordingly, be operative in respect of the assessment year 1970-71 and subsequent years. [Section 10 of the Finance Act] Incentives for Industrial Development Finance Act, 1969 Treatment of the cotton textile and jute textile industries as priority industries for the purpose of grant of development rebate 37. A taxpayer who acquires a new ship or instals new machinery or plant for the purpose of his business is entitled, under the Income-tax Act, to a deduction on account of development rebate calculated at a specified percentage of the cost of such ship or machinery or plant. The rate of development rebate on new ship is 40 per cent. In respect of new machinery or plant installed up to 31-3-1970, the rate of development rebate for a "priority industry" ( i.e., an industry manufacturing or producing any of the articles or things specified in the Fifth Schedule to the Income-tax Act) is 35 per cent of the cost of such machinery and plant; and for any other industry it is 20 per cent. In respect of new machinery and plant installed after 31-3-1970, the rates of development rebate will, under the present law, stand reduced to 25 per cent and 15 per cent respectively. Finance Act, 1969 38. To facilitate the modernisation of two of our important export industries, namely, the cotton textile industry and the jute textile industry, so as to increase their productive capacity and strengthen their competitive position in world markets, the Finance Act, 1969 extends to these two industries the "priority industry" treatment for the purpose of development rebate. This is brought about by adding the following two items to the list of articles and things relating to priority industries for the purpose of development rebate, contained in the Fifth Schedule to the Income-tax Act, with effect from 1-4-1970 : "(32) Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yarn, hosiery and rope. (33) Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of jute, including jute twine and jute rope." The effect of adding these items to the list of articles and things in the Fifth Schedule is that all new machinery and plant installed in a cotton textile mill or a jute textile mill in any accounting year relevant to the assessment year 1970-71 ( e.g. Samvat year ending on Diwali day in 1969, calendar year 1969 or financial year 1969-70) or any later year, will qualify for development rebate at the higher rate as for priority industries. As already stated, such higher rate will be 35 per cent of the cost of new machinery and plant where it is installed up to 31-3-1970 and 25 per cent where it is installed after that date. [Section 23 of the Finance Act] Finance Act, 1969 Extension of "tax holiday" concession to new industrial undertakings commencing production or operation, and ships brought into use by Indian companies, after 31-3-1971, at any time during the five-year period up to 31-3-1976 39. The Income-tax Act provides a "tax holiday" for a specified period on profits derived by any taxpayer from a newly set up industrial undertaking manufacturing articles or operating a cold storage plant in India, as also profits derived by an Indian company from a ship owned by it or the business of an approved hotel carried on by it, subject to certain conditions. The "tax holiday" consists in the exemption from tax of profits up to 6 per cent per annum of the capital employed in the undertaking, ship or hotel. In the case of an industrial undertaking owned by a co-operative society, the period of the "tax holiday" is 7 years and in other cases, 5 years, from the year in which the undertaking commences production or operation. In the case of a ship or approved hotel, the period of the "tax holiday" is five years from the year in which the ship is brought into use or the hotel starts functioning. Any deficiency from 6 per cent per annum return on the capital during the "tax holiday" period is allowed to be carried forward and set off against the profits of subsequent years up to a period of 8 years from the initial year. Shareholders of companies are exempt from tax on dividends which are attributable to the "tax holiday" profits of the company paying the dividend. Under the law, before its amendment by the Finance Act, 1969, the "tax holiday" concession was available in the case of industrial undertakings going into production or operation up to 31-3-1971 and ships brought into use by an Indian company up to that date. There is no such time limit in the case of approved hotels run by Indian companies. Finance Act, 1969 40. Having regard to our continuing need for establishment of new industrial units and the expansion of our shipping fleet, the Finance Act, 1969 has amended section 80J so as to continue the concession of the "tax holiday" for a further period of 5 years. Under the amendment, the "tax holiday" concession will be available to industrial undertakings commencing production or operation, as also ships brought into use by Indian companies, at any time up to 31-3-1976. [Section 7 of the Finance Act] Measures for facilitating personal savings investment Finance Act, 1969 Enlargement of the scope of tax relief on personal savings through life insurance policies, etc. 41. An individual effecting savings out of his income chargeable to tax through specified media, such as life insurance, provident fund (including the Public Provident Fund), 10-year or 15-year Cumulative Time Deposits in Post Office Savings Banks, etc., is entitled to tax relief on such savings up to a specified limit. A Hindu undivided family is also entitled to tax relief on savings through life insurance up to a specified limit. In regard to savings through life insurance, the tax relief is presently available, in the case of an individual, on premiums paid on a policy of life insurance or deferred annuity on the life of the individual or on the life of his or her spouse, but not on premiums in respect of an insurance policy on the life of any child of the individual. In the case of a Hindu undivided family, tax relief is available in premiums paid on insurance policies on the life of any male member of the family or the wife of such male member, but not on premiums on an insurance policy on the life of any other female member of the family. Finance Act, 1969 42. In the case of an individual, the overall amount of savings through life insurance, etc., qualifying for tax relief for a year is limited, in the generality of cases to 30 per cent of the gross total income or Rs. 15,000, whichever is less. Where the individual is an author, playwright, artist, musician or actor, tax relief is admissible on savings up to such higher limits as are specified in the Income-tax Rules, subject, however, to the condition that the author, playwright, artist, etc., has effected an insurance policy on his life or on the life of his or her spouse before 1-3-1964 and pays premium during the relevant year to keep such policy in force. Under the Income-tax Rules, the higher limit over savings qualifying for tax relief in the case of authors, playwrights, artists, etc., is 33 1/3 per cent of the professional income plus 30 per cent of his other income, or Rs. 25,000, whichever is less. In the case of a Hindu undivided family, the limit over the amount of savings through life insurance qualifying for tax relief is 30 per cent of the gross total income or Rs. 30,000, whichever is less. The tax relief on savings up to the above-mentioned limits is granted in each case by allowing a deduction, in the computation of taxable income of 60 per cent of the first Rs. 5,000 and 50 per cent of the balance of the savings qualifying for relief. Finance Act, 1969 43. The Finance Act, 1969 has amended the provisions of section 80C with a view to enlarging the area of tax relief on savings through life insurance policies and to provide tax relief in the case of authors, playwrights, artists, etc., on the wider base in all cases as explained hereunder : 1. Life insurance policies - In the case of an individual, tax relief will be available from the assessment year 1970-71 onwards also in respect of premiums on an insurance policy (including a deferred annuity policy) on the life of any child of the individual. This provision will cover premiums paid on insurance policies on the lives of two or more children of the individual, and regardless of whether the child is minor or major. In order to qualify for the tax relief, premiums on such policies should have been paid out of the individual's income chargeable to tax. In the case of a Hindu undivided family, tax relief will be available from the assessment year 1970-71 onwards also in respect of premiums paid out of the family's income on an insurance policy on the life of any female member of the family, whether or not such female member is the wife of male member of the family. Premiums paid on an insurance policy on the life of the wife of a member of the family are already eligible for tax relief under the existing law and will continue to be so eligible. The above changes take effect from 1-4-1970 and will, therefore, be operative for the assessment year 1970-71 and subsequent years. 2. Authors, playwrights, artists, musicians and actors - In their cases, the existing condition in the law that they should have a life insurance policy effected before 1-3-1964, in order to be eligible for tax relief on savings through life insurance, etc., up to the higher limit specified in the Income-tax Rules, has been deleted with effect from 1-4-1969. The effect of this will be that for the assessment year 1969-70 and subsequent years, authors, playwrights, artists, musicians and actors will be eligible for tax relief on their savings through life insurance, provident funds, 10-year or 15-year Cumulative Time Deposits Accounts in Post Offices, etc., up to higher limit specified in the Income-tax Rules, even where they have effected a life insurance on or after 1-3-1964. Tax relief on the wider base will be admissible even in cases where there is no life insurance policy but savings have been effected through other specified media, e.g., the Public Provident Fund or 10-year or 15-year Cumulative Time Deposits in Post Offices. [Section 6 of the Finance Act] Finance Act, 1969 Increase from Rs. 500 to Rs. 1,000 in the amount of dividends from Indian companies exempt from tax in the case of shareholders of all categories 44. The Finance Act, 1969 has amended section 80L with effect from 1-4-1970. Under the section as amended, taxpayers of all categories will be eligible to deduct, in the computation of their taxable incomes, dividends received by them from Indian companies during the year up to an amount of Rs. 1,000, as against Rs. 500 specified in the section before amendment. This provision is designed to encourage persons in the lower and middle income brackets to make larger investments in the shares of Indian companies and also to improve the investment climate. The higher deduction of Rs. 1,000 will be available in respect of the assessment year 1970-71 and subsequent years. [Section 8 of the Finance Act] Provisions for tax reliefs in certain directions Finance Act, 1969 Exemption from tax of Indian companies on 40 per cent of their income by way of royalties, technical service fees, etc., received from any person carrying on a business in India in consideration of provision of technical know-how or technical services under an approved agreement 45. In order to minimise the repetitive import of technology and to encourage the development of local know-how, provision has been made in new section 80MM for the taxation of the income derived by Indian companies from the transfer or servicing of such know-how on a concessional basis. Under new section 80MM, an Indian company deriving income by way of royalties, technical service fees, commission or otherwise (except gains) from any person carrying on a business in India, in consideration of providing technical know-how or rendering technical services to such person, will be entitled to a deduction of 40 per cent of such income in the computation of its taxable income. This provision will cover technical know-how (whether patented or not) which is likely to assist in the manufacture or processing of goods or materials or in the installation or erection of machinery or plant for such manufacture or processing, or in operations relating to mining, including prospecting and testing of mineral deposits or winning access to them, agriculture, animal husbandry, dairy or poultry farming, forestry or fishing. The technical services, covered by this provision relate to services rendered in connection with providing the technical know-how as stated above. The term "provision of technical know-how" has been defined in sub-section (2) of section 80MM. Finance Act, 1969 46. In order to be eligible for the deduction of 40 per cent of the income by way of royalties, technical service fees, etc., under section 80MM, the technical know-how and the technical services should be provided under an agreement entered into by the Indian company with the person concerned on or after 1-4-1969 and the approval of the Central Government to such agreement should have been applied for before the 1st October of the relevant assessment year. Finance Act, 1969 47. New section 80MM comes into effect from 1-4-1970, and will be applicable for the assessment year 1970-71 and subsequent years. [Section 9 of the Finance Act] Finance Act, 1969 Exemption from tax of authors, playwrights, artists, musicians and actors on 25 per cent of the income derived by them from foreign sources in exercise of their profession and received in India in foreign exchange 48. The Finance Act, 1969 has inserted a new section 80RR with effect from 1-4-1970, under which a resident individual being an author, playwright, artist, musician or actor who derives income in the exercise of his profession from foreign sources and receives such income in India or brings it into India in foreign exchange, will be entitled to deduct 25 per cent of the income so received or brought in computing his total income. This provision is designed to encourage successful authors, playwrights, artists, musicians and actors in our country to project their activities outside India with a view to contributing to greater understanding of our country and its culture abroad and also augmenting our foreign exchange resources. Some of the professional activities coming within the scope of this section are : publication outside India of a book produced by the author, contribution of articles to foreign journals and magazines, exhibition of paintings, sculptures and other works of art in foreign countries, giving of music concerts to foreign audiences and acting in dramatic performances, cinematograph films and television programmes in foreign countries. Finance Act, 1969 49. New section 80RR comes into effect from 1-4-1970, and will be applicable for the assessment year 1970-71 and subsequent years. [Section 11 of the Finance Act] Finance Act, 1969 Increase from Rs. 150 to Rs. 200 per mensem in the standard deduction for motor car owned by a taxpayer and used for his employment, in cases where the gross salary income is up to Rs. 15,000 50. A provision was made in the Income-tax Act by the Finance Act, 1968, for the allowance of a standard deduction, in the computation of salary income, for maintenance expenditure on, and wear and tear of, a conveyance owned and used by the taxpayer for his employment. In respect of a motor car, the amount of the standard deduction for taxpayers with gross salary income up to Rs. 15,000 is Rs. 150 per month during which the car is used for purposes of employment; for those in the salary range up to Rs. 25,000, Rs. 200 per month; and for taxpayers with a gross salary income exceeding Rs. 25,000, it is Rs. 250 per month. Finance Act, 1969 51. The Finance Act, 1969 has amended the relevant provision in section 16( iv ) to increase the amount of the standard deduction for a motor car in the case of a taxpayer with gross salary income up to Rs. 15,000 from Rs. 150 to Rs. 200 for every month during which the motor car is used for the purpose of employment. Finance Act, 1969 52. The amendment of section 16( iv ) will take effect from 1-4-1970, and will be applicable for the assessment year 1970-71, i.e., in relation to salary incomes earned during the financial year 1969-70, and later years. [Section 4 of the Finance Act] Amendments to Wealth-tax Act Finance Act, 1969 Extension of the levy of wealth-tax to wealth comprising agricultural property 53. Agricultural wealth has so far been exempt from wealth-tax under the Wealth-tax Act. This exemption has a historical origin and is not due to any bar under the Constitution on the competence of Parliament to legislate for the levy of wealth-tax on agricultural wealth. Government was advised in April 1968, by the then Attorney-General, Shri C.K. Daphtry, that, although entry 86 of the Union List in the Seventh Schedule to the Constitution relating to taxes on the capital value of the assets of individual and companies, specifically excluded agricultural land from its purview. Parliament was competent to make a law for the levy of tax on the capital value of agricultural land by virtue of its residuary power of legislation under article 248 of the Constitution. The present Attorney-General has agreed with this view in his opinion given in March 1969 and also in his exposition of the matter before the Lok Sabha on 1-5-1969. Finance Act, 1969 54. It was observed by the Deputy Prime Minister and the Minister of Finance in Part B of his Budget Speech for 1969-70 as under : "This [ the circumstance that agricultural wealth has so far been exempt from wealth-tax ] has encouraged purchase of such land by the richer professional and business classes. While this has often acted as a spur to greater productivity in agriculture, there is no case in equity for taxing other productive wealth but exempting wealth in the form of agricultural land." [Paragraph 48] With a view to bringing about equality of treatment as between persons having investments in non-agricultural property, and those having investments in agricultural property, the Finance Act, 1969 has amended the Wealth-tax Act for extending the levy of wealth-tax to the value of agricultural property, with effect from 1-4-1970, i.e., from the assessment year 1970-71. For this purpose, the definition of "assets" in clause ( e ) of section 2 has been amended. Under the amended definition, in relation to the assessment year 1969-70 or any earlier assessment year, "assets" includes property of every description, movable or immovable, but does not include, inter alia, ( i ) agricultural land and growing crops, grass or standing trees on such land; and ( ii ) any building owned or occupied by the cultivator of, or receiver of rent or revenue out of, agricultural land. In relation to the assessment year 1970-71, and any subsequent assessment year, "assets" include property of every description, movable or immovable, without the exclusion of the above-mentioned items of agricultural wealth. [The three other items of exclusion from the meaning of the term "assets", namely ( i ) animals, ( ii ) the right to any annuity in certain circumstances, and ( iii ) any interest in property available to the assessee for a period not exceeding six years, continue unchanged.] Finance Act, 1969 55. Simultaneously with the enlargement of the scope of the term "assets", as explained above, sub-section (1) of section 5 has been amended to provide the following specific exemptions in respect of wealth in the form of agricultural property : 1. Under new clause ( iva ) inserted in section 5(1), a specific exemption has been provided in respect of agricultural land belonging to the assessee up to a value of Rs. 1,50,000. Under the existing clause ( iv ) of section 5(1), the value of one house property belonging to the assessee and used by him exclusively for his residence is exempt from wealth-tax, subject to the condition that where such house is situated in a place with a population exceeding ten thousand persons, the value so exempt will be limited to Rs. 1,00,000. In the case of an assessee who is entitled to the exemption under clause ( iv ) in respect of the value of a residential house situated in a place with a population exceeding ten thousand persons, the limit of the exemption in respect ofthe value of agricultural land under new clause ( iva ) is reduced to an amount equal to the difference between Rs. 1,50,000 and the value of the residential house exempt under clause ( iv ). To illustrate, an individual having a residential house worth Rs. 1,00,000 or more in a city will be eligible for exemption in respect of his agricultural land only to the extent of Rs. 50,000 [Rs. 1,50,000 minus Rs. 1,00,000, being the value of the residential house eligible for exemption under clause ( iv )]. Where the value of the urban residential house is less than Rs. 1,00,000 say Rs. 70,000, the exemption under clause ( iv ) in respect of agricultural land will be available to the extent of Rs. 80,000 [Rs. 1,50,000 minus Rs. 70,000]. Where the residential house is situated in a village with a population not exceeding ten thousand persons, the whole of its value is exempt from wealth-tax under clause ( iv ) of section 5(1) and, in addition, exemption in respect of the value of agricultural land belonging to the assessee will be available to the full extent of Rs. 1,50,000. 2. Under new clause ( viiia ) inserted in section 5(1), a specific exemption is provided in respect of the value of growing crops (including fruits on trees) on agricultural land and grass on such land. It may be noted that the trees themselves, whether fruit-bearing or otherwise, are outside the purview of the exemption. Hence, in the case of land having standing fruit trees, such as coconut, arecanut, mango, jack, tamarind, cashew, etc., or timber, such as teak, rose-wood, etc., or plantations such as tea, coffee, rubber, etc., the value of the trees or plants will have to be taken into account in valuing the land. 3. Clause ( ix ) of section 5(1) has been enlarged to cover tools, implements and equipment used by the assessee for the cultivation, conservation, improvement or maintenance of agricultural land or for the raising or harvesting of any agricultural or horticultural produce on such land. The value of such tools, implements and equipment will be exempt from wealth-tax, without any monetary limit. However, under the Explanation to clause ( ix ) (which is a reproduction of the existing Explanation to the said clause) machinery or plant used in any tea or other plantation in connection with the processing of any agricultural produce or in the manufacture of any article from such produce will be outside the scope of the exemption. Finance Act, 1969 56. The exemption of the value of agricultural land up to Rs. 1,50,000 under new clause ( iva ) of section 5(1), as stated above, is in addition to the existing general exemption from wealth-tax, under the rate schedule of wealth-tax, on the first Rs. 1,00,000 of net wealth in the case of individuals and Rs. 2,00,000 in the case of Hindu undivided families. Accordingly, in the case of a farmer who owns agricultural land worth not more than Rs. 2,50,000, and who does not have any sizable investment in non-agricultural wealth or property, there will be virtually no liability to wealth-tax. In the case of a Hindu undivided family in similar circumstances, no wealth-tax will be payable unless the net wealth, before the exemption under clause ( iva ) of section 5(1), exceeds Rs. 3,50,000. In view of this, it will not be necessary for the Department to start proceedings for assessment to wealth-tax in the case of land-owners in rural areas where, on a broad estimate of the value of their agricultural holdings, it is found that the value is not likely to be over Rs. 2,50,000, in the case of individuals or Rs. 3,50,000, in the case of Hindu undivided families. Finance Act, 1969 57. Although the Wealth-tax Act applies to every individual, Hindu undivided family and company ( vide section 3 relating to charge of wealth-tax) the levy of wealth-tax in respect of the net wealth of companies is precluded in respect of the assessment year 1960-61 and subsequent years, by virtue of section 13 of the Finance Act, 1960. Accordingly, the extension of the levy of wealth-tax to wealth in the form of agricultural property with effect from the assessment year 1970-71, will be operative only in the case of individuals and Hindu undivided families. In their cases, the value of the agricultural wealth will be aggregated with the value of their non-agricultural wealth and the aggregate value, as reduced by deduction on account of debts and liabilities and also for the specific exemptions provided for in the Act, will be charged to wealth-tax at the rates specified in Part I of the Schedule to the Wealth-tax Act. Where such agricultural land is situated in an area with a population exceeding one lakh persons, the additional wealth-tax at the rates specified in clause ( c ) of Paragraph A of Part I of the Schedule will also be chargeable. Finance Act, 1969 58. The Wealth-tax Act extends to the whole of India including the State of Jammu Kashmir. However, under the Constitution (Application to Jammu Kashmir) Order, 1954, article 248 and entry 97 of the Union List in the Seventh Schedule do not apply to that State. In view of this position, the extension of the levy of wealth-tax to wealth in the form of agricultural property is not operative in respect of agricultural lands situated in the State of Jammu Kashmir. The question of applying article 248 and entry 97 of the Union List in the Seventh Schedule in a modified form to the State of Jammu Kashmir by an Order of the President under article 370 of the Constitution is separately under consideration. As and when such an Order is made (which requires the concurrence of the State Government), Parliament will be in a position to undertake the necessary legislation to extend the levy of wealth-tax to wealth in the form of agricultural land situated in the State of Jammu Kashmir. [Section 24( a ) and ( b ) of the Finance Act] Finance Act, 1969 Increase in the scale of penalties leviable for failure, without reasonable cause, to furnish the return of wealth and to produce accounts, documents, etc., called for by notice 59. The Finance Act, 1969 has amended section 18(1) relating to the levy of penalty for failure, without reasonable cause, to furnish the return of wealth and to produce accounts, documents, etc., called for by notice. Under the provisions as amended, the penalty for these defaults will be calculated with reference to the assessed wealth (subject to certain adjustments) and not with reference to the wealth-tax as formerly. For failure, without reasonable cause, to furnish the return of net wealth within the time allowed, the scale of penalty will be ½ per cent of the assessed wealth as reduced by the amount of the initial exemption from wealth-tax, for every month during which the default continued, subject to a maximum, in the aggregate, of an amount equal to the assessed wealth as reduced by the amount of the initial exemption. (The amount of the initial exemption, it may be noted, is Rs. 1,00,000 in the case of an individual and Rs. 2,00,000 in the case of a Hindu undivided family). Where the default occurs in the course of proceedings for reassessment of wealth which had escaped assessment at the time of an earlier assessment for the relevant year penalty will be calculated at the above-mentioned rate on the amount of additional net wealth (in excess of the initial exemption) brought under assessment in such reassessment proceedings. To illustrate, in the case of an individual, where a net wealth of Rs. 80,000 was determined in the original assessment and Rs. 2,00,000 in the reassessment, the base for calculation of the penalty for failure to furnish the return of net wealth in the reassessment proceedings will be Rs. 1,00,000 (Rs. 2,00,000 less the amount of the initial exemption of Rs. 1,00,000). Where the net wealth determined in the original assessment was say Rs. 2,50,000 and in the reassessment Rs. 4,00,000, the base for calculation of the penalty for default in furnishing the wealth-tax return in the reassessment proceedings will be Rs. 1,50,000 (Rs. 4,00,000 minus Rs. 2,50,000). Finance Act, 1969 60. In the case of defaults, without reasonable cause, to produce accounts and documents called for by notice, the scale of penalty under the new provision will be a minimum of 1 per cent of the "assessed net wealth", and a maximum of an amount equal to the "assessed net wealth". For this purpose, "assessed net wealth" will be taken to be the net wealth determined on assessment as reduced by the net wealth declared in the return, if any, furnished by the taxpayer. Where the case is one of reassessment of wealth which had escaped assessment at the time of an earlier assessment, the "assessed net wealth" for the purpose of the above-mentioned penalty provisions will be taken to be net wealth determined on reassessment as reduced by the net wealth assessed previously or the net wealth declared in the return, if any, whichever is greater. Finance Act, 1969 61. The increased scales of penalties, as stated above, take effect from 1-4-1969. Penalty on the increased scale will be leviable in a case where the default in furnishing the return of net wealth occurs on or after that date, or having occurred earlier, the default continues on or after 1-4-1969. In the latter circumstance, the scale of penalty for any period of default falling before 1-4-1969, will be that laid down under the law in force before its amendment by the Finance Act, 1969, namely, 2 per cent of the wealth-tax payable for every month during which there was failure, without reasonable cause, to furnish the return of wealth, subject to a maximum, in the aggregate, of an amount equal to 50 per cent of such tax. In regard to defaults, without reasonable cause, in producing accounts and documents called for by notice, the new scale of penalty will be operative where the default occurs on or after 1-4-1969. [Section 24( c ) of the Finance Act] Amendments to companies (profits) Surtax Act Finance Act, 1969 Removal, in the case of widely-held domestic companies of the ceiling on their aggregate liability to income-tax and surtax at 70 per cent of their total income 62. Under the Third Schedule to the Surtax Act, in the case of a widely-held domestic company ( i.e., a company in which the public are substantially interested) which satisfies certain requirements as to the composition of its paid-up share capital, its aggregate liability to income-tax and surtax is limited to a maximum of 70 per cent of its total income as computed under the Income-tax Act. This provision was meaningful at the time it was introduced in 1965 when the rate of surtax on the net chargeable profits of a company was 40 per cent and domestic companies were also liable to an additional income-tax with reference to their distributions of equity dividends. With the reduction in the rate of surtax to 25 per cent from the assessment year 1969-70 (under the Finance Act, 1968) and also the discontinuance of the levy of additional income-tax on domestic companies with reference to their distribution of equity dividends, the aggregate liability of a widely-held domestic company to income-tax and surtax can, in no case, go beyond 60.95 per cent for a company engaged in a priority industry and 66.25 per cent in any other case. In fact, at normal levels of profitability, the aggregate liability to income-tax and surtax in such cases is significantly lower than these percentages. Thus, in the case of a widely-held domestic company which is engaged in any of the specified priority industries [ i.e., the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Sixth Schedule to the Income-tax Act or the business of an approved hotel (carried on by an Indian company) vide section 80B(7) of the Income-tax Act] and has a profitability in relation to its capital base (including reserves, debentures and long-term loans) of 25 per cent, 30 per cent or 40 per cent, the aggregate liability to income-tax and surtax will be 50.95 per cent, 52.62 per cent or 54.70 per cent, as the case may be. Where such a company derives income from any other activity, its aggregate liability to income-tax and surtax at these levels of profitability of 25 per cent, 30 per cent and 40 per cent will be 56.25 per cent, 57.92 per cent and 60 per cent, respectively. Finance Act, 1969 63. In view of the position stated above, the proviso to the Third Schedule to the Companies (Profits) Surtax Act, laying down the above-mentioned ceiling of 70 per cent, has been omitted by the Finance Act, 1969, as the ceiling has now lost its significance altogether and is even misleading. [Section 25 of the Finance Act] Annexure I Rates of Income-tax for the assessment year 1969-70 A. Taxpayers other than companies 1. Individuals, Hindu undivided families, unregistered firms, associations of persons (other than co-operative societies), bodies of individuals and artificial juridical persons Rates of income-tax (exclusive of surcharge on income-tax) On total income— ( 1 ) not exceeding Rs. 5,000 5 per cent of the total income; ( 2 ) exceeding Rs. 5,000 but not exceeding Rs. 10,000 Rs. 250 plus 10 per cent of the excess over Rs. 5,000; ( 3 ) exceeding Rs. 10,000 but not exceeding Rs. 15,000 Rs. 750 plus 15 per cent of the excess over Rs. 10,000; ( 4 ) exceeding Rs. 15,000 but not exceeding Rs. 20,000 Rs. 1,500 plus 20 per cent of the excess over Rs. 15,000; ( 5 ) exceeding Rs. 20,000 but not exceeding Rs. 25,000 Rs, 2,500 plus 30 per cent of the excess over Rs. 20,000; ( 6 ) exceeding Rs. 25,000 but not exceeding Rs. 30,000 Rs, 4,000 plus 40 per cent of the excess over Rs. 25,000; ( 7 ) exceeding Rs. 30,000 but not exceeding Rs. 50,000 Rs, 6,000 plus 50 per cent of the excess over Rs. 30,000; ( 8 ) exceeding Rs. 50,000 but not exceeding Rs. 70,000 Rs, 16,000 plus 60 per cent of the excess over Rs. 50,000; ( 9 ) exceeding Rs. 70,000 but not exceeding Rs. 1,00,000 Rs, 28,000 plus 65 per cent of the excess over Rs. 70,000; ( 10 ) exceeding Rs. 1,00,000 but not exceeding Rs. 2,50,000 Rs, 47,500 plus 70 per cent of the excess over Rs. 1,00,000; ( 11 ) exceeding Rs. 2,50,000 Rs, 1,52,500 plus 75 per cent of the excess over Rs. 2,50,000. Provisions in the case of resident taxpayers for certain exemptions and reliefs in respect of income-tax 1. Exemptions from income-tax on total incomes not exceeding certain amounts : In the case of Limit of total income not chargeable to income-tax Rs. a. Resident Hindu undivided family which has at least two members, aged not less than 18 years, who are entitled to claim partition, or which has at least two members, entitled to claim partition who are not lineally descended one from the other and who are not lineally descended from any other living member of the family 7,000 b. Resident taxpayers other than Hindu undivided families referred to in ( a ) above 4,000 Where the total income does not exceed Rs. 20,000, the tax chargeable after allowing the tax relief on account of personal allowances as at (2) below (where due), is limited, by way of marginal relief, to 40 per cent of the amount by which the total income exceeds the above limit of Rs. 7,000 or Rs. 4,000, as the case may be. 2. Tax relief in the case of resident individuals and Hindu undivided families on account of personal allowances : a. A resident individual whose total income does not exceed Rs. 10,000 and who has, during the previous year, incurred any expenditure on the maintenance of any one or more of his parents or grandparents mainly dependent on him is entitled to a reduction in the amount of tax chargeable on his total income, on account of personal allowances, up to the respective amounts specified in the following table : Amount of tax relief Rs. Unmarried individual 145 Married individual who has no child mainly dependent on him 220 Married individual who has one child mainly dependent on him 240 Married individual who has more than one child mainly dependent on him 260 In the case of a married individual whose spouse has an independent taxable income exceeding Rs. 4,000, the amount of tax relief will be Rs. 145, Rs. 165 and Rs. 185, respectively, instead of Rs. 220, Rs. 240 and Rs. 260. Resident individuals other than those referred to in ( a ) above and resident Hindu undivided families are entitled to reduction in the amount of the tax chargeable on their total income, on account of personal allowances, up to the respective amounts specified in the following table : Amount of tax relief Rs. Unmarried individual 125 Married individual who has no child mainly dependent on him, or a Hindu undivided family which has no minor coparcener 200 Married individual who has one child mainly dependent on him or a Hindu undivided family which has one minor coparcener mainly supported from the income of such family 220 Married individual who has more than one child mainly dependent on him, or a Hindu undivided family which has more than one minor coparcener mainly supported from the income of such family 240 In the case of a married individual whose spouse has an independent taxable income exceeding Rs. 4,000, the amount of tax relief will be Rs. 125, Rs. 145 and Rs. 165, respectively, instead of Rs. 200, Rs. 220 and Rs. 240. Where the total income of a resident individual exceeds Rs. 10,000 but does not exceed Rs. 20,000, and he has incurred expenditure on the maintenance of a dependent parent or grandparent, the tax chargeable is limited by way of marginal relief, to the tax which would have been payable by him if his total income had been Rs. 10,000 [ i.e., after the tax relief as at ( a ) above] plus 40 per cent of the amount by which the total income exceeds Rs. 10,000. Note : A parent or grandparent of an individual shall not be treated as being mainly dependent on such individual if the income of the parent or the grandparent from all sources in respect of the previous year exceeds Rs. 1,000. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. 2. Co-operative societies Rates of income-tax (exclusive of surcharge on income-tax) ( 1 ) On total income not exceeding Rs. 5,000 5 per cent of the total income; On total income— exceeding but not exceeding ( 2 ) Rs. 5,000 Rs. 10,000 Rs. 250 plus 10 per cent of the excess over Rs. 5,000; ( 3 ) Rs. 10,000 Rs. 15,000 Rs. 750 plus 15 per cent of the excess over Rs. 10,000; ( 4 ) Rs. 15,000 Rs. 20,000 Rs. 1,500 plus 20 per cent of the excess over Rs. 15,000; ( 5 ) Rs. 20,000 Rs. 25,000 Rs. 2,500 plus 25 per cent of the excess over Rs. 20,000; ( 6 ) Rs. 25,000 Rs. 3,750 plus 40 per cent of the excess over Rs. 25,000. Note : No income-tax is chargeable on a co-operative society whose total income does not exceed Rs. 4,000. Where the total income exceeds Rs. 4,000 but does not exceed Rs. 20,000, the income-tax chargeable is limited, by way of marginal relief, to 40 per cent of the amount by which the total income exceeds Rs. 4,000. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. 3. Registered firms Rates of income-tax (exclusive of surcharges on income-tax) On total income— ( 1 ) not exceeding Rs. 25,000 Nil ; ( 2 ) exceeding Rs. 25,000 but not exceedings Rs. 50,000 6 per cent of the excess over Rs. 25,000; ( 3 ) exceeding Rs. 50,000 but not exceeding Rs. 1,00,000 Rs. 1,500 plus 12 per cent of the excess over Rs. 50,000; ( 4 ) exceeding Rs. 1,00,000 Rs. 7,500 plus 20 per cent of the excess over Rs. 1,00,000 Surcharge on income-tax ( 1 ) Ordinary surcharges on income-tax Rate of surcharge In the case of— ( a ) a registered firm whose total income to extent of 51 per cent thereof or more, consists of income derived from a profession carried on by the firm 10 per cent of the amount of the income-tax ; ( b ) any other registered firm 20 per cent of the amount of the income-tax. ( 2 ) Special surcharge. The rate of this surcharge is 10 per cent of the amount of income-tax as increased by the ordinary surcharge on income-tax referred to in ( 1 ) above. 4. Local authorities Rate of income-tax (exclusive of surcharge on income-tax) On the whole of the total income - 50 per cent. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. B. Companies 1. Life Insurance Corporation of India (established under the Life Insurance Corporation Act, 1956) Rates of income-tax ( i ) On that part of its total income which consists of profits and gains from life insurance business. 52.5 per cent. ( ii ) On the balance, if any, of the total income The rate of income-tax applicable under item ( 2 ) below, to the total income of a domestic company in which the public are substantially interested. Note : In the case of a company other than the Life Insurance Corporation of India, whose total income includes profits and gains from life insurance business, the rate of tax on such profits is also 52.5 per cent; the balance, if any, of the total income is chargeable to tax at the rates applicable under item ( 2 ) below to the total income of the company. 2. Companies other than the Life Insurance Corporation of India Rates of income-tax I. In the case of a domestic company— ( 1 ) where the company is a company in which the public are substantially interested,— ( i ) in a case where the total income does not exceed Rs. 50,000 45 per cent of the total income; ( ii ) in a case where the total income exceeds Rs. 50,000 55 per cent of the total income; ( 2 ) where the company is not a company in which the public are substantially interested,— ( i ) in the case of an industrial company— ( 1 ) on so much of the total income as does not exceed Rs. 10,00,000 55 per cent; ( 2 ) on the balance, if any, of the total income 60 per cent; ( ii ) in any other case 65 per cent of the total income. Provision for marginal relief in the case of a domestic company in which the public are substantially interested and whose total income exceeds Rs. 50,000 In the case of such a company, the income-tax payable shall be limited to the aggregate of ( a ) the income-tax which would have been payable by it if its total income had been Rs. 50,000, and ( b ) 80 per cent of the amount by which its total income exceeds Rs. 50,000. [The term "domestic company" means an Indian company or any other company which has, in respect of its income chargeable to tax for the assessment year 1969-70, made the prescribed arrangements for the declaration and payment of dividends within India. The term "industrial company" means a company which is mainly engaged in the generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. A company is deemed to be mainly engaged in such a business if the income attributable to any one or more of the aforesaid activities included in its gross total income for the previous year is not less than 51 per cent of such total income.] II. In the case of a company other than a domestic company— ( i ) on so much of the total income as consists of— ( a ) royalties received from an Indian concern in pursuance of agreement made by it with the Indian concern after 31-3-1961, or ( b ) fees for rendering technical services received from an Indian concern in pursuance of an agreement made by it with the Indian concern after 29-2-1964, and where such agreement has, in either case, been approved by the Central Government - 50 per cent; ( ii ) on the balance, if any, of the total income - 70 per cent. C. Special provisions regarding computation of tax on "long-term" capital gains (i.e., capital gains other than short-term capital gains) in the case of companies In the case of companies, income-tax on "long-term" capital gains included in their total income is chargeable at the rates specified in section 115( ii ) of the Income-tax Act, and not at the rates of tax applicable to the total income of the company. The rates of income-tax specified in section 115( ii ) of the Income-tax Act are as follows : ( a ) in respect of "long-term" capital gains relating to lands or buildings or any rights therein 40 per cent of the amount of such capital gains; ( b ) in respect of "long-term" capital gains other than those referred to in ( a ) above. 30 per cent of the amount of such capital gains "Short-term" capital gains ( i.e. , capital gains arising from the transfer of a capital asset held by the taxpayer for not more than 24 months before the date of the transfer) are chargeable to income-tax at the rates of income-tax applicable to the total income of the company. Annexure II Rates of income-tax for deduction of tax at source from "salaries" and retirement annuities and for computing "advance tax" payable during the financial year 1969-70 A. Taxpayers other than companies 1. Individuals, Hindu undivided families, unregistered firms, associations of persons (other than co-operative societies), bodies of individuals and artificial juridical persons Rates of income-tax (exclusive of surcharge on income-tax) On total income— ( 1 ) not exceeding Rs. 5,000 5 per cent of the total income; ( 2 ) exceeding Rs. 5,000 but not exceeding Rs. 10,000 Rs. 250 plus 10 per cent of the excess over Rs. 5,000 ( 3 ) exceeding Rs. 10,000 but not exceeding Rs. 15,000 Rs. 750 plus 17 per cent of the excess over Rs. 10,000 ( 4 ) exceeding Rs. 15,000 but not exceeding Rs. 20,000 Rs. 1,600 plus 23 per cent of the excess over Rs. 15,000 ( 5 ) exceeding Rs. 20,000 but not exceeding Rs. 25,000 Rs. 2,750 plus 30 per cent of the excess over Rs.20,000 ( 6 ) exceeding Rs. 25,000 but not exceeding Rs. 30,000 Rs. 4,250 plus 40 per cent of the excess over Rs. 25,000 ( 7 ) exceeding Rs. 30,000 but not exceeding Rs. 50,000 Rs. 6,250 plus 50 per cent of the excess over Rs. 30,000 ( 8 ) exceeding Rs. 50,000 but not exceeding Rs. 70,000 Rs. 16,250 plus 60 per cent of the excess over Rs. 50,000 ( 9 ) exceeding Rs. 70,000 but not exceeding Rs. 1,00,000 Rs. 28,250 plus 65 per cent of the excess over Rs. 70,000 ( 10 ) exceeding Rs. 1,00,000 but not exceeding Rs. 2,50,000 Rs. 47,750 plus 70 per cent of the excess over Rs. 1,00,000 ( 11 ) exceeding Rs. 2,50,000 Rs. 1,52,750 plus 75 per cent of the excess over Rs. 2, 50,000 Provisions in the case of resident taxpayers for certain exemptions and reliefs in respect of income-tax ( 1 ) Exemptions from income-tax on total incomes not exceeding certain amounts : In the case of Limit of total income not chargeable to income-tax Rs. a. Resident Hindu undivided family which has at least two members, aged not less than 18 years, who are entitled to claim partition, or which has at least two members, entitled to claim partition who are not lineally descended one from the other and who are not lineally descended from any other living member of the family 7,000 b. Resident taxpayers other than Hindu undivided families referred to in ( a ) above 4,000 Where the total income does not exceed Rs. 20,000, the tax chargeable after allowing the tax relief on account of personal allowances as at (2) below (where due) is limited, by way of marginal relief, to 40 per cent of the amount by which the total income exceeds the above limit of Rs. 7,000 or Rs. 4,000, as the case may be. ( 2 ) Tax relief in the case of resident individuals and Hindu undivided families on account of personal allowances : ( a ) A resident individual whose total income does not exceed Rs. 10,000 and who has, during the previous year, incurred any expenditure on the maintenance of any one or more of his parents or grandparents mainly dependent on him, is entitled to a reduction in the amount of tax chargeable on his total income, on account of personal allowances, up to the respective amounts specified in the following table : Amount of tax relief Rs. Unmarried individual 145 Married individual who has no child mainly dependent on him 220 Married individual who has one child mainly dependent on him 240 Married individual who has more than one child mainly dependent on him 260 In the case of a married individual whose spouse has an independent taxable income exceeding Rs. 4,000, the amount of tax relief will be Rs. 145, Rs. 165 and Rs. 185, respectively, instead of Rs. 220, Rs. 240 and Rs. 260. ( b ) Resident individuals other than those referred to in ( a ) above and resident Hindu undivided families are entitled to a reduction in the amount of the tax chargeable on their total income, on account of personal allowances, up to the respective amounts specified in the following table : Amount of tax relief Rs. Unmarried individual 125 Married individual who has no child mainly dependent on him, or a Hindu undivided family which has no minor coparcener 200 Married individual who has one child mainly dependent on him, or a Hindu undivided family which has one minor coparcener mainly supported from the income of such family 220 Married individual who has more than one child mainly dependent on him, or a Hindu undivided family which has more than one minor coparcener mainly supported from the income of such family 240 In the case of a married individual whose spouse has an independent taxable income exceeding Rs. 4,000, the amount of tax relief will be Rs. 125, Rs. 145 and Rs. 165, respectively, instead of Rs. 200, Rs. 220 and Rs. 240. Where the total income of a resident individual exceeds Rs. 10,000 but does not exceed Rs. 20,000 and he has incurred expenditure on the maintenance of a dependent parent or grandparent, the tax chargeable is limited by way of marginal relief, to the tax which would have been payable by him if his total income had been Rs. 10,000, i.e., after the tax relief as at ( a ) above plus 40 per cent of the amount by which the total income exceeds Rs. 10,000. Note : A parent or grandparent of an individual shall not be treated as being mainly dependent on such individual if the income of the parent or the grandparent from all sources in respect of the previous year exceeds Rs. 1,000. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. 2. Co-operative societies Rates of income-tax (exclusive of surcharge on income-tax) ( 1 ) On total income not exceeding Rs. 10,000 15 per cent of the total income; ( 2 ) On total income exceeding Rs. 10,000 but not exceeding Rs. 20,000 Rs. 1,500 plus 25 per cent of the excess over Rs. 10,000; ( 3 ) On total income exceeding Rs. 20,000 Rs. 4,000 plus 40 per cent of the excess over Rs. 20,000. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. 3. Registered firms Rates of income-tax (exclusive of surcharge on income-tax) On total income— ( 1 ) not exceeding Rs. 10,000 Nil ; ( 2 ) exceeding Rs. 10,000 but not exceeding Rs. 25,000 4 per cent of the excess over Rs. 10,000; ( 3 ) exceeding Rs. 25,000 but not exceeding Rs. 50,000 Rs. 600 plus 6 per cent of the excess over Rs. 25,000; ( 4 ) exceeding Rs. 50,000 but not exceeding Rs. 1,00,000 Rs. 2,100 plus 12 per cent of the excess over Rs. 50,000; ( 5 ) exceeding Rs. 1,00,000 Rs. 8,100 plus 20 per cent of the excess over Rs. 1,00,000. Surcharge on income-tax ( 1 ) Ordinary surcharge on income-tax— Rate of surcharge ( a ) a registered firm whose total income to the extent of 51 per cent thereof or more consists of income derived from a profession carried on by the firm 10 per cent of the amount of the income-tax; ( b ) any other registered firm 20 per cent of the amount of the income-tax. ( 2 ) Special surcharge. The rate of this surcharge is 10 per cent of the amount of income-tax as increased by the ordinary surcharge on income-tax referred to in ( 1 ) above. 4. Local authorities Rate of income-tax (exclusive of surcharge on income-tax) On the whole of total income - 50 per cent. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. B. Companies 1. Life Insurance Corporation of India (established under the Life Insurance Corporation Act, 1956) Rates of income-tax ( i ) On that part of its total income which consists of profits and gains from life insurance business 52 per cent; ( ii ) On the balance, if any, of the total income The rate of income-tax applicable under item ( 2 ) below, to the total income of a domestic company which is a company in which the public are substantially interested. Note : In the case of a company other than the Life Insurance Corporation of India, whose total income includes profits and gains from life insurance business, the rate of tax on such profits is also 52.5 per cent; the balance, if any, of the total income is chargeable to tax at the rates applicable under item (2) below to the total income of the company. 2. Companies other than the Life Insurance Corporation of India Rates of income-tax 1. In the case of a domestic company— (1) where the company is a company in which the public are substantially interested,— (i) in a case where the total income does not exceed Rs. 50,000 45 per cent of the total income; (ii) in a case where the total income exceeds Rs. 50,000 55 per cent of the total income; (2) where the company is not a company in which the public are substantially interested,— (i) in the case of an industrial company— (1) on so much of the total income as does not exceed Rs. 10,00,000 55 per cent; (2) on the balance, if any, of the total income 60 per cent; (ii) in any other case 65 per cent of the total income. Provision for marginal relief in the case of a domestic company in which the public are substantially interested and whose total income exceeds Rs. 50,000 In the case of such a company, the income-tax payable shall be limited to the aggregate of ( a ) the income-tax which would have been payable by it if its total income had been Rs. 50,000, and ( b ) 80 per cent of the amount by which its total income exceeds Rs. 50,000. [The term "domestic company" means an Indian company or any other company which has, in respect of its income chargeable to tax for the assessment year 1969-70, made the prescribed arrangements for the declaration and payment of dividends within India. The term "industrial company" means a company which is mainly engaged in the generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. A company is deemed to be mainly engaged in such a business if the income attributable to any one or more of the aforesaid activities included in its gross total income for the previous year is not less than 51 per cent of such total income.] II. In the case of a company other than a domestic company— ( i ) on so much of the total income as consists of— ( a ) royalties received from an Indian concern in pursuance of an agreement made by it with the Indian concern after 31-3-1961, or ( b ) fees for rendering technical services received from an Indian concern in pursuance of an agreement made by it with the Indian concern after 29-2-1964, and where such agreement has, in either case, been approved by the Central Government - 50 per cent; ( ii ) on the balance, if any, of the total income - 70 per cent. C. Special provisions regarding computation of tax on "long-term" capital gains (i.e., capital gains other than "short-term" capital gains) in the case of companies In the case of companies, income-tax on "long-term" capital gains included in their total income is chargeable at the rates specified in section 115( ii ), and not at the rates of tax applicable to the total income of the company. The rates of income-tax specified in section 115( ii ) are as follows : ( a ) in respect of "long-term" capital gains relating to lands or buildings or any - 40 per cent of the amount rights therein of such capital gains; ( b ) in respect of "long-term" capital gains - 30 per cent of the amount other than those referred to in ( a ) of such capital gains. above "Short-term" capital gains ( i.e., capital gains arising from the transfer of a capital asset held by the taxpayer for not more than 24 months before the date of the transfer) are chargeable to income-tax at the rates of income-tax applicable to the total income of the company.