Amendments at a glance, Rate structure, Amendments to Income-tax Act , wealth-tax Act, Gift-tax Act, Amendments to Companies (Profits) Surtax Act , Miscellaneous provisions - Income Tax - 126/1973

CIRCULAR NO. 126 DATED 26-11-1973 Rate Structure Finance Act, 1973 Rates of income-tax for the assessment year 1973-74 3. The rates of income-tax for the assessment year 1973-74 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, 1973. 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, 1972 for purposes of computation of "advance tax", deduction of tax at source from "salaries" and retirement annuities payable to partners of registered firms engaged in specified professions and computation of income-tax payable in certain special cases during the financial year 1972-73. Finance Act, 1973 Rates for deduction of tax at source during the financial year 1973-74 from incomes other than "salaries" and retirement annuities 4. The rates for deduction of tax at source during the financial year 1973-74 from incomes, other than "salaries" and retirement annuities payable to partners of registered firms engaged in specified professions, are set forth in Part II of the First Schedule to the Finance Act, 1973. In the context of the provision made in the Income-tax Act for deduction of income-tax at source from insurance commission, the Finance Act, 1973 lays down the rates for deduction of income-tax not only from interest on securities, other categories of interest, dividends, winnings from lotteries and crossword puzzles and other categories of non-salary income of non-residents, but also for deduction of tax at source from income by way of insurance commission. Under another amendment made in the Income-tax Act, co-operative societies have been included in the categories of persons who are required to deduct tax at source from payments made to contractors in respect of works and labour contracts. The rates for deduction of tax at source prescribed in the Finance Act, 1973 in respect of the categories of income which are already liable to such tax are the same as specified in Part II of the First Schedule to the Finance Act, 1972 for purposes of deduction of tax at source from such incomes during the financial year 1972-73. The new provisions for deduction of tax at source are briefly explained hereinbelow : Payments in respect of insurance commission - Under the new section 194D, inserted in the Income-tax Act by section 17 of the Finance Act, 1973 any person responsible for paying to a resident any income by way of insurance commission will be required to deduct income-tax at source at such rates as may be prescribed in the Finance Act of the relevant year. During the financial year 1973-74, income-tax will be deductible at the following rates : (a) in the case of resident non-corporate taxpayers 10%; (b) in the case of non-corporate nonresident taxpayers 34.5% (I.T. 30% + surcharge 4.5%) or the appropriate rate applicable in the case of individual having a total income equal to the amount of insurance commission, whichever is higher; (c) in the case of domestic companies 23% (I.T.22% + 1% surcharge); (d) in the case of foreign companies 73.5% (I.T.70% + surcharge 3.5%). In view of a specific provision made in the said section 194D, no deduction is, however, required to be made from insurance commission where such commission is credited or paid before 1-6-1973. The provisions of the new section 194D have been explained in paragraph 32 of this circular. Payments by co-operative societies to contractors resident in India - Under an amendment made in section 194C by section 16 of the Finance Act, 1973, co-operative societies have been included in the categories of taxpayers who are required to deduct income-tax at source from payments made by them to contractors. Accordingly, income-tax is now deductible from payments made by co-operative societies to contractors in respect of works and labour contracts at the rate of 2 per cent of the payment. Similarly, contractors (other than individuals and Hindu undivided families) obtaining contracts from co-operative societies will, in turn, be required to deduct tax at source from payments made by them to sub-contractors at the rate of 1 per cent of the payment. In view of the specific provisions made in section 194C, no deduction of tax will be made from payments made by co-operative societies to contractors, or by contractors obtaining contracts from co-operative societies to sub-contractors, where the payment is made before 1-6-1973. As the rates for deduction of income-tax at source in respect of payments to contractors and sub-contractors have been laid down in the Income-tax Act, no specific provision in this regard has been made in Part II of the First Schedule to the Finance Act, 1973. The provisions of section 194C as explained in paragraph 11 of the Board's Circular No. 108, dated 20-3-1973 will apply in relation to deduction of income-tax from payments made by co-operative societies to contractors, or by contractors obtaining contracts from co-operative societies to sub-contractors, as they apply in relation to contracts granted by the Government, statutory corporations, companies and local authorities. Finance Act, 1973 Rates for deduction of tax at source from "salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 1973-74 5. Individuals, Hindu undivided families (other than those having one or more members with independent total income exceeding Rs. 5,000) and all other non-corporate taxpayers - The rates for deduction of tax at source from "salaries" in the case of individuals during the financial year 1973-74 and also for computation of "advance tax" payable during that year in the case of all categories of taxpayers have been specified in Part III of the First Schedule to the Finance Act, 1973. These rates are also applicable for deduction of tax at source during 1973-74 from retirement annuities payable to partners of registered firms engaged in certain professions (chartered accountants, solicitors, lawyers, etc.) and for charging income-tax during 1973-74 on current incomes in special cases. These special cases are : calculation of income-tax on undisclosed income represented by seized assets [section 132(5)] ; levy of tax on provisional basis on the income of non-residents from shipping of cargo or passengers from Indian ports [section 172(4)] ; assessment of persons leaving India [section 174(2)] ; assessment of persons likely to transfer property to avoid tax [section 175] ; and assessment of profits of a discontinued business [section 176(2)]. The rates specified in Part III of the First Schedule in the case of all non-corporate taxpayers other than Hindu undivided families having one or more members with independent total income exceeding Rs. 5,000 are the same as those specified in Part I of the First Schedule for the assessment of income liable to tax for the assessment year 1973-74, subject to a modification in relation to the minimum exemption limit in the case of Hindu undivided families. In Part I of the First Schedule, a higher exemption limit of Rs. 7,000 has been specified in the case of Hindu undivided families satisfying certain conditions as against the exemption limit of Rs. 5,000 obtaining in the case of individuals, unregistered firms, Hindu undivided families generally. The conditions which a Hindu undivided family has to satisfy for securing the higher exemption limit are as follows : (a) the family should have at least two members entitled to claim partition who are not less than 18 years of age; or (b) the family should have at least two members entitled to claim partition who are not lineally descended one from the other and who are also not lineally descended from any other living member of the family. In Part III of the First Schedule, however, the minimum exemption limit in the case of all Hindu undivided families has been fixed at Rs. 5,000. Accordingly, Hindu undivided families having total income between Rs. 5,000 and Rs. 7,000 will now be chargeable to tax on current incomes where accelerated assessment is made under the first proviso to section 132(5) or section 175 or section 176(2). Further, non-resident Hindu undivided families having total income between Rs. 5,000 and Rs. 7,000 who were hitherto not liable to pay "'advance tax" will now be covered by the scheme of "advance tax". In the case of Hindu undivided families having one or more members with independent total income exceeding Rs. 5,000, however, a separate rate schedule has been prescribed in Sub-Paragraph II of Paragraph A of Part III of the First Schedule. The provisions of this Schedule have been explained in paragraph 7 below: Finance Act, 1973 6. A special provision has also been made for taking into account the net agricultural income of individuals, Hindu undivided families, unregistered firms, associations of persons, bodies of individuals and artificial juridical persons for determination of the rate to be applied to their total income if such total income exceeds Rs. 5,000. The manner in which the net agricultural income will be taken into account for determining such rate is explained in paragraphs 12 to 14 of this circular. Finance Act, 1973 7. Hindu undivided families having one or more members with independent total income exceeding Rs. 5,000 - As mentioned in paragraph 5, a separate rate schedule has been prescribed in Sub-Paragraph II of Paragraph A of Part III of the First Schedule to the Finance Act, 1973 in the case of Hindu undivided families having one or more members with independent total income exceeding Rs. 5,000. These rates will be applicable for computation of "advance tax" payable during the financial year 1973-74 in the case of such Hindu undivided families as also for charging income-tax during 1973-74 on current incomes in special cases, e.g., assessment of Hindu undivided families who are likely to transfer properties to avoid tax [section 175] or those who discontinue business [section 176(2)], etc. The rate schedule applicable in the case of Hindu undivided families having one or more members with independent total income exceeding Rs. 5,000 differs from the rate schedule applicable in the case of other Hindu undivided families in the following respects, namely: 1. The rate of tax applicable on various slabs of taxable income is the same as the rate of tax applicable to the next higher slab in the case of Hindu undivided families having no member with independent total income exceeding Rs. 5,000. 2. A uniform rate of surcharge equal to 15 per cent has been prescribed in the case of Hindu undivided families having one or more members with independent total income exceeding Rs. 5,000. (In the case of other Hindu undivided families, the rate of surcharge on income-tax remains at the existing levels, i.e., the rate of surcharge is 10 per cent in cases where the total income does not exceed Rs. 15,000 and 15 per cent where it exceeds that amount.) As in the case of other Hindu undivided families, the minimum exemption limit in the case of Hindu undivided families having one or more members with independent total income exceeding Rs. 5,000 has been fixed at Rs. 5,000. Finance Act, 1973 8. For the purposes of determining "advance tax" payable by Hindu undivided families during the financial year 1973-74, the higher rates prescribed in Sub-Paragraph II of Paragraph A of Part III of the First Schedule to the Finance Act, 1973 will apply only if the Hindu undivided family has at least one member whose total income of the previous year relevant to the assessment year 1974-75 exceeds Rs. 5,000. Since the Income-tax Officer will not be in a position to know whether the aforesaid condition is fulfilled, the order under section 210 requiring the Hindu undivided family to pay advance tax will be on the basis of the rates specified in Sub-Paragraph I of the aforesaid Paragraph. Where, however, the assessee furnishes an estimate of his current income and the advance tax is payable by him on that income under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) of section 212, income-tax will be calculated on the basis of the rates specified in the said Sub-Paragraph I or Sub-Paragraph II depending on whether or not the Hindu undivided family has at least one member whose total income of the previous year relevant to the assessment year 1974-75 exceeds Rs. 5,000. Necessary amendment has been made in Form No. 29 for furnishing the estimate of advance tax under the Income-tax (Third Amendment) Rules, 1973. Finance Act, 1973 9. Life Insurance Corporation of India and other companies - The rates of income-tax (including surcharge) applicable in the case of the Life Insurance Corporation of India and other companies for purposes of computation of "advance tax" payable during the financial year 1973-74 have been specified in Paragraphs E and F of Part III of the First Schedule to the Finance Act, 1973 respectively. The rates in the case of the Life Insurance Corporation are the same as the rates of income-tax specified in Paragraph E of Part I of the First Schedule for incomes assessable for the assessment year 1973-74. The rates of income-tax in the case of other companies, however, vary from the rates specified in Part I in the following respects: 1. In the case of widely-held domestic companies, the concessional rate of 45 per cent which was hitherto applicable only in the case of widely-held domestic companies having total income not exceeding Rs. 50,000 has been made applicable to such companies having a total income not exceeding Rs. 1 lakh. 2. In the case of closely-held industrial companies, the concessional rate of 55 per cent which was hitherto applicable to the first Rs. 10 lakhs of the total income has been restricted to the first Rs. 2 lakhs of total income. The rate of surcharge on income-tax in the case of companies continues at the existing level of 5 per cent. Finance Act, 1973 10. The rates for deduction of tax at source from salaries, computation of advance tax and charging income-tax in special cases during the financial year 1973-74 have been summarised in Annexure II to this Circular. Finance Act, 1973 Partially integrated taxation of non-agricultural income with incomes derived from agriculture 11. Provisions in brief - The Finance Act, 1973 seeks to implement the recommendation of the Committee on Taxation of Agricultural Wealth and Income (Raj Committee) to the effect that agricultural income of a person should be taken into account for the purpose of determining the rates of income-tax to be applied to his non-agricultural income. Under the provisions of the Finance Act, 1973, the "net agricultural income" derived by individuals, Hindu undivided families, unregistered firms, associations of persons, bodies of individuals and artificial juridical persons will be taken into account in calculating the amount of income-tax payable by them if their non-agricultural income exceeds Rs. 5,000 (i.e., the exemption limit applicable in the case of this category of taxpayers). These provisions will apply during the financial year 1973-74 for the purposes of calculating "advance tax" and for charging income-tax in special cases, that is to say, for calculation of income-tax under section 132(5) on undisclosed income represented by seized assets, assessment under section 174(2) in the case of persons leaving India, assessment under section 175 in the case of persons likely to transfer property to avoid tax and assessment of profits of a discontinued business under section 176(2). The "net agricultural income" has been defined in section 2(7)(e) of the Finance Act, 1973 to mean the total amount of agricultural income, from whatever source derived, of a person computed in accordance with the rules contained in Part IV of the First Schedule to the Finance Act, 1973. The following points need special mention: 1. The scheme of partially integrated taxation of non-agricultural income with income derived from agriculture applies only in the case of individuals, Hindu undivided families, unregistered firms, associations of persons, bodies of individuals and artificial juridical persons. Registered firms, co-operative societies, local authorities and companies are thus outside the purview of the Scheme. 2. The Scheme will, during the financial year 1973-74, apply only for the purposes of calculating the "advance tax" and for charging income-tax in special cases mentioned above. 3. The Scheme will apply only in cases where the total income of the individuals, Hindu undivided families, etc., exceeds Rs. 5,000. 4. In a case where the total income exceeds Rs. 5,000, net agricultural income irrespective of its quantum, will be taken into account for purposes of determining the rates of income-tax to be applied to the non-agricultural income. There is no minimum limit in respect of net agricultural income for the purpose. Finance Act, 1973 12. Calculation of income-tax in cases covered by the Scheme - In cases covered by the Scheme, income-tax will be calculated in the following manner, subject to a modification in relation to surcharge on income-tax as explained in paragraph 13: (a) the agricultural and non-agricultural components of the taxpayers' income will first be aggregated and income-tax (including surcharge) calculated on the aggregate as if such aggregate were the total income; (b) income-tax (including surcharge) will then be calculated on the net agricultural income as increased by an amount of Rs. 5,000 as if such increased net agricultural income were the total income; (c) the amount by which the income-tax (including surcharge) calculated under (a) exceeds the amount calculated under (b) will be the income-tax (including surcharge) payable by the taxpayer on his total income. The effect of this will be that for the purposes of determining the amount of income-tax : (a) the first Rs. 5,000 of the non-agricultural income will be appropriated to the lowest slab chargeable to tax at nil rate; (b) the agricultural component of the income will be appropriated to the middle slabs but no tax will be paid thereon; (c) the balance of the non-agricultural income which alone will be chargeable to tax, will be appropriated to the top slabs and charged to tax accordingly. It should be noted that in the case of a Hindu undivided family having one or more members with independent total income exceeding Rs. 5,000, income-tax on the aggregate of agricultural and non-agricultural income (hereinafter referred to as the aggregate income), as also on the net agricultural income as increased by Rs. 5,000 will be calculated at the rate specified in Sub-Paragraph II of Paragraph A of Part III of the First Schedule. In the case of other categories of taxpayers covered by the Scheme, such calculations will be made in accordance with the rate schedule in Sub-Paragraph I of the said Paragraph A. Finance Act, 1973 13. Surcharge on income-tax in the case of individuals, Hindu undivided families having no member with independent total income exceeding Rs. 5,000 unregistered firms, etc., is levied on a differential basis depending upon the taxpayer's total income. Where the total income does not exceed Rs. 15,000, the surcharge on income-tax is calculated at the rate of 10 per cent and where the total income exceeds Rs. 15,000, the surcharge is calculated at the rate of 15 per cent. The provisions for the levy of surcharge at differential rates would have caused some difficulty in cases where the net agricultural income of a taxpayer did not exceed Rs. 10,000, but the aggregate of the agricultural and non-agricultural income exceeded Rs. 15,000. This is because, in such cases the surcharge on income-tax on the aggregate income would have been calculated at the rate of 15 per cent while surcharge on income-tax on the net agricultural income as increased by Rs. 5,000 would have been calculated at the rate of 10 per cent. As a result, the rate of surcharge in such cases would have exceeded 15 per cent. This would have also resulted in the anomalous position that, in some cases, the liability towards income-tax and surcharge would have been higher if the agricultural income had been smaller. With a view to removing this anomaly, the Finance Act, 1973 provides that in cases where the aggregate of the agricultural and non-agricultural income of a taxpayer exceeds Rs. 15,000, the surcharge on income-tax in respect of net agricultural income as increased by Rs. 5,000 will be calculated at the same rate as is applicable in respect of income-tax calculated on the aggregate income. The marginal provision for calculating surcharge on income-tax operates only when the total income of a taxpayer exceeds Rs. 15,000 but does not exceed Rs. 15,180. Where the total income is less than Rs. 15,000, the surcharge on income-tax is calculated at the rate of 10 per cent. Where the total income exceeds Rs. 15,180, the surcharge is calculated at the rate of 15 per cent. Where, however, the total income exceeds Rs. 15,000 but does not exceed Rs. 15,180, the surcharge payable by the taxpayer is equal to the aggregate of the amount of surcharge calculated at the rate of 10 per cent on the amount of income-tax on an income of Rs. 15,000 plus 40 per cent of the amount by which the total income exceeds Rs. 15,000. The proviso to section 2(6)(b) of the Finance Act, 1973, therefore, provides that where the aggregate of agricultural income and non-agricultural income exceeds Rs. 15,000 but does not exceed Rs. 15,180, the surcharge for the purposes of calculating tax on agricultural income as increased by Rs. 5,000 will be calculated at the average rate of surcharge on income-tax calculated in respect of the aggregate income. Where the aggregate income exceeds Rs. 15,180, the surcharge for the purposes of determining the tax on agricultural income as increased by Rs. 5,000 will be calculated at the rate of 15 per cent. The result, therefore, is that the rate of surcharge for the purposes of the step referred to at (b) in the preceding paragraph is the same as the rate of surcharge for the purposes of step (a). It will be noted that no special provision for calculating surcharge in the case of Hindu undivided families having one or more members with independent total income exceeding Rs. 5,000 has been made as in the case of such Hindu undivided families the rate of surcharge has been fixed at a uniform rate of 15 per cent irrespective of the quantum of the total income. Finance Act, 1973 14. In order to determine the tax liability in the case of individuals, Hindu undivided families, etc., having agricultural income, total income will first be determined after allowing all deductions (including deductions under Chapter VIA of the Income-tax Act), net agricultural income will be computed in accordance with the rules in Part IV of the First Schedule to the Finance Act, 1973, and then income-tax is calculated as explained in paragraphs 12 and 13. The operation of these provisions is illustrated in the following examples: Example I Rs. Total income 4,000 Net agricultural income 1,00,000 No income-tax is payable as the total income does not exceed Rs. 5,000. EXAMPLE II Total income 7,000 Net agricultural income 3,000 Income-tax on aggregate of Rs. 10,000 500 Surcharge at 10% 50 Income-tax (including surcharge) on aggregate income [I.T. Rs. 500+SC Rs. 50) 550(A) Income-tax on net agricultural income as increased by Rs. 5,000 (i.e. Rs. 8,000) 300 Surcharge at 10% 30 Income-tax including surcharge [I.T.Rs. 300+S.C. Rs. 30] 330(B) Income-tax payable by the individual (A-B)[I.T.Rs. 200+ SC Rs. 20] 220 EXAMPLE III Total income 10,100 Net agricultural income 5,000 Surcharge-tax on aggregate income of Rs. 15,100 1,373 Surcharge in accordance with marginal provision 175 Income-tax (including surcharge) on aggregate income [I.T.Rs. 1,373+ S.C. Rs. 175] 1,548(A) Average rate of surcharge : 175x100/1,373 = 12.75% Income-tax on agricultural income as increased by Rs. 5,000 (i.e. Rs. 10,000) 500 Surcharge on above at 12.75% 64 Income-tax (including surcharge) on net agricultural income as increased by Rs. 5,000 [I.T.Rs. 500+S.C. Rs. 64] 564(B) Tax payable by the individual (A-B) [I.T. Rs. 873+S.C. Rs. 111] 984 EXAMPLE IV Total income 10,000 Net agricultural income 8,000 Income-tax on aggregate income of Rs. 18,000 2,040 Surcharge at 15% 306 Income-tax (including surcharge) on aggregate income [I.T. Rs. 2,400+S.C. Rs. 306] 2,346(A) Tax on net agricultural income as increased by Rs. 5,000 (i.e.Rs. 13,000) 1,010 Surcharge at 15% 152 Income-tax (including surcharge) on net agricultural income as increased by Rs. 5,000 [I.T. Rs. 1,010+S.C. Rs. 152) 1,162(B) Income-tax payable by the individual (A-B) [I.T. Rs. 1,030+ S.C. 154] 1,184 EXAMPLE V Total income 10,000 Net agricultural income 15,000 Income-tax on aggregate income of Rs. 25,000 4,000 Surcharge at 15% 600 Income-tax (including surcharge) on aggregate income [I.T. Rs. 4,000 + S.C. Rs. 600] 4,600(A) Income-tax on net agricultural income as increased by Rs. 5,000 (i.e. Rs. 20,000) 2,500 Surcharge at 15% 375 Income-tax (including surcharge) on net agricultural income as increased by Rs. 5,000 [I.T. Rs. 2,500+S.C. Rs. 375] 2,875(B) Tax payable by the taxpayer (A-B) [I.T. Rs. 1,500+S.C. Rs. 225] 1,725 Finance Act, 1973 15. Computation of net agricultural income - For purposes of calculating the tax in the case of individuals, Hindu undivided families, unregistered firms, associations of persons, bodies of individuals and artificial juridical persons who have net agricultural income in addition to the total income, the net agricultural income will be computed in accordance with the rules specified in Part IV of the First Schedule to the Finance Act, 1973. "Agricultural income" can broadly be classified as under: 1. Rent or revenue derived from land which is situated in India and is used for agricultural purposes. 2. Income derived from such land by (i) agricultural; or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or (iii) the sale by such person of the produce raised or received by him in respect of which no process has been performed other than the process of the nature referred to in (2) above. 3. Income derived from any building owned and occupied by the receiver of rent or revenue of such land, or occupied by the cultivator or the receiver of rent-in-kind, provided the building is used as a dwelling house or as a store-house or other out-building. Finance Act, 1973 16. Rent or revenue derived from agricultural land will be computed on the same basis as is adopted for computation of income chargeable under the head "Income from other sources" under sections 57 to 59. The broad effect of this provision will be that any expenditure (not being in the nature of capital expenditure or personal expenses of the taxpayer) laid out or expended wholly and exclusively for the purpose of earning rent or revenue will be allowed as deduction in computing the rent or revenue from agricultural land. In view of a specific provision made in this behalf, no expenditure which is incurred wholly and exclusively for the purposes of earning the rent or revenue from agricultural land will be disallowed under section 40A(3) merely on the ground that the payment in respect thereof has not been made by crossed bank cheque or a crossed bank draft. [Rule l] Finance Act, 1973 17. Income derived from agricultural operations, including the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to the market, will broadly be taxed as if it were income chargeable to tax under the Income-tax Act under the head "Profits and gains of business or profession", and provisions of sections 30, 31, 32, 34, 36, 37, 38, 40, 40A [other than sub-sections (3) and (4) thereof], 41, 43 and 43A shall apply accordingly. Agricultural house property which is used as store-house or other out-building will be treated in the same manner as house property used for the purposes of business. It should be noted that the provisions of sections 33 and 35 will not apply in the computation of such income. Accordingly, no development rebate will be allowed in respect of machinery and plant used for the purposes of agricultural operations nor will any deduction be available in respect of expenditure on scientific research in computing such income. Depreciation will, however, be admissible in respect of buildings, plant and machinery and furniture used for the purposes of agricultural operations at the rates prescribed in the Income-tax Rules. Land revenue paid by the taxpayer will qualify for deduction. Deduction will also be allowed in respect of animals which are used for agricultural operations and have died or become useless for such purposes. Further, expenditure incurred wholly and exclusively for purposes of carrying on agricultural operations will not be disallowed merely because the payment in respect thereof has not been made by crossed cheque or crossed bank draft. [Rule 2] Finance Act, 1973 18. Income derived from agricultural house property which is used as dwelling house by the receiver of rent or revenue or by the cultivator or the receiver of rent-in-kind will be computed as if such income is chargeable to tax under the head "Income from house property" and the provisions of sections 23 to 27 will apply accordingly. It has been specifically provided that where agricultural house property is occupied by the owner for purposes of his own residence, the annual letting value of such property will be computed after allowing deduction equal to one-half of the annual value or Rs. 1,800, whichever is less, subject to overall ceiling of 10 per cent of his other agricultural income. Thus, the annual value of the agricultural house property which is occupied by the owner thereof for his own residence will in no case exceed 10 per cent of his other agricultural income computed in accordance with the rules specified in Part IV of the First Schedule to the Finance Act, 1973. [Rule 3] Finance Act, 1973 19. Where a taxpayer derives income from the business of sale of tea grown or manufactured by him in India, 60 per cent of the income from such business as computed in accordance with rule 8 of the Income-tax Rules will be regarded as the agricultural income of the taxpayer. [Rule 4] Finance Act, 1973 20. Registered firms or unregistered firms which are assessed as registered firms under the special provisions contained in section 183(b) will be outside the purview of the aforesaid provisions. Unregistered firms, associations of persons and bodies of individuals who have no income chargeable to tax under the Income-tax Act or whose income so chargeable does not exceed Rs. 5,000 are also not liable to pay income-tax. Specific provisions have, therefore, been made in the rules for taking the share of partners of such firms or members of such associations of persons or bodies of individuals into account for determining the tax payable by partners or members on their non-agricultural income. For this purpose, the agricultural income or loss of the firm will be computed in accordance with these rules and the share of a partner in the income or loss of the firm will be determined in the same manner as has been prescribed in the Income-tax Act for computing a partner's share in the income of the firm chargeable to income-tax. Similarly, the agricultural income or loss of such associations of persons or bodies of individuals will be computed in accordance with these rules and the share of the taxpayer in the agricultural income or loss of the association or body will be regarded as the agricultural income or loss of the taxpayer. [Rules 5 and 6] Finance Act, 1973 21. Loss incurred in agriculture will be allowed to be set off only against gains from agriculture. No set off will, however, be allowed in respect of taxpayer's share in the agricultural loss of an unregistered firm which is not assessed as registered firm under section 183(b) or in the agricultural loss of an association of persons or body of individuals. [Rule 7] Finance Act, 1973 22. Any sum payable by the taxpayer on account of any tax levied by a State Government on agricultural income will be allowed as deduction. [Rule 8] Finance Act, 1973 23. Where the net result of the computation of agricultural income from various sources as stated above is a loss, the loss will be disregarded and the net agricultural income of the taxpayer for the purposes of the rate schedule shall be taken at nil. Finance Act, 1973 24. The various steps involved in the computation of net agricultural income may, therefore, be summarised as follows: 1. Agricultural income of the nature referred to in sub-clause (a) or sub-clause (b) or sub-clause (c) of clause (1) of section 2 shall first be computed separately as indicated in paragraphs 16,17 and 18 of this circular. Agricultural income from the business of sale of tea grown or manufactured by him in India will, however, be computed in accordance with rule 8 of the Income-tax Rules, as explained in paragraph 19. 2. The taxpayer's share in the agricultural income derived by unregistered firm, association of persons or body of individuals having total income exceeding Rs. 5,000, as also his share in the agricultural income or loss of an association of persons or body of individuals which has no income chargeable to tax under the Income-tax Act or has total income not exceeding Rs. 5,000 but has any agricultural income will be computed as explained in Paragraph 20 of this circular. 3. Losses incurred in respect of agricultural income from various sources will be set off against gains from agriculture from other sources in accordance with and subject to the provisions of rule 7. 4. The income or losses from various sources of agricultural income will then be aggregated and from the aggregate so arrived at, a deduction will be made in respect of agricultural income-tax levied by the State Government. 5. If a taxpayer derives income from agricultural property which is owned by him and is used for the purposes of his own residence, the annual value of such property will be limited to 10 per cent of his agricultural income, excluding the income from such self-occupied property, determined in the manner set forth above. 6. If the computation made in accordance with the provisions referred to above results in a loss, the loss will be disregarded and the net agricultural income will be taken at nil. For the purposes of computation of net agricultural income of an assessee, the provisions of the Income-tax Act relating to procedure for assessment (including the provisions of section 288A relating to rounding off of income) will apply, with necessary modifications, as they apply in relation to assessment of total income under that Act. Further, the Income-tax Officer will have the same powers for the purpose as he has under the Income-tax Act for the assessment of the total income. The effect of these provisions will be that the provisions of Chapter XIIIC and Chapter XIV will apply in the computation of agricultural income as they apply for determination of total income. [Rules 10 and 11] Finance Act, 1973 25. It should be noted that section 64 applies only for the purposes of computing "total income" of the assessee under the Income-tax Act. As the agricultural income of the assessee does not form part of his total income, the provisions of section 64 will not apply in respect of such income. In other words, agricultural income derived from assets transferred by an individual to his spouse or minor children will not form part of his net agricultural income. Finance Act, 1973 26. The Finance Act, 1973 does not contain any provisions enjoining the Income-tax Officer to make enquiries regarding the agricultural income of the assessee for the purposes of computing the "advance tax" payable by him under section 209. As the Income-tax Officer will also have no information regarding the net agricultural income of the assessee for the previous year relevant to the assessment year 1974-75, he will have to compute the advance tax payable by the assessee on the basis of the information on record, i.e., without taking into account the net agricultural income which the assessee may have in addition to his total income. Notices under section 210 will, therefore, be issued on that basis. Where, however, the assessees file estimate of advance tax under sub-section (1), (2), (3) or (3A) of section 212, they will have to take their net agricultural income if any, into account in calculating the advance tax payable by them during the financial year 1973-74. Amendments to Income-Tax Act Measures for Raising Additional Revenue Finance Act, 1973 Enlargement of the scope of "short-term" capital gains 27. Under the provisions of the Income-tax Act prior to its amendment by the Finance Act, 1973, gains arising from the transfer of a capital asset held by the taxpayer for not more than twenty-four months prior to the date of the transfer were treated as capital gains relating to "short-term capital assets" and were chargeable to tax as ordinary income. Gains arising from the transfer of capital assets held by the taxpayer for more than twenty-four months prior to the date of the transfer were treated as "long-term" capital gains, and charged to tax on a concessional basis. The relevant provision in section 2(42A) has been amended by the Finance Act, 1973 to enlarge the scope of "short-term" capital gains by providing that gains arising from the transfer of any capital asset held by the taxpayer for not more than sixty months prior to the date of the transfer will be treated as capital gains relating to "short-term capital assets". The provision in that section excluding bank certificates evidencing remittance of money from any foreign country to India during the period specified therein from the scope of the definition of "short-term capital asset" has also been omitted as it had become otiose. Finance Act, 1973 28. The above changes will take effect from 1-4-1974 and will accordingly apply in relation to assessments for the assessment year 1974-75 and subsequent years. [Section 3(b) of the Finance Act] Finance Act, 1973 Taxation of management compensation as profits and gains of business 29. Several laws have been enacted in recent years for taking over the management of industrial undertakings, mines, insurance companies, etc., pending their final take over by the Government. These laws provided for the payment of compensation in respect of the vesting in the Government of the management of the business of industrial undertakings, etc., taken over by the Government. A doubt had been raised regarding the taxability of the management compensation paid by the Government in such cases. With a view to clarifying the position, a specific provision has been made in section 28, retrospectively, from 1-4-1972 to the effect that any compensation or other payment due to, or received by, any person for the vesting in the Government (or in any corporation owned or controlled by the Government) of the management of the business or property of a taxpayer will be chargeable to income-tax as profits and gains of business. Management compensation paid by the Government for taking over the management of insurance companies will be liable to tax as profits and gains of business other than the business of insurance. In other words, the profits and gains of insurance business in the case of such companies will be computed in accordance with the rules contained in the First Schedule to the Income-tax Act, while the taxable amount of management compensation will be determined under the provisions contained in Chapter IVD in the same manner as profits and gains of a business other than insurance business.Consequential amendments have also been made in sections 80S and 112A. The effect of the amendment made in section 80S is that the deduction of 25 per cent allowed in computing the income by way of compensation for termination of managing agency, etc., will not be admissible in relation to management compensation. The amendment to section 112A secures that the management compensation is included in the total income of the taxpayer for the purpose of calculating tax payable in respect of interest on National Savings Certificates (First Issue) of the Bank Series of such certificates. Finance Act, 1973 30. These amendments have come into force with effect from 1-4-1972 and accordingly apply in relation to the assessment year 1972-73 and subsequent years. [Sections 4, 11 and 14 of the Finance Act] ENLARGEMENT OF THE SCOPE OF PROVISIONS RELATING TO DEDUCTION OF TAX AT SOURCE Finance Act, 1973 31. The Finance Act, 1973 has introduced a new section 194D and has amended section 194C with a view to widening the area of collection of income-tax by deduction at source. The substance of the new provisions is explained below: Finance Act, 1973 Deduction of income-tax from payments in respect of insurance commission 32. Under the new section 194D, any person responsible for paying to a resident in India any income by way of insurance commission will be required to deduct income-tax at source at such rates, as may be prescribed in the Finance Act of the relevant year. For this purpose, "insurance commission" will mean any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance). Consequential changes have also been made in sections 197, 198, 199, 200, 202, 203, 204, 205, 209 and 215 with a view to placing the tax deducted at source from insurance commission on a par with tax deducted from other categories of income. In this connection, it may be noted that under section 195, income-tax is already deductible at source from various sums, including insurance commission paid to non-resident non-corporate taxpayers, as also foreign companies which have not made the prescribed arrangement for the declaration and payment of dividends within India. The provisions relating to deduction of income-tax from insurance commission have been explained in Board's Circular No. 112 of 31-5-1973 and Nos. 120 and 121 of 8-10-1973. The main features of the provisions in section 194D are as follows : 1. The deduction will be made at the time of the credit of insurance commission to the account of the payee or at the time of payment thereof in cash or by issue of cheque, or draft or by any other mode, whichever is earlier. 2. No tax will be deducted at source where the amount is credited or paid before 1-6-1973. 3. Income-tax will be deductible from the amounts credited or paid after 31-5-1973 even if the relevant amount accrued on or before that date. 4. In view of the existing provision in section 288B, the amount of tax to be deducted at source will be rounded off to the nearest rupee by ignoring amounts less than 50 paise and increasing the amounts of 50 paise or more to one rupee; 5. The tax deducted by, or on behalf of, the Government should be paid to the credit of the Central Government on the same day by book adjustment. In other cases, the tax deducted at source is required to be paid to the credit of the Central Government within the following time limits : (a) where the sum is credited by a person carrying on a business or profession to the account of the payee as on the date up to which the accounts of such business or profession are made, within two months of the expiration of the month in which that date falls ; (b) in any other case, within one week from the last day of the month in which the deduction is made The Income-tax Officer has, however, been authorised to permit, in special cases and with the approval of the Inspecting Assistant Commissioner, any person to pay the income-tax deducted from insurance commission to the credit of the Central Government quarterly on 15th July, 15th October, 15th January and 15th April. 6. The person responsible for making deduction of income-tax under section 194D is required to issue a certificate showing therein the amount of the insurance commission credited or paid, the amount of tax deducted at source, etc., in Form No. 19D prescribed in the Income-tax Rules. 7. It is open to taxpayers, other than companies, to make an application to the Income-tax Officer concerned and obtain from him a certificate authorising the payer to deduct tax at such lower rate or deduct no tax as may be appropriate in his case. The application for this purpose has to be made in Form No. 13D prescribed in the Income-tax Rules. 8. The person making deduction of tax from insurance commission is required to send the following periodical statements to the Income-tax Officer having jurisdiction to assess him, namely : (a) a certificate in Form No. 26D on 15th July, 15th October, 15th January and 15th April showing the amount of income-tax deducted and paid to the credit of the Central Government during the immediately preceding quarter; (b) an annual statement in Form No. 26E on or before 30th June in each year giving names and addresses of the persons in whose accounts insurance commission was credited or to whom insurance commission was paid during the immediately preceding financial year, the amount of insurance commission credited/paid and the amount of tax deducted therefrom ; (c) an annual statement in Form No. 26F on or before 30th June in each year giving names and addresses of persons in whose account insurance commission was credited or to whom insurance commission was paid during the immediately preceding financial year without deduction of tax and the details of insurance commission credited or paid to them. [Sections 3(a), 17, 18 and 19 of the Finance Act and the Income-tax (Third Amendment) Rules, 1973] Finance Act, 1973 Deduction of income-tax from payments by co-operative societies to contractors and sub-contractors resident in India 33. Under section 194C inserted by the Finance Act, 1972, income-tax is deductible at source from income comprised in payments made by the Central Government or any State Government, local authorities, statutory corporations and companies to resident contractors engaged for carrying out any work or for supplying labour for carrying out such work, at the rate of 2 per cent of such payments. Similarly, deduction is made from payments made by contractors, other than individuals and Hindu undivided families, to resident sub-contractors at the rate of 1 per cent of the payment. No deduction is, however, required to be made if the consideration for the contract or the sub-contract does not exceed rupees five thousand. Section 194C has been amended with a view to including co-operative societies in the categories of persons who are required to deduct tax at source from payments made by them to contractors. As explained in paragraph 4(b) of this circular, the provisions of section 194C as explained in paragraph 11 of the Board's Circular No. 108, dated 20-3-1973 will apply in relation to deduction of income-tax from payments made by co-operative societies to contractors or by contractors obtaining contracts from co-operative societies to sub-contractors, as they apply in relation to contracts granted by the Government, statutory corporations, companies and local authorities. [Section16 of the Finance Act] DEDUCTION IN RESPECT OF CERTAIN PAYMENTS Finance Act, 1973 Further incentive for effective long-term savings through specified media - Section 80C 34. Under the provisions of section 80C, tax relief is allowed in respect of long-term savings effected by certain categories of taxpayers out of their taxable income. In the case of an individual, long-term savings through life insurance or deferred annuity policies on the life of the individual, his spouse or children, certain provident funds and superannuation funds, Unit-linked Insurance Plan and 10-Year and 15-Year Cumulative Time Deposit Accounts qualify for tax relief. In the case of Hindu undivided families, long-term savings effected through insurance policies on the life of any member of the family qualify for tax relief. In the case of a taxpayer, being an association of persons or body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, long-term savings through life insurance or deferred annuity policies on the life of any member of such association or body or on the life of any child of either member, as also through the Public Provident Fund, Unit-linked Insurance Plan, and 10-year and 15-Year Cumulative Time Deposit Accounts qualify for tax relief. The tax relief, in all cases, was hitherto allowed by deducting the whole of the first Rs. 1,000 of the qualifying savings plus 50 per cent of the next Rs. 4,000 plus 40 per cent of the remainder of such savings in computing the taxable income of the taxpayer. The Finance Act,1973 has made the following amendments in regard to the aforesaid provisions : 1. With a view to providing a further incentive for effecting long-term savings, particularly by taxpayers in the middle income brackets, the quantum of deduction in respect of long-term savings has been varied so as to allow a deduction of the whole of the first Rs. 2,000 of the qualifying savings plus 50 per cent of the next Rs. 3,000 plus 40 per cent of the remainder of such savings. The effect of this change is that in the case of a person who saves Rs. 2,000 or less, the whole of the qualifying savings will now qualify for deduction from his taxable income. In the case of a person who saves Rs. 2,000 or more, the amount of deduction stands increased by Rs. 500 as compared to the position existing hitherto. 2. Sums paid under a contract of deferred annuity hitherto qualified for deduction even in cases where the contract for deferred annuity contained a provision for the exercise by the insured of an option to receive cash payments in lieu of the payment of annuity. It has now been specifically provided that payments made under contracts of deferred annuities will qualify for tax concessions only if the contract does not contain a provision for the exercise by the insured of an option to receive the cash payment in lieu of the payment of the annuity. These amendments will take effect from 1-4-1974 and will accordingly apply to the assessments for the assessment year 1974-75 and subsequent years. [Section 8 of the Finance Act] Finance Act, 1973 Tax concession in respect of donations made to sports associations and institutions - Section 80G 35. Under section 80G, a taxpayer is entitled, subject to certain conditions, to a deduction in the computation of his taxable income of a specified percentage of the donations made by him to certain funds or charitable institutions, or for the repair or renovation of any temple, mosque, gurdwara, church or other place of worship, which is notified by the Central Government in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States. The deduction is equal to 50 per cent of the amount of the qualifying donations in the case of a company and 55 per cent of such amount in the case of other categories of taxpayers. Donations made by taxpayers to sports associations and institutions, however, do not qualify for tax relief under this provision as the mere promotion of any game or sport is not regarded as a "charitable purpose". With a view to providing an incentive to taxpayers to make more liberal donations to associations and institutions established in India for promotion of specified sports and games and which are approved by the Central Government for the purposes of section 10(23), section 80G has been amended to secure that donations made by the taxpayers to such approved associations or institutions are regarded as donations made to charitable institutions and qualify for tax concession accordingly. In this connection, it may be mentioned that sports associations and institutions approved by the Central Government for the purposes of section 10(23) already enjoy exemption from income-tax in respect of their own income. Finance Act, 1973 36. This amendment will take effect form 1-4-1974 and will accordingly apply to the assessments for the assessment year 1974-75 and subsequent years. [Section 9 of the Finance Act] Other Amendments Finance Act, 1973 Relief from tax on capital gain arising on the transfer by way of compulsory acquisition of lands and buildings in certain cases 37. A new section 54D has been inserted in order to provide relief from tax in the case of persons owning industrial undertakings in respect of capital gain arising on compulsory acquisition of any land or building used by them for the purposes of the business of the undertaking. The relief will be available in cases where the land or building which is acquired was used by the taxpayer for the purposes of the business of the industrial undertaking during the two years immediately preceding the date of compulsory acquisition and the taxpayer purchases any other land or building or constructs any other building, within three years from the date of compulsory acquisition, for the purposes of shifting or re-establishing the industrial undertaking or setting up another industrial undertaking. In such cases, the capital gain will not be charged to tax to the extent it is utilised for purchasing or, as the case may be, constructing the new asset. In other words, in a case where the amount of the capital gain exceeds the cost of purchase or construction, only the excess amount will be chargeable to tax. Where the new asset is transferred within a period of three years of its purchase or construction, then, for the purposes of determining the amount of capital gain arising from the transfer of the new asset (i) the cost of the new asset will be taken at nil if the amount of the capital gain arising from the transfer of the old asset exceeded the cost of new asset ; and (ii) the cost of the new asset will be reduced by the amount of the capital gain arising from the transfer of the old asset if such capital gain was equal to or less than the cost of the new asset. Finance Act, 1973 38. A taxpayer whose land or building is compulsorily acquired may sometimes not be in a position to purchase other land or building or construct other building for the purposes of shifting or re-establishing the industrial undertaking or setting up another industrial undertaking before the completion of the assessment for the assessment year in which the capital gain arising from compulsory acquisition of his land or building is charged to tax. In such cases, capital gain arising on compulsory acquisition will have to be included in the assessment of the taxpayer for the relevant assessment year. However, if after completion of the assessment, the taxpayer purchases another land or building or constructs a new building within the specified period of three years, it is but fair that the benefit of the tax concession should be allowed to him by amending the assessment order made earlier. Accordingly, section 155 has been amended to provide that, in such cases, the Income-tax Officer will amend the assessment order made by him so as to exclude the amount of the capital gain not chargeable to tax in accordance with the provisions of new section 54D. The period of limitation of four years for amending an assessment order laid down in the Income-tax Act will, in such cases, run from the date of assessment order for the year in which the capital gain arising on the transfer by way of compulsory acquisition is charged to tax. Finance Act, 1973 39. These changes will take effect from 1-4-1974 and will accordingly apply to the assessment year 1974-75 and subsequent years. [Sections 6, 7 and 15(b) of the Finance Act] Finance Act, 1973 Amendment of assessment order for excluding capital gain arising from transfer of agricultural land in certain circumstances 40. Under section 54B inserted by the Finance Act, 1970, tax relief is provided, in certain circumstances, in respect of capital gain arising from transfer of land which in the two years immediately preceding the date of transfer was being used by the taxpayer or his parent for agricultural purposes. Under this provision, such capital gain is not charged to tax to the extent it is utilised by the taxpayer within a period of two years after the date of transfer for purchasing any other land for being used for agricultural purposes. In other words, in a case where the amount of the capital gain exceeds the cost of acquisition of the new land, only the excess is chargeable to tax. A taxpayer may sometimes not be in a position to purchase another agricultural land before the completion of the assessment for the assessment year in which the capital gain arising from the transfer of agricultural land is charged to tax. With a view to ensuring that the existing tax concession is not denied in cases where the new land is purchased by the taxpayer after the completion of the assessment for the relevant assessment year, but within the specified period of two years, a specific provision has been made in the Income-tax Act, that, in such cases, the Income-tax Officer will amend the order of assessment so as to exclude the amount of capital gain not chargeable to tax. For the purposes of this provision, the four-year period of limitation for amending the order of assessment laid down in the Income-tax Act will be reckoned from the date of the assessment order for the year in which the capital gain is charged to tax. Finance Act, 1973 41. This amendment has come into force retrospectively from 1-4-1970, that is, the date from which section 54B was inserted by the Finance Act, 1970. [Section 15(a) of the Finance Act] Finance Act, 1973 Withdrawal of existing condition regarding number and types of rooms, etc., for purposes of "tax holiday" concession in the case of approved hotels 42. Under section 80J, Indian companies carrying on the business of a hotel approved by the Central Government are entitled to the 5-year "tax holiday" concession, if they fulfil certain conditions specified in this behalf in the Income-tax Act. One of the conditions laid down in the law is that the hotel should have such number and types of guest rooms and should provide such amenities as may be prescribed in rules made by the Central Board of Direct Taxes, having regard to the population and the tourist importance of the place in which the hotel is located. Rule 18 of the Income-tax Rules, made by the Central Board of Direct Taxes provides that a hotel should have not less than 50 guest rooms with attached bath-rooms equipped with modern sanitary fittings if it is situated in a town with a population of five lakhs or more and not less than 25 such guest rooms if it is situated in a town with a population of less than five lakhs. The existence of a rigid condition regarding the number of rooms, etc., could, sometimes, result in the denial of the tax concession to small hotels which may otherwise be of an adequately high standard to cater to the needs of foreign tourists. The condition that for the purposes of the "tax holiday" concession the hotel should have the prescribed number and types of guest rooms and amenities has, therefore, been omitted. Finance Act, 1973 43. This amendment will take effect from 1-4-1974 and will accordingly apply in relation to the assessments for the assessment year 1974-75 and subsequent years. [Section 10 of the Finance Act and rule 2 of the Income-tax (Third Amendment) Rules, 1973] Finance Act, 1973 Amendment of provision for grant of export markets development allowance so as to bring out the intention underlying the said provision 44. The Finance Act, 1968 introduced a new section 35B under which domestic companies and resident non-corporate taxpayers, incurring expenditure under specified heads for development of export markets for Indian goods on a long-term basis, are entitled to an export markets development allowance in the computation of their taxable profits. This allowance consists of a weighted deduction in an amount equal to 11/3rd times the amount of the qualifying expenditure. One of the heads of expenditure specified in the relevant provision as qualifying for the weighted deduction relates to expenditure incurred on "distribution, supply or provision outside India" of the goods, services or facilities dealt in or provided by the taxpayer in the course of his business. Another head of expenditure qualifying for the weighted deduction relates to expenditure incurred on "performance of services outside India" in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities. Finance Act, 1973 45. These provisions are susceptible of the interpretation that in the case of taxpayers engaged in the business of operating ships or aircraft, expenditure incurred on the transportation outside India of passengers, cargo, etc. (e.g., expenditure on the purchase of fuel and lubricants), will qualify for the weighted deduction. Similarly, it is also possible for a travel agent to claim that expenditure incurred by him on the carriage of, or making arrangement for the carriage of, passengers outside India, is also eligible for the weighted deduction. As such an interpretation of the relevant provisions would not be in conformity with the intention underlying these provisions, section 35B has been amended so as to make it clear that expenditure incurred by a taxpayer engaged in the business of operating any ship or other vessel, aircraft or vehicle, or the carriage of, or making arrangements for the carriage of, passengers, livestock, mail or goods, on or in relation to such operations, carriage or arrangements for carriage will not be regarded as expenditure incurred on the supply outside India of goods, services or facilities. Finance Act, 1973 46. This amendment has come into force retrospectively from 1-4-1968, i.e., the date from which section 35B was introduced in the Income-tax Act. [Section 5 of the Finance Act] Finance Act, 1973 Amendment of provisions relating to levy of additional tax on undistributed income in the case of closely-held companies 47. Under section 104, closely-held companies are required (subject to certain exceptions) to distribute dividends up to the statutory percentage of their distributable income within a period of twelve months immediately following the expiry of the accounting year. If a closely-held company fails to comply with this requirement, it is liable to pay additional income-tax at a specified percentage of the distributable income as reduced by the amount of the dividends actually distributed, if any. In the case of CIT v. Abdul Rahim Osman Co. (India) (P.) Ltd. [1972] 86 ITR 436, the Supreme Court has held that for the purposes of levying additional income-tax (under a similar provision contained in the 1922 Act), dividends declared by a company after the expiry of the said period of twelve months but before an order under this provision is made should also be taken into account. As the interpretation placed by the Supreme Court is not in conformity with the intention underlying the relevant provision, section 104 has been amended to secure that dividends distributed by a closely-held company after the expiry of twelve months from the end of the accounting year will not be taken into account for purposes of levying additional income-tax under this provision. Certain consequential amendments have also been made in section 105. Finance Act, 1973 48. These amendments will take effect from 1-4-1974 and will accordingly apply in relation to the assessment year 1974-75 and subsequent years. [Sections 12 and 13 of the Finance Act] Amendment to Wealth-tax Act Finance Act, 1973 Separate rate schedule for ordinary wealth-tax in the case of certain Hindu undivided families 49. Under the existing provisions of the Wealth-tax Act, the rates of ordinary wealth-tax in the case of individuals and Hindu undivided families range from 1 per cent on the first slab of net wealth up to Rs. 5 lakhs to a maximum of 8 per cent on the slab of net wealth over Rs. 15 lakhs. No wealth-tax is, however, payable where the net wealth does not exceed Rs. 1 lakh in the case of an individual and Rs. 2 lakhs in the case of a Hindu undivided family. A new rate schedule of ordinary wealth-tax has been prescribed in the case of Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh, i.e., the maximum amount not chargeable to wealth-tax in the case of an individual. Under the new rate schedule, the rate of tax applicable on various slabs of net wealth is the same as the rate of tax applicable to the next higher slab in the case of Hindu undivided families having no member with independent net wealth exceeding Rs. 1 lakh. The rates of ordinary wealth-tax applicable in the case of such Hindu undivided families will be as follows : - on the first Rs. 5,00,000 of net wealth 2% - on the next Rs. 5,00,000 of net wealth 3% - on the balance of net wealth, i.e., net wealth in excess of Rs. 10,00,000 8% No wealth-tax will, however, be payable in a case where the net wealth of the Hindu undivided family does not exceed Rs. 2 lakhs. It is also being provided, by way of marginal relief, that ordinary wealth-tax payable shall not exceed 10 per cent of the amount by which the net wealth exceeds Rs. 2 lakhs. Finance Act, 1973 50. The new rate schedule in the case of Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh will take effect from 1-4-1974 and will accordingly apply in relation to assessment year 1974-75 and subsequent years. The rates of wealth-tax in the case of individuals as also Hindu undivided families having no member with independent net wealth exceeding Rs. 1 lakh will continue at the existing levels. [Section 20 of the Finance Act] Amendment to Gift-tax Act Finance Act, 1973 Relief in respect of donations to approved sports associations and institutions 51. Under section 5(1)(v), gifts made to institutions or funds established for charitable purposes are not charged to gift-tax if the institution or fund satisfies the conditions laid down in section 80G of the Income-tax Act for the purposes of tax relief under that Act in respect of donations made to such institutions or funds. Under an amendment made in the Income-tax Act by section 9 of the Finance Act, 1973, donations made by taxpayers to associations or institutions which are established in India for the promotion of sports and games and which are approved for purposes of section 10(23) of that Act will be regarded as donations made to a charitable institution and qualify for tax relief admissible under section 80G of that Act. A similar amendment has been made in section 5(1)(v) to secure that gifts made to such approved associations or institutions are also exempt from gift-tax. Finance Act, 1973 52. This amendment will take effect from 1-4-1974 and will accordingly apply in relation to the assessment year 1974-75 and subsequent years. [Section 21 of the Finance Act] Amendments to Companies (Profits) Surtax Act Finance Act, 1973 Exclusion of debentures, other than long-term debentures, from the capital base 53. Under the Companies (Profits) Surtax Act (hereinafter referred to as "the Surtax Act"), surtax is levied at specified rates on so much of the chargeable profits of a company as exceeds the statutory deduction. The term "statutory deduction" means an amount equal to 10 per cent of the capital of the company as computed in accordance with the relevant provisions of that Act or an amount of Rs. 2 lakhs, whichever is greater. Broadly, the capital of a company is taken to be the aggregate, as on the first day of the relevant accounting year, of (i) its paid-up share capital ; (ii) its reserves (including development rebate reserve); (iii) its debentures, if any ; and (iv) any moneys borrowed on a long-term basis from Government or other specified sources. A doubt had been raised that in the absence of a specific definition of the word "debentures" in the Surtax Act, it would be construed widely to include even a bond or other document executed by a company as an acknowledgement of an existing debt or as a collateral security for the purposes of obtaining short-term loans or even bank overdraft. As such an interpretation would be contrary to the underlying intention, the First and Second Schedules have been amended in order to clarify that the debentures of a company will be taken into account for computing its capital for the purposes of surtax only if they are issued to the public and, according to the terms and conditions of their issue, are not redeemable before the expiry of a period of seven years. Finance Act, 1973 54. These amendments will take effect from 1-4-1974 and will accordingly apply in relation to the assessments for the assessment year 1974-75 and subsequent years. [Section 22 of the Finance Act] Miscellaneous Provisions Finance Act, 1973 Exemption from tax of the income of the Credit Guarantee Corporation of India Ltd. 55. The Credit Guarantee Corporation of India Ltd. is registered as a company under the Companies Act, 1956. Approximately 55 per cent of its paid-up capital is held by the Reserve Bank of India and the remaining by the State Bank of India and its subsidiaries, nationalised banks and other banking and financial institutions. The Corporation guarantees loans advanced by banks and financial institutions to small borrowers in the priority and other sectors which had remained relatively neglected. The Corporation serves a desirable socio-economic purpose and with a view to enabling it to perform its functions effectively and to build up its reserves, an independent provision has been made in section 23 of the Finance Act, 1973 so as to exempt from income-tax and surtax the income of the Corporation for a five-year period covering the assessment years 1972-73 to 1976-77 (both inclusive). [Section 23 of the Finance Act] ANNEXURE I Rates of Income-tax and Surcharge on Income-tax for the Assessment Year 1973-74 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 (1) where the total income does not exceed Rs. 5,000 Nil; (2) where the total income exceeds Rs. 5,000 but does not exceed Rs. 10,000 10 per cent of the amount by which the total income exceeds Rs. 5,000; (3) where the total income exceeds Rs. 10,000 but does not exceed Rs. 15,000 Rs. 500 plus 17 per cent of the amount by which the total income exceeds Rs. 10,000; (4) where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000 Rs. 1,350 plus 23 per cent of the amount by which the total income exceeds Rs. 15,000; (5) where the total income exceeds Rs. 20,000 but does not exceed Rs. 25,000 Rs. 2,500 plus 30 per cent of the amount by which the total income exceeds Rs. 20,000; (6) where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000 Rs. 4,000 plus 40 per cent of the amount by which the total income exceeds Rs. 25,000; (7) where the total income exceeds Rs. 30,000 but does not exceed Rs. 40,000 Rs. 6,000 plus 50 per cent of the amount by which the total income exceeds Rs. 30,000; (8) where the total income exceeds Rs. 40,000 but does not exceed Rs. 60,000 Rs. 11,000 plus 60 per cent of the amount by which the total income exceeds Rs. 40,000; (9) where the total income exceeds Rs. 60,000 but does not exceed Rs. 80,000 Rs. 23,000 plus 70 per cent of the amount by which the total income exceeds Rs. 60,000; (10) where the total income exceeds Rs. 80,000 but does not exceed Rs. 1,00,000 Rs. 37,000 plus 75 per cent of the amount by which the total income exceeds Rs. 80,000; (11) where the total income exceeds Rs. 1,00,000 but does not exceed Rs. 2,00,000 Rs. 52,000 plus 80 per cent of the amount by which the total income exceeds Rs. 1,00,000; (12) where the total income exceeds Rs. 2,00,000 Rs. 1,32,000 plus 85 per cent of the amount by which the total income exceeds Rs. 2,00,000; Provided that for the purposes of this paragraph, in the case of a Hindu undivided family which at any time during the previous year satisfies either of the following two conditions, namely,— (a) that it has at least two members entitled to claim partition who are not less than eighteen years of age, or (b) that it 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 : (i) no income-tax shall be payable on a total income not exceeding Rs. 7,000 ; (ii) where the total income exceeds Rs. 7,000 but does not exceed Rs. 7,660, the income-tax payable thereon shall not exceed forty per cent of the amount by which the total income exceeds Rs. 7,000. Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provisions of this Paragraph shall be increased by a surcharge for purposes of the Union calculated at the following rates, namely : (a) in a case where the total income does not exceed Rs. 15,000 - 10 per cent ; (b) in any other case - 15 per cent ; Provided that the amount of surcharge payable shall, in no case, exceed the aggregate of the following sums, namely : (i) an amount calculated at the rate of 10 per cent on the amount of income-tax on an income of Rs. 15,000, if such income had been the total income (the income of Rs. 15,000 for this purpose being computed as if such income included income from various sources in the same proportion as the total income of the person concerned); and (ii) 40 per cent of the amount by which the total income exceeds Rs. 15,000. 2. Co-operative societies Rates of income-tax (1) where the total income does not exceed Rs. 10,000 15 per cent of the total income (2) where the total income exceeds Rs. 10,000 but does not exceed Rs. 20,000 Rs. 1,500 plus 25 per cent of the amount by which the total income exceeds Rs. 10,000 (3) where the total income exceeds Rs. 20,000 Rs. 4,000 plus 40 per cent of the amount by which the total income exceeds Rs. 20,000 Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge for purposes of the Union calculated at the rate of fifteen per cent of such income-tax. 3. Registered firms Rates of income-tax (1) where the total income does not exceed Rs. 10,000 Nil; (2) where the total income exceeds Rs. 10,000 but does not exceed Rs. 25,000 4 per cent of the amount by which the total income exceeds Rs. 10,000 (3) where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000 Rs. 600 plus 6 per cent of the amount by which the total income exceeds Rs. 25,000; (4) where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000 Rs. 2,100 plus 12 per cent of the amount by which the total income exceeds Rs. 50,000; (5) where the total income exceeds Rs. 1,00,000 Rs. 8,100 plus 20 per cent of the amount by which the total income exceeds Rs. 1,00,000; Surcharges on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by the aggregate of surcharges for purposes of the Union calculated as specified hereunder : (a) in the case of a registered firm whose total income includes income derived from a profession carried on by it and the income so included is not less than fifty-one per cent of such total income, a surcharge calculated at the rate of ten per cent of the amount of income-tax computed at the rate hereinbefore specified; (b) in the case of any other registered firm, a surcharge calculated at the rate of twenty per cent of the amount of income-tax computed at the rate hereinbefore specified ; and (c) a special surcharge calculated at the rate of fifteen per cent on the aggregate of the following amounts, namely : (i) the amount of income-tax computed at the rate hereinbefore specified; and (ii) the amount of the surcharge calculated in accordance with clause (a), or as the case may be, clause (b). Explanation : For the purposes of this Paragraph, "registered firm" includes an unregistered firm assessed as a registered firm under clause (b) of section 183 of the Income-tax Act. 4. Local authorities Rate of income-tax On the whole of the total income - 50 per cent. Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge for purposes of the Union calculated at the rate of fifteen per cent of such income-tax.B. Companies 1. In the case of the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956,— Rates of income-tax (1) on that part of its total income which consists of profits and gains form life insurance business 52.5 per cent (2) on the balance, if any, of the total income the rate of income-tax applicable, in accordance with Paragraph F of this part, to the total income of a domestic company which is a company in which the public are substantially interested. Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge calculated at the rate of five per cent of such income-tax. 2. In the case of a company, other than the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956,— Rates of income-tax I. In the case of a domestic company— (I) where the company is a company in which the public are substantially interested- (i) in a case where the total income does not exceeds Rs. 50,000 45 per cent of the total income; (ii) in a case where the total income does not exceed 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- (a) on so much of the total income as does not exceed Rs. 10,00,000 55 per cent; (b) on the balance, if any, of the total income 60 per cent; (ii) in any other case 65 per cent of the total income: Provided that the income-tax payable by a domestic company being a company in which the public are substantially interested, the total income of which exceeds Rs. 50,000 shall not exceed the aggregate of— (a) the income-tax which would have been payable by the company if its total income had been Rs. 50,000 (the income of Rs. 50,000 for this purpose being computed as if such income included income from various sources in the same proportion as the total income of the company); and (b) eighty per cent of the amount by which its total income exceeds Rs. 50,000. 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 the 31st day of March, 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 the 29th day of February, 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. Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge calculated at the rate of five per cent of such income-tax. Annexure II Rates for calculating or charging Income-tax in certain cases, deducting income-tax at source from "Salaries" and retirement annuities and computing "Advance tax" during the financial year 1973-74 A. Taxpayers other than Companies 1. Individuals, Hindu undivided families (other than Hindu undivided families which have at least one member whose total income of the previous year relevant to the assessment year commencing on the 1st day of April, 1974 exceeds Rs. 5,000), unregistered firms, associations of persons (other than co-operative societies), bodies of individuals and artificial juridical persons Rates of income-tax (1) where the total income does not exceed Rs. 5,000 Nil; (2) where the total income exceeds Rs. 5,000 but does not exceed Rs. 10,000 10 per cent of the amount by which the total income exceeds Rs. 5,000; (3) where the total income exceeds Rs. 10,000 but does not exceed Rs. 15,000 Rs. 500 plus 17 per cent of the amount by which the total income exceeds Rs. 10,000; (4) where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000 Rs. 1,350 plus 23 per cent of the amount by which the total income exceeds Rs. 15,000; (5) where the total income exceeds Rs. 20,000 but does not exceed Rs. 25,000 Rs. 2,500 plus 30 per cent of the amount by which the total income exceeds Rs. 20,000; (6) where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000 Rs. 4,000 plus 40 per cent of the amount by which the total income exceeds Rs. 25,000; (7) where the total income exceeds Rs. 30,000 but does not exceed Rs. 40,000 Rs. 6,000 plus 50 per cent of the amount by which the total income exceeds Rs. 30,000; (8) where the total income exceeds Rs. 40,000 but does not exceed Rs. 60,000 Rs. 11,000 plus 60 per cent of the amount by which the total income exceeds Rs. 40,000; (9) where the total income exceeds Rs. 60,000 but does not exceed Rs. 80,000 Rs. 23,000 plus 70 per cent of the amount by which the total income exceeds Rs. 60,000; (10) where the total income exceeds Rs. 80,000 but does not exceed Rs. 1,00,000 Rs. 37,000 plus 75 per cent of the amount by which the total income exceeds Rs. 80,000; (11) where the total income exceeds Rs. 1,00,000 but does not exceed Rs. 2,00,000 Rs. 52,000 plus 80 per cent of the amount by which the total income exceeds Rs. 1,00,000; (12) where the total income exceeds Rs. 2,00,000 Rs. 1,32,000 plus 85 per cent of the amount by which the total income exceeds Rs. 2,00,000; Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provisions of this paragraph shall be increased by a surcharge for purposes of the Union calculated at the following rates, namely : (a) in a case where the total income does not exceed Rs. 15,000 - 10 per cent ; (b) in any other case - 15 per cent : Provided that the amount of surcharge payable shall, in no case, exceed the aggregate of the following sums, namely : (i) an amount calculated at the rate of 10 per cent on the amount of income-tax on an income of Rs. 15,000, if such income had been the total income (the income of Rs. 15,000, for this purpose being computed as if such income included income from various sources in the same proportion as the total income of the person concerned); and (ii) 40 per cent of the amount by which the total income exceeds Rs. 15,000. 2. Hindu undivided families which have at least one member whose total income of the previous year relevant to the assessment year commencing on the 1st day of April, 1974 exceeds Rs. 5,000,— Rates of income-tax (1) where the total income does not exceed Rs. 5,000 Nil; (2) where the total income exceeds Rs. 5,000 but does not exceed Rs. 10,000 17 per cent of the amount by which the total income exceeds Rs. 5,000; (3) where the total income exceeds Rs. 10,000 but does not exceed Rs. 15,000 Rs. 850 plus 23 per cent of the amount by which the total income exceeds Rs. 10,000; (4) where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000 Rs. 2,000 plus 30 per cent of the amount by which the total income exceeds Rs. 15,000; (5) where the total income exceeds Rs. 20,000 but does not exceed Rs. 25,000 Rs. 3,500 plus 40 per cent of the amount by which the total income exceeds Rs. 20,000; (6) where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000 Rs. 5,500 plus 50 per cent of the amount by which the total income exceeds Rs. 25,000; (7) where the total income exceeds Rs. 30,000 but does not exceed Rs. 40,000 Rs. 8,000 plus 60 per cent of the amount by which the total income exceeds Rs. 30,000; (8) where the total income exceeds Rs. 40,000 but does not exceed Rs. 60,000 Rs.42,000 plus 70 per cent of the amount by which the total income exceeds Rs. 40,000; (9) where the total income exceeds Rs. 60,000 but does not exceed Rs. 80,000 Rs.28,000 plus 75 per cent of the amount by which the total income exceeds Rs. 60,000; (10) where the total income exceeds Rs. 80,000 but does not exceed Rs. 1,00,000 Rs. 43,000 plus 80 per cent of the amount by which the total income exceeds Rs. 80,000; (11) where the total income exceeds Rs. 1,00,000 Rs. 59,000 plus 85 per cent of the amount by which the total income exceeds Rs. 1,00,000; Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provisions of this Paragraph shall be increased by a surcharge for purposes of the Union calculated at the rate of fifteen per cent of such income-tax. 3. Co-operative societies Rates of income-tax (1) where the total income does not exceed Rs. 10,000 15 per cent of the total income; (2) where the total income exceeds Rs, 10,000 but does not exceed Rs. 20,000 Rs. 15,00 plus 25 per cent of the amount by which the total income exceeds Rs. 10,000; (3) where the total income exceeds Rs. 20,000 Rs. 4,000 plus 40 per cent of the amount by which the total income exceeds Rs. 20,000; Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge for purposes of the Union calculated at the rate of fifteen per cent of such income-tax. 4. Registered firms Rates of income-tax (1) where the total income does not exceed Rs. 10,000 Nil; (2) where the total income exceeds Rs. 10,000 but does not exceed Rs. 25,000 4 per cent of the amount by which the total income exceeds Rs. 10,000 (3) where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000 Rs. 600 plus 6 per cent of the amount by which the total income exceeds Rs. 25,000; (4) where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000 Rs. 2,100 plus 12 per cent of the amount by which the total income exceeds Rs. 50,000; (5) where the total income exceeds Rs. 1,00,000 Rs. 8,100 plus 20 per cent of the amount by which the total income exceeds Rs. 1,00,000; Surcharges on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by the aggregate of surcharges for purposes of the Union calculated as specified hereunder : (a) in the case of a registered firm whose total income includes income derived from a profession carried on by it and the income so included is not less than fifty-one per cent of such total income, a surcharge calculated at the rate of ten per cent of the amount of income-tax computed at the rate hereinbefore specified; (b) in the case of any other registered firm, a surcharge calculated at the rate of twenty per cent of the amount of income-tax computed at the rate hereinbefore specified ; and (c) a special surcharge calculated at the rate of fifteen per cent on the aggregate of the following amounts, namely : (i) the amount of income-tax computed at the rate hereinbefore specified; and (ii) the amount of the surcharge calculated in accordance with clause (a), or as the case may be, clause (b) ; Explanation : For the purposes of this paragraph, "registered firm" includes an unregistered firm assessed as a registered firm under clause (b) of section 183 of the Income-tax Act. 5. Local authorities Rate of income-tax On the whole of the total income - 50 per cent. Surcharge on income-tax The amount of income-tax computed at the rates hereinbefore specified shall be increased by a surcharge for the purposes of the Union calculated at the rate of fifteen per cent of such income-tax.B. Companies 1. In the case of the 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, in accordance with Paragraph F of this part, to the total income of domestic company which is a company in which the public are substantially interested. Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge calculated at the rate of five per cent of such income-tax. 2. In the case of a company, other than the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956,— 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. 1,00,000 45 per cent of the total income; (ii) in a case where the total income exceeds Rs. 1,00,000 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- (a) on so much of the total income as does not exceed Rs. 2,00,000 55 per cent (b) on the balance, if any, of the total income 60 per cent (ii) in any other case 65 per cent of the total income: Provided that the income-tax payable by a domestic company being a company in which the public are substantially interested, the total income of which exceeds Rs. 1,00,000 shall not exceed the aggregate of— (a) the income-tax which would have been payable by the company if its income had been Rs. 1,00,000 (the income of Rs. 1,00,000 for this purpose being computed as if such income included income from various sources in the same proportion as the total income of the company); and (b) eighty per cent of the amount by which its total income exceeds Rs. 1,00,000. 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 the 31st day of March, 1961, or (b) fees for rendering technical services from an Indian concern in pursuance of an agreement made by it with the Indian concern after the 29th day of February, 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. Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge calculated at the rate of five per cent of such income-tax.