The Taxation Laws (Amendment) Act, 1975 - Explanatory notes on the provisions coming into force with effect from October 1, 1975. - Income Tax - 179/1975

CIRCULAR NO. 179 DATED 30-9-1975 The Taxation Laws (Amendment) Act, 1975 - Explanatory notes on the provisions coming into force with effect from October 1, 1975. Introduction 1. The Taxation Laws (Amendment) Bill, 1975 as passed by Parliament, received the assent of the President on 7-8-1975 and has been enacted as Taxation Laws (Amendment) Act, 1975 (41 of 1975). 2. Objects of the Act - The Taxation Laws (Amendment) Act, 1975 (hereinafter referred to as "the Amending Act") has amended several provisions of the Income-tax Act, 1961, the Wealth-tax Act, 1957, the Gift-tax Act, 1958 and the Companies (Profits) Surtax Act, 1964. These amendments are broadly aimed at devising measures for unearthing black money and preventing its proliferation; combating tax evasion; checking avoidance of tax through legal devices, including formation of trusts and diversion of income or wealth to members of family; reducing tax arrears and ensuring that in future tax arrears do not accumulate; rationalising the exemptions and deductions available under the aforesaid Acts; and streamlining the administrative set up with a view to making it functionally more efficient. 3. Commencement - In terms of Notification No.SO475(E), dated 15-9-1975, issued by the Central Government under section 1(2) of the Amending Act, the various provisions of that Act will come into force with the effect from the dates mentioned hereunder: Date of commencement Provisions of the Amending Act 1-10-1975 Clause (i) of section 3, sections 29 to 37 (both inclusive), 50, 52 to 56 (both inclusive) and 59, clause (iv) of section 61, sections 64, 68, 70 to 74 (both inclusive), 77, 78, 81 and 84 to 87 (both inclusive), section 92, in so far as it relates to the insertion of new section 18B in the Wealth-tax Act, 1957 and sections 94, 97, 100 to 104 (both inclusive), 107 to 110 (both inclusive), 112, 118, 120 to 122 (both inclusive) and 124. 1-1-1976 Sections 45, 47, 57, 66 and 90, clause (v) of section 91 and section 93. 1-4-1976 Section 2, clause (ii) of section 3, sections 4 and 6 to 13 (both inclusive) section 14, in so far as it relates to the insertion of new section 69C in the Income-tax Act, 1961, sections 16 to 28 (both inclusive), 38 to 44 (both inclusive), 46, 48, 49, 51, 58 and 60, clauses (i) to (iii) of section 61, sections 62, 63, 65, 67, 69, 75, 76, 79, 80, 82, 83, 88 and 89, clauses (i) to (iv) of section 91, section 92, in so far as it relates to the insertion of new section 18A in the Wealth-tax Act, 1957 and sections 95, 96, 99, 105, 106, 111, 113 to 117 (both inclusive), 119, 123 and 125. 1-4-1977 Section 5, section 14, in so far as it relates to the insertion of new section 69D in the Income-tax Act, 1961 and section 15. This circular explains the provisions of the Amending Act which will come into force with effect from 1-10-1975. AMENDMENTS TO INCOME-TAX ACT MEASURE FOR GRANTING TAX RELIEF Tax exemption of remuneration received by non-Indian employees of foreign philanthropic institutions, etc. - New section 10(6)(via) 4. The Amending Act has introduced a new sub-clause(via) in clause (6) of section 10 with a view to exempting from income-tax remuneration received by individuals other than Indian citizens, from foreign philanthropic institutions, associations or bodies in certain circumstances. The exemption from income-tax will be available if the following conditions are fulfilled, namely: 1. The individual concerned is not a citizen of India. 2. He is either an employee of, or a consultant to, an institution or association or body established or formed outside India. 3. The said association, institution or body is established or formed solely for philanthropic purposes. 4. The said association, institution or body is approved by the Central Government. 5. The remuneration is received for services rendered in India. 6. The services in question are rendered for a purpose which has been approved by the Central Government. 5. This amendment will apply in relation to the assessment year 1976-77 and subsequent years. [Section 3(i) of the Amending Act] AMENDMENTS OF PROVISIONS RELATING TO JURISDICTION OF INCOME-TAX AUTHORITIES 6. The Amending Act has made certain amendments to the provisions in Chapter XIII B relating to jurisdiction of income-tax authorities with a view to streamlining the administrative set up in the income-tax offices and to make it functionaly more efficient. The substance of the main changes made in this behalf is explained in paragraphs 7 to 9 below. Concurrent jurisdiction of Income-tax Officers - Section 124(2) 7. At present, the Commissioner can direct that two or more Income-tax Officers will exercise concurrent jurisdiction in respect of the same area or the same persons or classes of persons or the same incomes or classes of income or the same cases or classes of cases but under such direction, the same function, in respect of the same case cannot be performed by more than one Income-tax Officer. The Amending Act has modified the provisions in section 124 in order to enable the same function in relation to the same case being performed by more than one Income-tax Officer according to such written orders of the Commissioner or the Inspecting Assistant Commissioner as may be made by him for the purposes of facilitating the performance of such functions by the Income-tax Officers concerned. The underlying object is to provide greater flexibility in the distribution of work among the Income-tax Officers. [Section 29 of the Amending Act] Concurrent jurisdiction of Inspecting Assistant Commissioner and Income-tax Officers. New section 125A 8. The Amending Act has inserted a new section 125A to enable jurisdiction over any area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, being exercised concurrently by the Inspecting Assistant Commissioner and the Income-tax Officers working under him. Under the new provision, the Commissioner will have the power to direct, by an order in writing, that all or any of the powers conferred on and functions assigned to the Income-tax Officer or Income-tax Officers (where two or more Income-tax Officers exercise concurrent jurisdiction) will be exercised or performed concurrently by the Inspecting Assistant Commissioner. Where the Commissioner makes such an order, the distribution of powers and functions in relation to the cases will be made by the Inspecting Assistant Commisioner between himself and the Income-tax Officers under him. Further the Inspecting Assistant Commissioner will have the power to issue directions to the Income-tax Officers in individual cases subject to the condition that no directions prejudicial to the assessee will be issued without giving him an opportunity of being heard. For this purpose instructions by the Inspecting Assistant Commissioner as to the lines on which investigations should be made in a case would not be regarded as instructions prejudicial to the assessee. Where the Inspecting Assistant Commissioner performs functions of the Income-tax Officer, any provisions of the Income-tax Act requiring the approval or sanction of the Inspecting Assistant Commissioner will not apply and an appeal against the Inspecting Assistant Commissioner's order will lie to the Commissioner and therefrom to the Income-tax Appellate Tribunal. [Section 31 of the Amending Act] Consequential amendments 9. In view of the amendment of section 124(2) and insertion of new section 125A as discussed in the preceding paragraphs, consequential changes have been made in the provisions of section 127 and section 130A. [Sections 32 and 33 of the Amending Act] MEASURES FOR ENLARGEMENT OF POWERS OF INCOME-TAX AUTHORITIES 10. The Amending Act has made several amendments to the provisions in Chapter XIII-C with a view to enlarging the powers of income-tax authorities in certain directions. The substance of the main changes in this behalf is explained in paragraphs 1 to 15. Powers relating to discovery, production of evidence, etc. Section 131 11. At present, Income-tax Officers, Appellate Assistant Commissioners, Inspecting Assistant Commissioners, and Commissioners exercise powers of discovery and inspection, enforcing attendance of persons, compelling production of books of account, etc., and issuing commissions. These powers are, however, not available to Assistant Directors of Inspection. With a view to enabling Assistant Directors of Inspection to make proper investigation in the cases entrusted to them, the Amending Act has modified the provisions of section 131 to confer on the Assistant Director of Inspection all such powers as the Income-tax Officer exercise under that section. Assistant Directors of Inspection will be able to exercise these powers in cases where there is reason to suspect that any income has been concealed or is likely to be concealed by any person or class of persons within his jurisdiction, even though no proceedings with respect of such persons or classes of persons may be pending before him or any other income-tax authority. [Section 34 of the Amending Act] Powers of search and seizure - Section 132 12. The Amending Act has made several amendments to section 132 with a view to enlarging the powers of search and seizure vested in the income-tax authorities. The main changes are as follows: 1. At present, searches and seizures can be authorised only by the Director of Inspection or the Commissioner. Now, this power will also vest in such Deputy Directors of Inspection and Inspecting Assistant Commissioners as may be especially empowered by the Board for the purpose. While Directors of Inspection and Commissioners will continue to have the power to authorise Deputy Directors of Inspection, Inspecting Assistant Commissioners, Assistant Directors of Inspection and Income-tax Officers to carry out any search, the Deputy Directors of Inspection and Inspecting Assistant Commissioners especially empowered by the Board will be able to authorise only Assistant Directors of Inspection and Income-tax Officers for the purpose. 2. Under the existing law, a searchcan, inter alia, be authorised if the officer issuing the search warrant has reason to believe that the person concerned is in possession of any money, bullion, jewellery or other valuable article or thing which represents, either wholly or partly, income or property that has not been disclosed for income-tax purposes. It will now be possible to issue a search warrant even in a case where the officer issuing such warrant has reason to believe that such money, bullion, jewellery, etc., would not be disclosed by the person concerned for income-tax purposes in future. 3. At present, an authorisation can be issued only for the search of a building or a place. This power is now being extended to cover the search of a vehicle, vessel and aircraft as well. 4. Under the existing rule 112(5), the authorised officer is empowered to search any person in or about the building or place in respect of which a search has been authorised, if he has reason to suspect that any article for which search is being made is concealed about his person. This power has been enlarged and included in section 132(1)(iia). The authorised person will now have the power to search any person who has got out of, or is about to get into, or is in building, place, vessel, vehicle or aircraft in respect of which the search has been authorised, if he has reason to suspect that such person has secreted about his person has secreted about his person any books of account, other documents, money, bullion, jewellery or other valuable article for which the search is being made. 5. The Commissioner has been empowered to authorise a search of any building, place, vessel, vehicle or aircraft within his territorial jurisdiction even in cases where he has no jurisdiction over the person concerned, if he has reason to believe that any delay in obtaining authorisation from the Commissioner having jurisdiction over the person would be prejudicial to the interests of the revenue. 6. The commissioner's power to authorise a search has been enlarged in another direction as well. Where a search for any books of account or other documents or assets has been authorised by any authority competent to do so and any Commissioner has reason to suspect that such books of account, other documents or assets are kept in any building, place, vessel, vehicle or aircraft not mentioned in the search warrant, he may authorise the authorised officer to search such other building, place, vessel, vehicle or aircraft. Thus, if a search warrant is issued by the Commissioner of Income-tax, Bombay, authorising the search of a premises in Madras and the authorised officer finds that the books of account, other documents or assets have been searched in a building or place not specified in the search warrant, he could request any of the local Commissioners to authorise him to search that building or place. 7. Under the existing law, the onus of proving that books of account, other documents, money, bullion, jewellery or other valuable articles or things found in the possession or control of a person in the course of a search belong to that person and relate to his affairs is on the Income-tax Department. New sub-section (4A) inserted in section 132 by the Amending Act will enable a rebuttable presumption being made that the books of account, other documents and assets found in the possession or control of any person in the course of a search belong to such person; that the contents of such books of account and other documents are true; and that the signature and every other part of such books of account and other documents are in the handwriting of the persons who can be reasonably assumed to have signed or written the books of account or documents. 8. At present a summary assessment has to be made by the Income-tax Officer under sub-section (5) of section 132 with the previous approval of the Commissioner. The Inspecting Assistant Commissioner has now been empowered to approve such summary assessments. 9. Sub-section (5) of section 132 authorises the Income-tax Officer to retain out of the assets seized in the course of a search, such assets as would be sufficient to satisfy the tax payable on the estimated undisclosed income, as also the existing liabilities under the direct taxes laws. The Income-tax Officer will now be able to determine, apart from the tax payable on the undisclosed income, the amount of interest payable and the amount of penalty imposable on the basis of the estimated undisclosed income and retain seized assets to the extent necessary to satisfy the liability towards such interest and penalty as well. 10. Under the existing provision, the authorised officer has to take action for the retention of the seized books of account, etc. beyond the initial period of 180 days, whether or not he exercises jurisdiction over the case. Under the amended provision, the authorised officer, if he is not the assessing officer, will be required to hand over the books of account, etc., seized by him to the assessing officer within a period of 15 days of the seizure and thereafter the powers and functions of the authorised officer under sub-sections (8) and (9) of section 132 will be exercised by the assessing officer. [section 35 of the Amending Act] Powers to requisition books of account, etc. - New Section 132A 13. The Amending Act has substituted the existing section 132A by a new section and has renumbered the existing Section 132A as section 132B. The new section 132A provides that where any books of account, other documents or assets have been taken into custody by any officer or authority under any other law (e.g., by the Collector of Customs, Sales Tax Commissioner, etc.), the Director of Inspection or the Commissioner of Income-tax may, in the circumstances covered by section 132, authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer to require such officer or authority to deliver to him such books of account, other documents or assets. Where such a requisition is made, the officer or authority concerned will be required to deliver the books of account, other documents and assets to the requisitioning officer either forthwith or when such officer or authority is of the opinion that it is no longer necessary to retain the same in his or its custody. [Section 36 of the Amending Act] Powers of survey - Section 133A 14. The Amending Act has substituted a new section for the existing section 133A with a view to enlarging the scope and powers of survey available to the income-tax authorities. The main changes made in this behalf are as follows: 1. At present, the powers of survey are vested in the Incomes-tax Officers or the Inspectors of Income-tax authorised by them in this behalf. These powers will now be available to the Inspecting Assistant Commissioners and the Assistant Directors of Inspection as well. 2. Under the existing law, the power of the income-tax authorities is limited to the inspection of the books of account and other documents available at the place of business or profession of the assessee, placing of marks of identification thereon and taking of extracts therefrom. Under the amendment, the Inspecting Assistant Commissioner, the Assistant Director of Inspection and the Income-tax Officer will have the further power to check or verify the cash, stocks or other valuables found in the premises where the business or profession is carried on and also to require the proprietor, employee, etc., to furnish information which may be useful for or relevant to any proceeding under the Income-tax Act. 3. At present, the income-tax authorities have the power to enter only a place where business is carried on. Such entry can be made during the hours at which such place is open for the conduct of business or profession. Under the amendment, the income-tax authorities will also have the power to enter any other place in which the person carrying on business or profession states that any of his books of account or other documents or any part of his cash or stocks or other valuable articles or things relating to his business or profession are kept. The entry to such other place will, however, be made only after sunrise and before sunset. 4. The Inspecting Assistant Commissioner, the Assistant Director of Inspection and the Income-tax Officer will now have power to make an inventory of any cash, stocks or other valuable articles or things checked or verified by them and also to record the statement of any person which may be useful for or relevant to any proceeding under the Income-tax Act. 5. The income-tax authorities will also have the power to collect information and record statements of persons concerned at any time after any function, ceremony or event even before the stage of assessment proceedings for the following year for which the information may be relevant, if they are of the opinion, that having regard to the nature, scale or extent of the expenditure incurred, it is necessary to do so. The object of this provision is to help collecting evidence about ostentatious expenditure immediately after the event to be used at the time of assessment. 15. It may be noted that while the Inspecting Assistant Commissioner, the Assistant Director of Inspection and the Income-tax Officer will have all the powers under the new provision, the Inspector of Income-tax has not been vested with the new powers referred to in items (2) and (4) of the preceding paragraph. Further, the Inspector of Income-tax can exercise the powers of survey vested in him only if he is authorised by the Income-tax Officer to do so. [Section 37 of the Amending Act] MEASURES FOR REDUCING TAX ARREARS 16. The Amending Act has made several changes in "the provisions of the Income-tax Act for facilitating expeditious recovery of taxes. The substance of the main changes in this behalf is explained in paragraphs 17 to 28. Liability of directors of private companies in certain cases - Section 179. 17. Section 179 imposes, in certain cases, a personal liability of the directors of a private company in respect of the tax payable by the company. Under this provision, in a case where a private company is wound up on or after 1-4-1962 and it is found that any tax assessed on the company, whether before the commencement of the liquidation, or in the course of or after the liquidation, cannot be recovered from the company, then, every person who was a director of the company at any time during the relevant previous year is held jointly and severally responsible for the payment of the tax that cannot be so recovered. A director can escape this vicarious liability if he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. The Amending Act has enlarged the scope of this provision so as to impose personal liability on the directors of a private company in respect of any tax payable by the company even in cases where the company has not gone into liquidation. Further, where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered from the company, persons who were directors of the company in any such previous year will be jointly and severally responsible for the payment of such unrecovered tax, so, however, that the personal liabiliity of a director in such a case will not extend to the tax payable for any assessment year prior to the assessment year 1962-63. [Section 50 of the Amending Act] Recovery of tax due from partners of dissolved firms - Section 189 18. Sub-section (1) of section 189 provides that where any business or profession carried on by a firm is discontinued or where the firm is dissolved, the assessment of the total income of the firm shall be made as if no such discontinuance or dissolution has taken place. Sub-section (3) of that section further provides that every person who was at the time of such discontinuance or dissolution a partner of the firm will be jointly and severally liable for the amount of tax, penalty or other sum payable by the firm. Under sub-section (4) of section 182, a registered firm may retain out of the share of each partner in the income of the firm a sum not exceeding 30 per cent thereof until such time as the tax which may be levied on the partner in respect of that share is paid by him. It further provides that where the tax so levied cannot be recovered from the partners, the firm shall be liable to pay the tax to the extent of the amount which had been retained or which could have been so retained. Under the Explanation inserted by the Amending Act in sub-section (3) of section 189, every person who was a partner of the firm at the time of discontinuance of its business or profession, or at the time of dissolution of the firm itself, will be jointly and severally liable for the amount of tax which could have been retained by the firm under sub-section (4) of section 182 before its discontinuance or dissolution but which was not so retained. [Section 52 of the Amending Act] Penalties for non-payment of tax - Section 221 19. Under section 221, the Income-tax Officer is empowered to levy a penalty in a case where the assessee is in default or is deemed to be in default in making payment of tax. The Amending Act has inserted an Explanation in sub-section (1) of that section in order to clarify that the penalty will be eligible even in a case where the tax is paid after the due date but before the levy of the penalty. [Section 53 of the Amending Act] Attachment and sale of property transferred by the assessee to his relatives in certain cases - Section 222 20. Under section 222, the Tax Recovery Officer is empowered to recover arrears of tax, inter alia, by attachment and sale of assessee's movable or immovable property or by appointment of a receiver for the management of assessee's movable and immovable properties. With a view to curbing attempts at defeating the recovery of tax dues by transfer of properties to near relatives, the Amending Act has inserted an Explanation in sub-section (1) of section 222, to provide that, for the purpose of that sub-section, the assessee's movable or immovable property will include property which has been directly or indirectly transferred by him after 31-5-1973 to his spouse or minor child or daughter-in-law or son's minor child without adequate consideration where such property is held by, or stands in the name of, any of the aforesaid persons. Accordingly, where an assessee is in default, it will be open to the Tax Recovery Officer to proceed against any movable or immovable property transferred by him after 31-5-1973 to the aforesaid relatives. The property transferred to the minor child or son's minor child will continue to remain liable to be proceeded against even after the date of attainment of majority by the minor, but the liability will be restricted to any arrears due from the assessee in respect of any period prior to the said date. [Section 54 of the Amending Act] Tax Recovery Officer to whom certificate to be issued - Section 223 21. At present, when a certificate is issued to a Tax Recovery Officer for recovering any amount for which an assessee is in default, the Tax Recovery Officer is first required to take steps to recover the amount himself and it is only when he is not able to recover the entire amount and has information that the assessee has property within the jurisdiction of another Tax Recovery Officer that he can forward the certificate to such other officer. The Amending Act has substituted the existing sub-section (2) of section 223 by a new sub-section to provide that the Tax Recovery Officer to whom a certificate has been issued may forward the certificate or a certified copy thereof to another Tax Recovery Officer within whose jurisdiction the assessee resides or has property for realising the tax or part of the tax due, not only when he is himself not able to recovery the entire amount but also when he considers that doing so would expedite or secure the recovery of the dues. [Section 55 of the Amending Act] Interest on refund of disputed tax or penalty - Section 244 22. Sub-section (1) of section 244 provides that where a refund us due to the assessee as a result of any order passed in appeal or other proceeding under the Income-tax Act and the refund is not granted within a period of three months from the end of the month in which such order is passed, the assessee will be entitled to receive simple interest at 12 per cent per annum on the amount of the refund due from the date immediately following the expiry of the aforesaid period of three months to the date on which the refund is granted. The Amending Act has inserted a new sub-section (1A) in section 244 to provide that where any amount has been paid by the assessee in pursuance of any order of assessment or penalty and the assessee becomes entitled to a refund in respect of such amount or any part thereof as a result of an appeal or other proceeding under the Income-tax Act, the Central Government shall pay interest on the amount so refundable from the date the disputed demand was originally paid to the date on which the refund is granted. No interest will, however, be payable for a period of one month from the date of the order passed in appeal or other proceedings. In other words, where the refund is granted within one month of the date of the order giving rise to the refund, interest will be payable from the date of payment to the date of such order, and where the refund is delayed for more than a month from the date of the order giving rise to the refund, interest will be payable for the period from the date of payment to the date of granting the refund as reduced by one month. Where the amount of tax or penalty has been paid in installments, the interest will be calculated on the amount of each such instalment or any part thereof which is found to be in excess in appeal or other proceedings from the date on which such installment was paid to the date on which the refund is granted. No interest under the new provision will be paid in respect of any payment made before 1-4-1975. Further, where interest is payable under the new sub-section (1A), no interest will be paid under sub-section (1) of section 244. In this connection, it may be noted that in view of the provision in rule 119A of the Income-tax Rules, 1962, the period for which interest is to be calculated is rounded off to whole months and, for this purpose any fraction of a month is ignored. 23. The above amendment will come into force with effect from 1-1-10-1975 and will, accordingly, apply in relation to refunds arising out of orders in appeal or other proceedings passed on or after 1-10-1975. [Section 56 of the Amendment Act] Payment of tax before appeal to the Appellate Assistant Commissioner is admitted - Section 249 24. Section 249 has been amended, inter alia, to provide that no appeal against any order passed by the Income-tax Officer (including any order of assessment, imposition of penalty or refusal or cancellation of registration of a firm) shall be admitted by the Appellate Assistant Commissioner unless at the time of filing of the appeal, the assessee has paid the tax due on the income returned by him, and where the assessee has not furnished the return of income, he has paid an amount equal to the amount of advance tax which was payable by him. The Appellate Assistant Commissioner has, however, been empowered to waive this requirement in appropriate cases if he is satisfied that there are good and sufficient reasons for doing so. In such cases, he will have to record such reasons in writing. [Section 59(ii) of the Amending Act] Certain transfers to be void - Section 281 25.Under section 281, transfers effected by an assessee during the pendency of any proceeding under the Income-tax Act with the intention to defraud the revenue are regarded as void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of such proceeding. This provision is applicable in cases where the assessee creates a charge on any of his assets, or parts with the possession thereof by way of sale, mortgage, exchange or any other mode of transfer whatsoever. Bona fide purchasers for value without notice are, however, protected against the operation of this section. The Amending Act has substituted a new section for the existing section 281 with a view to enlarging the scope of the provision. The main changes are as follows: 1. Creation of any charge on, or transfer of, assets made not only during the pendency of proceedings but also after completion thereof but before the service of notice by the Income-tax Officer under rule 2 of the Second Schedule will be void. 2. The Department would no longer be under obligation to prove that the charge was created or the transfer was made with the intention to defraud the revenue. 3. Assets covered by the provisions of the new section have been defined to mean land, building, machinery, plant, shares, securities and fixed deposits in banks to the extent to which they do not form part of the stock-in-trade of the business of the assessee. 4. The charge or transfer shall not be void if made for adequate consideration and without notice of pendency of such proceedings or, as the case may be, without notice of such tax or other sum payable by the assessee. The charge or transfer shall also not be void if the charge is created or the transfer is made with the previous permission of the Income-tax Officer . 5. The new provision will apply only if the amount of tax or other sum payable or likely to be payable exceeds Rs.5,000 and the assets charged or transferred exceed Rs.10,000 in value. 26.The provisions of new section 281 will apply in relation to any charge created or transfer made on or after 1-10-1975. Charges created or transfers made before that date will continue to be governed by the earlier provision. [Section 73 of the Amending Act] Provisional attachment to protect revenue in certain cases - New section 281B 27. The Amending Act has inserted a new section 281B with a view to empowering the Income-tax Officer to make a provisional attachment of any property of the assessee during the pendency of any proceeding for assessment or reassessment of any income (even though there is no demand outstanding against the assessee), if he is of the opinion that it is necessary to do so to protect the interests of the revenue. The order of provisional attachment will be made only after obtaining the approval of the Commissioner. Such provisional attachment will ordinarily cease to have effect after the expiry of the period of six months but, in appropriate cases, the Commissioner may, for reasons to be recorded by him in writing, extend this period from time to time so, however, that the total period of extension shall in no case exceed two years. This provision has been made in order to protect the interests of the revenue in cases where the raising of demand is likely to take time because of investigations and there is apprehension that the assessee may thwart the ultimate collection of that demand. [Section 74 of the Amending Act] Amendments to the provisions of the Second Schedule 28. Some of the rules in the Second Schedule dealing with the procedure for recovery of tax have been amended for facilitating expeditious recovery. These amendments are as follows: 1. Rule 19A has been amended to enable a Gazetted Officer of the Central Government working as a Tax Recovery Officer to delegate any of his functions to any other officer lower than him in rank but not below the rank of an Inspector of Income-tax. Whether the Tax Recovery Officer is an Income-tax Officer, he will be able to delegate his functions to any other officer only after obtaining the approval of the Inspecting Assistant Commissioner. The object of this change is to enable the Tax Recovery Officer to expedite recovery of taxes by delegating some of his work to his subordinates. 2. A new clause (cc) has been inserted in rule 53 to provide that a proclamation of sale of immovable property shall also specify the reserve price, if any, below which the property may not be sold. A proviso added to rule 56 lays down that no sale shall be made under the rule if the amount bid by highest bidder is less than the specified reserve price. 3. A sub-rule added to rule 59 provides that where the sale of a property for which a reserve price has been specified is postponed for want of a bid equal to or exceeding the reserve price, an Income-tax Officer, if so authorised by the Commissioner, may, at a subsequent sale, bid for the property on behalf of the Central Government. The object of the provisions mentioned in (2) and (3) above is to defeat the maneuvers of defaulters who try to manage that adequate bids for property put up for auction are not made. 4. A new rule 68A has been inserted to provide that where sale of a property is postponed for want of a bid equal to or exceeding the reserve price, an Income-tax Officer, duly authorised by the Commissioner in this behalf, may accept the property in satisfaction of the whole or any part of the amount due from the defaulter at an agreed price. It also provides that where the price of the property agreed upon exceeds the amount due from the defaulter, the excess shall be paid to the defaulter within a period of 3 months failing which simple interest at the rate of 12 per cent per annum shall be payable to the defaulter for the period commencing on the expiry of the said period of 3 months and ending with the date of the payment of the amount. 5. A new sub-rule (3A) has been added to rule 73 to provide for execution of warrant of arrest issued by one Tax Recovery Officer, by any other Tax Recovery Officer within whose jurisdiction the defaulter may, for the time being, be found. An Explanation added to sub-rule (4) of rule 73 stipulates that where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter. The object of these provisions is to defeat attempts by tax defaulters to evade arrest by moving from place to place, and to make the karta of a Hindu undivided family liable for arrest and detention in a civil prison, where the family is a defaulter. [Section 81 of the Amending Act] AMENDMENT OF PROVISIONS RELATING TO APPEALS TO APPELLATE ASSISTANT COMMISSIONER Appeal against best judgment assessment under section 144 - Section 249 29. Where a best judgment assessment is made under section 144, the assessee is entitled to apply for cancellation of the assessment under section 146. Besides, he has a right to appeal to the Appellate Assistant Commissioner against the best judgment assessment. The appeal to the Appellate Assistant Commissioner, however, becomes infructuous if the Income-tax Officer reopens the assessment under section 146. Where the Income-tax Officer refuses to cancel the best judgment assessment, the assessee can file an appeal to the Appellate Assistant Commissioner against such refusal. The Appellate Assistant Commissioner can take up the appeal against the best judgment assessment only after the appeal against the Income-tax Officer's order under section 146 is disposed of. 30.With a view to obviating the necessity on the part of the assessee to file an unnecessary appeal against the best judgment assessment under section 144 even in cases where such assessment is subsequently cancelled by the Income-tax Officer himself under section 146, the Amending Act has inserted a proviso in section 249(2)(b) to provide that in a case where the assessee had made an application under section 146 for reopening of the best judgment assessment, the period of limitation for filing an appeal against the best judgment assessment will be reckoned after excluding the period from the date on which application under section 146 is made to the date of the service of the order passed thereon. In view of this, the assessee would be in a position to await the order of the Income-tax Officer on his application under section 146 and, if the Income-tax Officer refuses to reopen the best judgment assessment, file an appeal to the Appellate Assistant Commissioner against such assessment within the limitation period as now laid down. [Section 249 has been further amended to provide that no appeal to the Appellate Assistant Commissioner shall be admitted unless the tax payable on the basis of the return filed by the assessee has been paid or, where the assessee has not furnished the return of income for the relevant assessment year, an amount equal to the amount of advance tax which was payable by him has been paid. This provision has been explained in paragraph 24 of this circular.] [Section 59(i) of the Amending Act] Amendment of the provisions relating to Commissioner's power to reduce or waive penalty in certain cases - New section 273A 31. The Amending Act has deleted the existing sub-sections (4A) and (4B) of section 271 relating to powers of the Commissioner to reduce or waive penalty in certain cases and re-enacted these provisions with several modifications in new section 273A. The main points of difference between the existing provisions in section 271(4A) and (4B) on the one hand and new section 273A on the other are as follows: 1. Under the existing provision, the Commissioner has the power to reduce or waive penalties under section 272(1)(a) and (c) only. This power is now being enlarged to cover reduction or waiver of penalty under section 273 for furnishing false estimate of, or failure to pay, advance tax, as also interest chargeable under sections 139(8), 215 and 217. The power to waive or reduce the penalty imposable under section 273 or interest chargeable under section 139(8) or 215 or 217 will be available only in cases where the Commissioner is satisfied that, apart from making voluntarily and in good faith full and true disclosure of his income, the assessee has paid the tax on the basis of the income so disclosed before a notice under section 139(2) or section 148 is issued to him. Another prerequisite for the exercise of the power by the Commissioner will be that he should be satisfied that the assessee has co-operated in any enquiry relating to the assessment of his income for the relevant assessment year. 2. For the purposes of the new provision, disclosure will be treated as full and true if the additions made to the income returned are not of such a nature as to attract penalty for concealment of income under section 271(1)(c). 3. It has been clarified that the Commissioner will have the power to reduce or waive the penalty or interest even after such penalty or interest has been imposed or levied. Further, the Commissioner will be able to exercise the power under section 273A either on an application made by the assessee or on his own motion. 4. In line with the existing provision for obtaining approval of the Board for waiver of penalties in certain cases, it has been provided that where the minimum penalty imposable under section 273 for the relevant assessment year, or where the disclosure relates to more than one assessment year, the aggregate of the minimum penalty imposable under that section for those years, exceed Rs.50,000, the Commissioner will have to obtain the prior approval of the Board before reducing or waiving the penalty. 5. If in the case of a person reduction or waiver of penalty or interest has been made in relation to any assessment year, such person shall not be entitled to any relief under this provision on any subsequent occasion for that or any other assessment year. 6. A new provision has also been made in sub-section (4) of new section 273A to the effect that the Commissioner may, on an application being made by the assessee and after recording his reasons, reduce or waive any penalty payable by an assessee under the Income-tax Act, or stay or compound any proceeding for the recovery of such penalty in cases of genuine hardship if he is satisfied that the assessee has co-operated in any enquiry relating to the assessment or any proceeding for the recovery of any amount due from him. 32. The provisions of section 273A relating to reduction or waiver of penalty or interest, otherwise than in cases of genuine hardship referred to in sub-section (4), will apply in relation to cases where the application for reduction or waiver of penalty or interest is made by the assessee on or after 1-10-1975 or where the Commissioner of Income-tax decides to consider the case on his own motion on or after that date. The power under sub-section (4) to reduce or waive penalty in cases of genuine hardship or to compound any proceeding relating to recovery of penalty will be available to the Commissioner in respect of penalties that have already been imposed before 1-10-1975 as also those that may be imposed thereafter. AMENDMENTS TO PROVISIONS RELATING TO OFFENCES AND PROSECUTIONS 33. The Amending Act has made several amendments to the provisions of the Income-tax Act relating offences and prosecutions in order to provide for more stringent punishment for offences under that Act and to take away the discretion vested in courts to award monetary punishment as an alternative to rigorous imprisonment or to reduce the term of imprisonment below the prescribed minimum. The substance of the main changes made in this behalf is explained in paragraphs 34 to 45. Punishment for failure to deduct and pay tax - Section 276B 34. Under section 276B, a person who, without reasonable cause or excuse, fails to deduct or after deducting fails to pay the tax as required of him under section 80E(9) or Chapter XVII-B is punishable with rigorous imprisonment for a term which may extend to six months and with fine which shall not be less than the sum calculated at the rate of 15 per cent per annum on the amount of such tax from the date on which the tax was deductible to the date on which the tax is actually paid. This section has now been amended to provide that where the amount of deduction involved exceed Rs.1 lakh, the person shall be punishable with rigorous imprisonment upto seven years and with fine. The rigorous imprisonment will not, however, be for a period of less than six months in any case. In cases, where the amount of deduction involved does not exceed Rs.1 lakh, the punishment will be rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine. The new provisions will apply in relation to offences committed on or after 1-10-1975. Offences committed will continue to be governed by the existing provisions. [Section 68(Part) of the Amending Act] Punishment for willful attempt to evade tax - New section 276C 35. Section 276C which deals with cases of willful failure to furnish returns of income has been replaced by new section 276C which deals with cases of willful attempt to evade tax, etc., and the existing section 276C, with certain modifications, has been renumbered as section 276CC. The new section 276C makes a willful attempt to evade any tax, penalty or interest chargeable or imposable under the Income-tax Act or to evade the payment of any such tax, penalty or interest punishable under the law. Any person (i) who has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under the Act) containing a false entry or statement; or (ii) who makes or causes to be made any false entry in such books or documents; or (iii) who omits or causes to be omitted any entry or statement in such books or documents; or (iv) who causes any other circumstance to exist which will have the effect of enabling him to evade any tax or payment thereof shall be guilty of offence under the new provision. Where the amount sought to be evaded through the willful attempt exceeds Rs.1 lakh, the punishment will be rigorous imprisonment for a minimum term of six months and a maximum term of seven years and fine. Where the amount sought to be evaded is Rs.1 lakh or less, the punishment will be rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine. Punishment for willful attempt to evade the payment of any tax, penalty or any interest will be rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine. The provisions of new section 276C will apply in relation to offences committed on or after 1-10-1975. [Section 68(Part) of the Amending Act] Punishment for failure to furnish return of income - New section 276CC 36. New section 276CC provides for punishment for willful failure to furnish returns of income under sub-section (1) of section 139 or in response to notice under sub-section (2) of that section or section 148. The punishment under this section will depend on the amount of tax which would have been evaded if the failure had not been discovered. Where the amount of such tax exceeds Rs.1 lakh, the punishment will be rigorous imprisonment for a minimum term of six months and a maximum term of seven years and fine, and in any other case, rigorous imprisonment for a minimum term of three years and fine. The provisions of the new section 276CC will not apply in respect of a default in furnishing a return of income under section 139(1) for any assessment year prior to the assessment year 1975-76, and where the return relates to the assessment year 1975-76 or any subsequent assessment year, if the return is furnished before the end of the relevant assessment year or if the tax payable on the total income determined on regular assessment, as reduced by advance tax paid and any tax deducted at source, does not exceed Rs.3,000. The provisions of the new section 276CC will apply in relation to defaults committed on or after 1-10-1975. Defaults committed prior to that date will continue to be governed by the existing section 276C. [Section 68(Part) of the Amending Act] Punishment for false statement and verification, etc. - New section 277 37. The Amending Act has substituted a new section for the existing section 277. Under the amended provision, punishment for a false verification in a statement or for delivery of a false account or statement has been linked to the quantum of the tax sought to be evaded. Where the amount of tax which would have been evaded if the statement or account had been accepted as true exceeds Rs.1 lakh, the punishment will be rigorous imprisonment for a minimum term of six months and a maximum term of seven years and fine. In any other case, the punishment will be rigorous imprisonment for a minimum term of three months and maximum term of three years and fine. The new provision will apply in relation to offences committed on or after 1-10-1975. Offences committed prior to that date will be punishable under the existing section 277. [Section 70(Part) of the Amending Act] Punishment for abatement of false returns, etc. - Section 278 38. The existing section 278 has also been substituted by a new section with a view to linking the punishment for abatement of making and delivery of a false account, statement or declaration relating to any taxable income, as also abatement of willful attempt to evade tax, with the quantum of tax, etc., sought to be evaded. Under the new provision, the abatement of the aforesaid offences in cases where the amount of tax, penalty or interest which would have been evaded if the account, statement or declaration had been accepted as true, or which is wilfully attempted to be evaded, exceeds Rs.1 lakh, the punishment will be rigorous imprisonment for a minimum period of six months and a maximum period of seven years and fine. In any other case the punishment will be rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine. The provisions of new section 278 will apply in relation to offences committed on or after 1-10-1975. The offences committed earlier will continue to be covered, by the existing section 278. [Section 70 (Part) of the Amending Act] Punishment for second and subsequent offences - New section 278A 39. A new section 278A has been inserted to provide that where a person who has been convicted of an offence under section 276B or section 276C(1) or section 276CC or section 277 or section 278 is again convicted for an offence under any of these provisions, he shall be punishable for the second and every subsequent offence with rigorous imprisonment for a minimum term of six months and a maximum term of seven years and with fine. [Section 70(Part) of the Amending Act] Criminal liability in cases of offences by companies - New section 278B 40. New section 278B makes certain provisions with regard to offences committed by companies, firms, associations of persons and bodies of individuals, whether incorporated or not. Where an offence has been committed by a company, firm, association of persons or body of individuals, the person who was in charge of, and was responsible to, the company or, as the case may be, the firm, association or body for the conduct of its business at the time when the offence was committed will be deemed to be guilty of the offence, unless he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of the offence. Further, if in the case of a company, it is proved that the offence had been committed with the consent or connivance of or is attributable to any neglect on the part of, any director, manager, secretary, or other officer of the company, such director, manager, secretary, or other will be deemed to be guilty of the offence and will be liable to be prosecuted and punished accordingly. This provision will also apply, mutatis mutandis, in relation to offences committed by a firm, association of persons or body of individuals. [Section 70(Part) of the Amending Act] Criminal liability in the case of offences by Hindu undivided families - New section 278C 41. The Amending Act has inserted a new section 278C to provide for criminal liability of the karta or members of a Hindu undivided family in respect of offences committed by the family. Under this provision, where an offence has been committed by a Hindu undivided family, the karta thereof will be deemed to be guilty of the offence and will be liable to be prosecuted and punished accordingly, unless he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of the offence. In a case where it is proved that the offence was committed with the consent or connivance of, or is attributable to any neglect on the part of, any other member of the family, such other member shall also be deemed to be guilty of the offence and shall be liable to be prosecuted and punished accordingly. [Section 70(Part) of the Amending Act] Presumption as to assets, books of account, etc., in certain cases - New section 278D 42. The Amending Act has inserted a new section 278D to provide that the new rule of evidence contained in section 132(4A) in respect of assets, books of account or other documents found in the course of any search or obtained on requisition from other authorities under new section 132A will apply for the purposes of evidence in prosecution proceedings under section 278. [Section 70(Part) of the Amending Act] Consequential amendment in section 279 43. Section 279 has been amended in consequence of the insertion of sections 273A, 276CC and 278A. [Section 71 of the Amending Act] Certain offences to be non-cognizable - Section 279A 44. The Amending Act has inserted a new section 279A to provide that, notwithstanding anything contained in the provisions of the Code of Criminal Procedure, 1973, the following offences shall be deemed to be non-cognizable within the meaning of that Code: (a) failure to deduct or pay tax [Section 276B]; (b) willful attempt to evade tax, etc. [Section 276C] (c) failure to furnish returns of income [Section 276C] (d) false statement in verification, etc. [Section 277] (e) abatement of false return, etc. [Section 278] [Section 72 of the Amending Act] Bar on provisions of section 360 of the Code of Criminal Procedure or Probation of Offenders Act to prosecutions under the Income-tax Act - New section 292A 45. The Amending Act has inserted a new section 292A with a view to barring the application of section 360 of the Code of Criminal Procedure, 1973 and the provisions of the Probation of Offenders Act, 1958 to a person convicted of an offence under the Income-tax Act unless the person is under 18 years of age. The object is to secure that adults convicted of tax offences are not let off with mere admonition or on probation of good conduct without undergoing punishment as provided in law. [Section 78(Part) of the Amending Act] MISCELLANEOUS PROVISIONS Publication of information regarding prosecution - Section 287 46. Section 287 has been amended to enable the Central Government to publish the particular relating to prosecutions under the Income-tax Act even before the matter is disposed of by the first appellate court. The object is to give publicity to prosecutions for tax offences in good time for it to have a deterrent effect on those who may be tempted to evade tax. [Section 77 of the Amending Act] Return of income, etc., not to be invalid on certain grounds. New section 292B 47. A new section 292B has been inserted to provide that no return of income, assessment, notice, summons or other proceedings shall be invalid merely by reason of any mistake, defect or omission, if the return, assessment, notice, summons or other proceeding is in substance and effect in in conformity with or according to the intent and purposes of the Act. This provision has been made to provide against purely technical objections without substance coming in the way of the validity of assessment proceedings, etc. [Section 78 of the Amending Act]