TAXATION LAWS (AMENDMENT) ACT, 1978 - Income Tax - 245/1978

TAXATION LAWS (AMENDMENT) ACT, 1978 Circular No. 245 Dated 11/8/1978 Amendments at a glance Amendments to Income-tax Act Amendments to Wealth-tax Act 25 TAXATION LAWS (AMENDMENT) ACT, 1978 Amendments at a glance SECTION/SCHEDULE PARTICULARS Income-tax Act 13A Special provisions relating to income of political parties 3-5 37(2B), (3A) Disallowance of expenditure on advertisement in souvenirs, etc., published by political parties 6-8 139(4B) Return of income by political parties 9 WEALTH-TAX ACT 45(i) Exemption of political parties from wealth-tax 10 AMENDMENTS TO INCOME-TAX ACT TAXATION LAWS (AMENDMENT) ACT, 1978 Special provisions relating to income of political parties - New section 13A 3. The Amending Act has inserted a new section 13A in Chapter III which provides that the following categories of income derived by a political party will not be included in computing its total income : a. any income which is chargeable under the heads "Interest on securities", "Income from house property " and "Income from other sources", and b. any income by way of voluntary contributions. TAXATION LAWS (AMENDMENT) ACT, 1978 4. Exemption under the new provision will not be available unless the political party fulfils the following conditions, namely :— i. the political party keeps and maintains such books of account and other documents as would enable the Income-tax Officer to properly deduce its income therefrom ; ii. the political party keeps and maintains a record of each voluntary contribution in excess of Rs. 10,000 and of the names and addresses of persons who have made such contributions ; and iii. the accounts of the political party are audited by a chartered accountant or other qualified accountant as defined in the Explanation below section 288(2). TAXATION LAWS (AMENDMENT) ACT, 1978 5. The Explanation to new section 13A defines the term "political party" as an association or body of individual citizens of India registered with the Election Commission of India as a political party under paragraph 3 of the Election Symbols (Reservation and Allotment) Order, 1968 and includes a political party deemed to be registered with that Commission under the proviso to sub-paragraph (2) of that paragraph. Hence, exemption under the new provision will be available only in the cases of political parties which satisfy the tests laid down in the aforesaid definition. [Section 2( a ) of the Amending Act] TAXATION LAWS (AMENDMENT) ACT, 1978 Disallowance of expenditure on advertisement in souvenirs, etc., published by political parties - Section 37(2B) 6. The Amending Act has inserted a new sub-section(2B) in section 37 to provide that, notwithstanding anything contained in sub-section (1) of that section, no deduction shall be allowed in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. It is relevant to note, that the term "political party" has not been defined for the purposes of this provision. As such, the term will bear its ordinary meaning and, therefore, wider connotation for the purposes of this provision. TAXATION LAWS (AMENDMENT) ACT, 1978 Consequential amendment in section 37(3A) 7. The Amending Act has also made certain consequential amendments in new sub-section (3A) directed to be inserted in section 37 by the Finance Act 1978. Section 37(3A) provides for the disallowance of a specified percentage of the "adjusted expenditure" incurred by an assessee on advertisement, publicity and sales promotion in India. Under the provision as enacted by the Finance Act, 1978, the term "adjusted expenditure" has been defined as the aggregate expenditure incurred by a taxpayer on advertisement, publicity and sales promotion in India as reduced by so much of such expenditure as is not allowed under section 37(1) or 37(3). In consequence of the insertion of new sub-section (2B) relating to the disallowance of expenditure on advertisement in souvenirs, etc., published by political parties, the definition of the term "adjusted expenditure" has been amended to secure that the amount disallowed under new sub-section (2B) will also be deducted from the aggregate expenditure on advertisement, publicity and sales promotion in India for the purposes of computing the "adjusted expenditure". TAXATION LAWS (AMENDMENT) ACT, 1978 8. The other amendment made in sub-section (3A) of section 37 is intended to clarify that the disallowance under that sub-section shall be without prejudice to the provisions of new sub-section (2B). [Section 2( b ) of the Amending Act] TAXATION LAWS (AMENDMENT) ACT, 1978 Return of income by political parties - Section 139(4B) 9. The Amending Act has inserted a new sub-section (4B) in section 139 which casts an obligation on the chief executive officer (where such chief executive officer is known as Secretary or by any other designation) of every political party to furnish a return of income of the political party, if the total income of the political party, as computed under the provisions of the Income-tax Act without giving effect to the exemption under new section 13A, exceeds the maximum amount which is not chargeable to income-tax. The term "political party" has been defined for the purposes of section 139(4B) and, as such, for the purposes of this provision also, it will bear its ordinary and wider meaning. [Section 2( c ) of the Amending Act] AMENDMENT TO WEALTH-TAX ACT TAXATION LAWS (AMENDMENT) ACT, 1978 Exemption of political parties from wealth-tax - Section 45(i) 10. The Amending Act has inserted a new clause ( i ) in section 45 to provide that no tax under the Wealth-tax Act shall be levied in respect of the net wealth of any political party. The expression "political party" for the purposes of this provision shall have the meaning assigned to it in the Explanation to new section 13A of the Income-tax Act and referred to in paragraph 5 above. [Section 3 of the Amending Act] TAXATION LAWS (AMENDMENT) ACT, 1978 Effective date 11. The various amendments made by the Amending Act will take effect from 1-4-1979 and will, accordingly, apply in relation to the assessment year 1979-80 and subsequent years.