The Finance Act, 1979--Explanatory Notes on the provisions relating to direct taxes - Income Tax - 258/1979

The Finance Act, 1979--Explanatory Notes on the provisions relating to direct taxes Circular 258 Dated 14/6/1979 Introduction 1. The Finance Bill, 1979, as passed by Parliament, received the assent of the President on 10-5-1979 and has been enacted as Act 21 of 1979. This circular explains the substance of the provisions relating to income-tax and other direct taxes contained in the Finance Act, 1979. 2. The provisions in the Finance Act, 1979 in the sphere of direct taxes relate to the following matters: 1. Prescribing the rates of income-tax (including surcharge thereon) on incomes liable to tax for the assessment year 1979-80; the rates at which income-tax will be deductible at source during the financial year 1979-80, from interest (including interest on securities), dividends, salaries, insurance commission, winnings from lotteries and crossword puzzles, winnings from horse races and other categories of income liable to such deduction under the Income-tax Act; and the rates for computation of advance tax" and charging of income-tax on current income in certain cases during the financial year 1979-80. 2. Amendment of the Income-tax Act, 1961, with a view to modifying the scheme of tax exemption in respect of long-term capital gains in certain respects; plugging certain loopholes for tax avoidance through intra family transfers of income providing greater tax incentive for contributions to associations or institutions engaged in carrying out programmes of rural development; liberalising the tax concession to approved financial corporations and its extension to approved public companies providing long-term finance for construction or purchase of residential houses liberalising the provisions regarding export markets development allowance; restricting the scope of the provisions relating to deduction in respect of long-term savings through specified media restricting the scope of the provisions relating to tax holiday rationalising the jurisdiction of Commissioner (Appeals); modification of the provisions relating to the Settlement Commission and a few other matters. 3. Amendment of the Wealth-tax Act, 1957, with a view to raising the rates of wealth-tax applicable on higher slabs of net wealth, plugging a loophole for tax avoidance through intra family transfers of wealth and empowering the Board to transfer appeals pending before an Appellate Assistant Commissioner to Commissioner (Appeals). 4. Amendment of the Gift-tax Act, 1958, with a view to empowering the Board to transfer appeals pending before an Appellate Assistant Commissioner to Commissioner (Appeals). 5. Amendment of the Compulsory Deposit Scheme(Income-tax Payers) Act, 1974, with a view to extending the requirements of making compulsory deposits for another two years. 6. Amendment of the Finance Act, 1973, so as to extend the period of exemption from tax of the Credit Guarantee Corporation of India Ltd. for another year. 7. Amendment of the Agricultural Refinance and Development Corporation Act, 1963, so as to exempt the Agricultural Refinance and Development Corporation from income-tax and surtax for a period of five years RATE STRUCTURE Rates of Income-tax for the assessment year 1979-80 3.1 The rates of income-tax for the assessment year 1979-80 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, 1979. These rates are the same as those specified in Part III of the Schedule to the Finance Act, 1978 for the 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 the tax payable in certain cases where accelerated assessments were required to be made during the financial year 1978-79. 3.2 As in the past, the Finance Act, 1979 provides that in the case of individuals, Hindu undivided families, unregistered firms or other associations of persons or bodies of individuals and artificial juridical persons, the net agricultural income will be taken into account for deter mining the rates of, income-tax on incomes liable to tax for the assessment year 1979-80 [vide section 2(2) of the Finance Act.] The mode of computation of net agricultural income in such cases has been set out in Part IV of the First Schedule to the Finance Act, 1979. These provisions are the same as those contained in the Finance Act, 1978 except for slight modifications as explained in paragraph 5,5 of this circular. Rates for deduction of income-tax at source during the financial year 1979- 80 from incomes other than "salaries" and retirement annuities. 4.1 The rates for deduction of income-tax at source during the financial year 1979-80 from incomes, other than salaries"and retirement annuities payable to partners of registered firms engaged in specified professions, have been specified in Part n of the First Schedule to the Finance Act 1979. These rates apply to income by way of interest on securities, other categories of interest, dividends, insurance commission, winnings from lotteries and crossword puzzles, winnings from horse races and other categories of non-salary income of non-residents and differ from the rates specified in Part R of the Schedule to the Finance Act, 1978, for purposes of deduction of income-tax at source from such incomes during the financial year 1978-79, in the following respects: 1. Payments to residents other than companies - (i) In the case of income by way of winnings from lotteries and crossword puzzles and income by way of winnings from horse races payable to resident taxpayers other than companies during the financial year 1979-80, tax will be deductible at the rate of 36 per cent made up of basic income-tax of 30 per cent and surcharge of 6 per cent (being 20 per cent of the income-tax). This is higher than the rate at which tax was deducted from such income during the financial year 1978-79 by 1.5 per cent' The increase has been made in the context of the increase in the rate of surcharge on income-tax in the case of non-corporate taxpayers as explained in paragraph 5.2 of this circular. (ii) In the case of income by way of interest on securities issued by the Central or a State Government (not being tax-free securities) or interest on debentures or other securities issued by or on behalf of a local authority or a statutory corporation or interest on debentures issued by companies where such debentures are listed in a recognised stock exchange in India, income-tax will be deducted at the rate of 10 per cent as against 23 per cent during the financial year 1978-79. (iii) In the case of interest by way of interest on securities other than those mentioned in (ii) above or dividends payable to resident taxpayers during the financial year 1979-80, income-tax will be deducted at the rate of 24 per cent, i.e., made up of basic income-tax of 20 per cent and surcharge of 4 per cent (being 20 per cent of the income-tax), as against the basic income- tax of 20 per cent and surcharge of 3 per cent in force during the financial year 1978-79. In this connection, it may be noted that in the case of debentures of companies which,,are not listed in a recognised stock exchange in India, income-tax will be deducted at source at the rate of 24 per cent (income-tax 20 per cent plus surcharge 4 per cent). 2. Payments to non-residents other than companies - In the case of income (other than interest on a tax-free security) payable to non-corporate non- resident persons during the financial year 1979-80, income-tax will be deducted at the minimum rate of 36 per cent made up of income-tax of 30 per cent and surcharge of 6 per cent (being 20 per cent of the income-tax). If the rate of income-tax and surcharge appropriate to such income, as specified in Sub-Paragraph I of Paragraph A of Part Ill of the First Schedule to the Finance Act, 1979, is higher than 36 per cent, tax will be deducted at such higher rate. In respect of interest on a tax-free security payable to non-corporate non-residents, the rate for deduction will be 18 per cent made up of income-tax of 15 per cent and surcharge of 3 per cent (being 20 per cent of the income-tax). 3. Payments to domestic companies - In the case of income by way of interest other than "interest on securities" payable to domestic companies during the financial year 1979-80, income-tax will be deducted at the rate of 21.5 per cent made up of income-tax of 20 per cent and surcharge of 1.5 per cent (being 7.5 per cent of the income-tax). Further, in the case of any other income (other than interest on a tax-free security) payable to domestic companies during the financial year 1979-80, tax will be deducted at the rate of 24 per cent made up of income-tax of 22.5 per cent and surcharge of 1.5 per cent. 4. Payments foreign companies- In the case of income by way of royalty payable by an Indian concern in pursuance of an agreement made after 31-3-1961 but before 1-4-1976 with the lndian concern and approved by the Central Government, income-tax will be deducted at the rate of 53.75 per cent made up of income-tax of 50 per cent and surcharge of 3.75 per cent (being 7.5 per cent of the income-tax) as against 52.50 per cent deductible at source from such income during the financial year 1978-79. Similarly, in the case of income by way of fees for technical services payable by an Indian concern in pursuance of an agreement made after 29-2-1964 but before 1-4-1976 with the Indian concern and approved by the Central Government, income-tax will be deducted at the rate of 53.75 per cent made upon income-tax of 50 per cent and surcharge of 3.75 percent (being 7.5 per cent of the income-tax) as against 52.50 per cent deductible at source during the financial year 1978-79. There is no change in the rates for deduction of income-tax at source from dividends payable by domestic companies or from copyright royalties payable by Indian concerns under agreements made after 31-3-1976, or from income by way of royalty to technical service fees payable by Indian concerns in pursuance of approved agreements made after that date. Further, in the case of any other income payable to foreign companies during the financial year 1979- 80, income-tax will be deducted at the rate of 75.25 per cent made up of income-tax of 70 per cent and surcharge of 5.25 per cent (being 7.5 per cent of the income-tax) as against 73.50 per cent deductible at source during the financial year 1978-79. These changes have been made in the context of the increase in the rate of surcharge on income-tax in the case of companies from 5 per cent to 7.5 per cent as explained in paragraph 5.2 of this circular. Rates for deduction of income-tax at source from "salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 1979-80 S. I The rates for deduction of income-tax at source from 'salaries" in the case of individuals during the financial year 1979-80 and for the 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, 1979. These rates are also applicable for deduction of income-tax at source during the financial year 1979-80 from retirement annuities payable to partners of a registered firm which renders professional service as chartered accountants, solicitors, lawyers, etc., and for charging income-tax during the financial year 1979-80 on current incomes in special cases where accelerated assessments have to be made. The special cases where accelerated assessments have to be made are cases of- a. calculation of income-tax on undisclosed income represented by seized assets [section 132(5)] b. levy of tax on provisional basis on the income of non- residents from shipping of cargo or passengers from Indian ports [section 172(4)]; c. assessment of persons leaving India [section 174(2)]; d. assessment of persons likely to transfer property to avoid tax [section 175]; and e. assessment of profits of a discontinued business or profession [section 176(2)]. These rates are the same as the rates specified in Part I of the First Schedule to the Finance Act, 1979 for the assessment of incomes liable to tax for the assessment year 1979-80, except for certain modifications. The modifications in the rate schedule, read with section 2 of the Finance Act, 1979, relate to the following matters: 1. Increase in the rate of surcharge in the case of all categories of non- corporate taxpayers from 15 per cent to 20 per cent. 2. Increase in the rate of surcharge in the case of all corporate taxpayers from 5 per cent to 7.5 per cent. 3. Modification of the provision relating to marginal relief in respect of non-corporate taxpayers such as individuals, Hindu undivided families, unregistered firms, associations of persons, etc. 4. Modification of the provision relating to marginal relief in the case of non-corporate taxpayers such as individuals, Hindu undivided families, unregistered firms, associations of persons, etc., having agricultural income in addition to non-agricultural income. The modifications in regard to the above matters are explained in paragraphs 5.2 to 5.5 of this circular. 5.2 Increase in the rate of surcharge - The rate of surcharge on income-tax in the case of all categories of non-corporate taxpayers has been increased from 15 per cent to 20 per cent of the income-tax. The rate of surcharge on income-tax in the case of all classes of companies; whether domestic or foreign, has been increased from 5 per cent to 7.5 per cent of the income-tax. 5.3 Modification of the provisions relating to marginal relief - Under the Finance Act, 1978, a marginal relief was granted in the case of non- corporate taxpayers such as individuals, unspecified Hindu undivided families, unregistered firms, associations of persons, etc., to the effect that where the total income of such taxpayers exceeds Rs. I 0,000 but does not exceed Rs. 10,540, the income-tax payable thereon shall not exceed 70 per cent of the amount by which the total income exceeds Rs. 10,000. In the case of Hindu undivided families having at least one member with independent income exceeding the taxable limit, the marginal relief provision operated up to Rs. 10,690. Since the rate of income-tax (excluding surcharge) on the slab of income Rs. 10,001- Rs. 15,000 is only 15 per cent, the application of the rate of 70 per cent on the amount by which the total income exceeded Rs. 10,000 resulted in hardship in such cases. In order to provide relief to such taxpayers, it has been provided that where the total income of the taxpayer being an individual, unspecified Hindu undivided family, unregistered firm, association of persons, body of individuals or artificial juridical person exceeds Rs. I 0,000, but does not exceed Rs. 12,000, the income-tax payable thereon shall not exceed 30 per cent of the amount by which the total income exceeds Rs. 10,000. In the case of Hindu undivided families having at least one member with independent taxable income, this limit will operate up to Rs. 13,000. 5.4 Modification in the provision for marginal relief in cases where the taxpayer has net agricultural income in addition to total income - Under a provision made in the Finance Act, 1978, the income-tax payable by non- corporate taxpayers such as individuals, Hindu undivided families, unregistered firms, associations of persons, etc., having net agricultural income in addition to total income was restricted to 70 per cent of the amount by which the total income exceeds Rs. 10,000. The amount of income-tax so determined was increased by surcharge at the rate of 15 per cent of such income-tax. The Finance Act, 1979 has modified this provision to provide that where a non corporate taxpayer referred to above has net agricultural income in addition to total income, the income-tax payable shall not exceed 60 per cent of the amount by which the total income exceeds Rs. 10,000. The amount of income-tax as so determined will be increased by a surcharge at the revised rate of 20 per cent of such income- tax. 5.5 Modification in the provisions for calculating income-tax in cases where the taxpayer has net agricultural income in addition to total income - The net agricultural income is to be computed in accordance with the rules contained in Part IV of the First Schedule to the Finance Act, 1979. The mode of computation of the net agricultural income under these provisions is the same as in the relevant provisions of the Finance Act, 1978, except for the modification that the unabsorbed loss in agriculture incurred during the previous year relevant to the assessment year 1978- 79 will also be set off against the agricultural income for the previous year relevant to the assessment year 1979-80. Further, any unabsorbed loss in respect of the previous year relevant to the assessment year 1979-80 will also be set off in determining the net agricultural income for the purposes of payment of advance tax during the financial year. 1979-80. [Section 2 of, and the First Schedule to, the Finance Act] AMENDMENTS TO INCOME-TAX ACT Extension of the scheme of tax exemption of the remuneration of foreign technicians to persons in notified fields - Section 10(6) (viia) 6.1 Under section 10(6)(viia) a foreign technician employed by the Government, a local authority, a statutory corporation, or an approved scientific research association or institution or any business in India is entitled to a limited exemption from income-tax in respect of his income chargeable under the head 'Salaries", subject to certain conditions. For this purpose, a "technician" means a person on having specialised knowledge and experience in constructional or manufacturing operations; mining; generation of electricity or any other form of power; agriculture; animal husbandry; dairy farming; deep sea fishing and ship building. This definition of the term "technician" is not comprehensive enough to cover persons with specialised knowledge and experience in other fields or disciplines which have or may assume importance for the economic development of the country. The Finance Act, 1979 has inserted a new clause (iii) in the Explanation to section 10(6)(viia) to empower the Central Government to notify additional fields for the purpose so that a foreign technician having the requisite specialised knowledge and skill would become eligible for the tax exemption. While notifying the additional fields, the Central Government will have regard to the availability of the Indian technicians in the field, the needs of the country and other relevant circumstances. 6.2 This provision has come into force with effect from 1-6-1979 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 3(a) of the Finance Act] Restriction of the amount of exemption in respect of interest on deposits in public accounts with the Post Office Savings Bank - Section 10(15)(ii) 7.1 Section 10(15)(ii) provides for exemption from income-tax in respect of interest on specified certificates and deposits, to the extent of the maximum amount permitted to be invested therein. The certificates and deposits specified in this behalf are the Treasury Savings Deposits Certificates; Post Office Cash Certificates; Post Office National Savings Certificates; National Plan Certificates; 12, Year National Plan Savings Certificates; deposits in Post Office Savings Bank and bonus in respect of deposits under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959. 7.2 Under the Post Office Savings Bank Rules, a 'public account" can be opened by a local authority, a lawfully constituted association, institution or other body for the encouragement of thrift or for the mutual benefit of its members and certain educational institutions. The rate of interest on these accounts has recently been raised from 3.5 per cent to 4.5 per cent per annum. The rules contain a provision that no interest will be payable on the balances exceeding Rs. 50,000 on the public account in the case of associations or institutions whose income is not exempt from income-tax. In order to enable such associations or institutions to make deposits in the public account without any limit and at the same time to ensure that unintended large tax benefits do not accrue to them, the Finance Act, 1979 has inserted a proviso in sub-clause (ii) of clause (15) of section 10 to provide that interest on deposits in a public account will be exempt up to Rs. 2,250, that is to say, the amount of interest calculated at the rate of 4.5 per cent on an average balance of Rs. 50,000 maintained during the year. Simultaneously, the Post Office Savings Bank Rules are being amended to permit the associations and institutions whose income is not exempt from Income-tax to make deposits in the public account without any limit. 7.3 It may, however, be relevant to mention that the ceiling limit of Rs. 2,250 for exemption of interest income laid down in this behalf does not apply in the case of such associations or institutions whose income qualifies for exemption under section 10(22) or section 11, or any other provision in the Act. In other words, in the case of such associations or institutions, it will be open to the association or institution to claim exemption in respect of the entire income by way of interest on a public account if such income is exempt from income-tax under such other provisions. 7.4 This amendment will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 3(b) of the Finance Act] Exemption from income-tax of income derived by Khadi and Village Industries Boards set up under the State Acts - Section 10(23BB) 8.1 The Khadi and Village Industries Commission is exempt from payment of income-tax from the commencement of the Income-tax Act, 1961. A provision to that effect was made in the Khadi and Village Industries Commission Act, 1956 by the Finance (No. 2) Act, 1977. There are several Khadi and Village Industries Boards set up by or under the State or Provincial Acts to plan, organise and implement programmes for the development of khadi and village industries at the State level. In view of the important role played by these Boards in promoting employment opportunities in rural areas, the Finance Act, 1979 has inserted a new clause (23BB) in section 10 to provide for exemption from income-tax in respect of the income, profits or gains of the Khadi and Village Industries Boards set up under, any State or Provincial Act. 8.2 This provision has been made with retrospective effect from 1-4-1962, i.e., from the commencement of the Income-tax Act, 1961. [Section 3(c) (Part) of the Finance Act]. Exemption from income-tax in the case of statutory bodies or authorities for the administration of public religious or charitable trusts or endowments, etc. - Section 10(23BBA) 9.1 Section 9 of the Wakfs Act, 1954 provides for the establishment of the Board of Wakfs for each State for the general superintendence of all wakfs in that State. Section 8A of the Wakfs Act provides for the establishment of the Central Wakf Council for the purpose of advising the Central Government on matters concerning the working of State Wakf Boards and due administration of the wakfs. In the cases of public religious or charitable trusts or endowments of other communities, there are similar bodies set up under enactments in force in different States. These bodies or authorities set up by or under the Central, State or Provincial Acts are entrusted with the administration of public religious or charitable trusts within their jurisdiction. These public religious or charitable trusts also cover temples, maths, masjids, churches, synagogues, agiaries and other places of public religions worship, other religious and charitable endowments, as also societies formed for religious or charitable purposes under the Societies Registration Act, 1860. Such bodies or authorities, during the course of administration of such trusts or institutions, are at times in receipt of income chargeable to tax. Since these bodies or authorities do not carry on any activity for profit, the Finance Act, 1979 has inserted a new clause (23BBA) in section 10 to grant exemption in respect of income arising to any body or authority established, constituted or appointed under any enactment for the administration of such public religious or charitable trusts or endowments or societies for religious or charitable purposes. It has been specifically provided that the exemption under the new clause would not apply to the income of the trust, endowment or society and accordingly the tax treatment of the income thereof will continue to be governed by the other provisions of the Income-tax Act. 9.2 This provision has been made with retrospective effect from 1-4-1962, i.e., from the commencement of the Income-tax Act, 1961. [Section 3(c) (Part) of the Finance Act] Extension of the scope of the export markets development allowance - Section 35B 10.1 Under section 35B, an export markets development allowance in the form of a weighted deduction at the rate of 133'/3 per cent of the qualifying expenditure is allowed, in the computation of the taxable profits, of a small-scale exporter, a holder of an export house certificate and a person engaged in the business of provision of technical know-how to persons outside India or in the performance of services in connection therewith. The weighted deduction is allowed with reference to the expenditure incurred wholly and exclusively on the following activities namely: a. obtaining information regarding markets outside India for such goods, services or facilities; b. maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities; c. preparation and submission of tenders for the supply or provision outside India, of such goods, services or facilities, and activities incidental thereto, d. furnishing to a person outside India samples or technical information for the promotion of the sale outside India of such goods, services or facilities; e. travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outwards from and return to India; f. performance of services outside lndia in connection with or incidental to the execution of any contract for the supply outside India of such goods, services or facilities; g. such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed. 10.2 The Finance Act, 1979 has made the following modifications in the scheme of export markets development allowance: 1. The benefit of export markets development allowance will be extended to all domestic companies and non-corporate taxpayers resident in India at the uniform rate of 133'/3 per cent of the qualifying expenditure. 2. Expenditure incurred on advertisement or publicity outside India in respect of the goods, services or facilities dealt in or provided by the taxpayer in the course of his business would also qualify for the weighted deduction. 10.3 These provisions will take effect from 1-4-1980 and will, accordingly, apply in relation to any previous year relevant to the assessment year 1980- 81 and subsequent years. [Section 4 of the Finance Act] Deduction in respect of payments to approved associations and Institutions for Imparting training to persons to equip them for implementing rural development programmes - Section 35CCA 11.1 Under section 35CCA, a taxpayer carrying on a business or profession is entitled to a deduction, in the computation of his taxable profits, in respect of @ any donations made by him to an association or institution which has as its object the undertaking of programmes of rural development to be used for carrying out such programme. The deduction under this section is admissible only in cases where the association or institution as also the programme of rural development is approved by the prescribed authority". 11.2 The Finance Act, 1979 has extended the scope of this provision to provide for a deduction, in the computation of the taxable profits, in respect of donations made by a taxpayer carrying on business or profession, to any association or institution which has as its object the training of persons for implementation of any programme of rural development. It is, however, necessary that such association or institution should be approved by the "prescribed authority". The prescribed authority will not approve any such association or institution for a period exceeding three years at a time. 11.3 It may be relevant to mention that for the purposes of section 35CCA, the association or institution should have the main object of undertaking of any programme of rural development or, as the case may be, the training of persons for implementing programmes of rural development. In other words such association or institution will not be disqualified from being approved by the "prescribed authority' under section 35CCA merely on the ground that such association or institution has other subsidiary objects so long as the main objects fall within the ambit of section 35CCA. 11.4 This provision has come into force with effect from 1-6-1979 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 5 of the Finance Act] Deduction of insurance premium paid by a federal milk cooperative society against loss of cattle owned by members of a primary milk cooperative society - Section 36(1)(ia) 12.1 With a view to encouraging federal milk cooperative society to incur expenditure on payments of insurance premia on the fives of cattle owned by the members of a primary milk cooperative society affiliated to it, the Finance Act, 1979 has inserted a new clause (ia) in sub-section (1) of section 36 to provide that the amount of such premia win be snowed as a, deduction in the computation of the taxable profits of the federal milk co- operative society. 12.2 This provision will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 6(a) of the Finance Act]. Deduction in respect of provisions made for bad and doubtful debts relating to rural branches of scheduled commercial banks - Section 36(1)(viia) 13.1 Under section 36(1)(viia), a taxpayer carrying on business or profession is entitled to a deduction, in the computation of the taxable profits, of the amount of any debt which is established to have become bad during the previous year, subject to certain conditions. However, a mere provision for bad and doubtful debts is not allowed as a deduction in the computation of the taxable profits. 13.2 In order to promote rural banking and assist the scheduled commercial banks in making adequate provisions from their current profits to provide for risks in relation to their rural advances, the Finance Act, 1979 has inserted a new clause (viia) in sub-section (1) of section 36 to provide for a deduction, in the computation of the taxable profits of an scheduled commercial banks, in respect of provisions made by them for bad and doubtful debts relating to advances made by their rural branches. The deduction will be limited to 1 ½ per cent of the aggregate average advances made by the rural branches computed in the manner to be prescribed by rules in the Income-tax Rules, 1962. For this purpose, a "rural branch" means a branch of a scheduled bank situated in a place with a population not exceeding I 0,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year. The expression 'scheduled bank'- has the same meaning as in the Explanation below section 11(2)(b) but does not include a cooperative bank. The expression "scheduled bank" would therefore, cover the State Bank of India constituted under the State Bank of India Act, 1955, any subsidiary bank of the State Bank of India as defined in the State Bank of India (Subsidiary Banks) Act, 1959, a nationalised bank as specified in section 3 of the Banking Companies (Acquisition and Transfer of Under- takings) Act, 1970 or any other bank included in the Second Schedule to the Reserve Bank of India Act, 1934. It may be mentioned that all co- operative banks have been excluded from the purview of this provision in view of the position that under section 80P(2)(a)(i), the profits and gains of a cooperative society engaged in the business of banking or providing credit facilities to its members are completely exempt from income-tax. 13.3 It may be relevant to mention that the provisions of new clause (viia) of section 36(1) relating to the deduction on account of provisions for bad and doubtful debts is distinct and independent of the provisions of section 36(1)(vii) relating to allowance of bad debts. In other words, the scheduled commercial banks would continue to get the full benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(l)(viia). 13.4 This provision will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-8-1 and subsequent years. [Section 6(b) of the Finance Act] Higher deduction in respect of profits transferred to special reserve account In the case of certain financial corporations and extension of these provisions to approved housing finance companies - Section 36(1)(viii) 14.1 Under section 36(1)(viii), approved financial corporations engaged in providing long-term finance for industrial or agricultural development in India are entitled to a deduction, in the computation of their taxable profits, in respect of amounts transferred by them to a special reserve account, up to 40 per cent of the total income computed before making any deduction under Chapter VIA in the case of State Financial Corporations and up to 25 per cent of such income in the case of others. The Finance Act, 1979 has made the following two modifications in this behalf, namely: 1. The ceiling limit of the deductible amount in the case of all approved financial corporations has been raised from 25 per cent to a uniform level of 40 per cent. 2. The provisions of section 36(1)(viii) have been extended to public companies formed and registered in India with the main object of carrying on the business of providing long-term finance for the construction or purchase of residential houses in India provided the company is for the time being approved by the Central Government for the purposes of section 36(1)(viii). 14.2 The other condition applicable to the approved financial corporations for limiting the aggregate quantum of deduction under section 36(1)(viii) to the amount of paid-up share capital, excluding the amount capitalised from reserves, would also apply to the approved public companies engaged in housing finance activities. 14.3 These provisions will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 6(c) of the Finance Act] Omission of the requirement for certification of circulation figures of newspapers by the prescribed authority - Explanation 1 to section 37(3B) 15.1 Section 37(3A) provides for a disallowance, in the computation of taxable profits, of a specified percentage of expenditure incurred on advertisement, publicity and sales promotion where the aggregate expenditure exceeds Rs. 40,000. Sub-section (3B) of section 37 lays down that the provisions of sub-section (3A) will not apply in relation to any expenditure incurred by a taxpayer under specified categories which, inter alia, include any expenditure on an advertisement in a small newspaper. For the purposes of this provision a newspaper is deemed to be a small "news-paper" if the average circulation of the newspaper in the calendar year in which such advertisement has been published is certified by the 'prescribed authority' as not exceeding 15,000 copies. For this purpose, average circulation", in relation to a newspaper, is to be taken to be the number arrived at by dividing the aggregate of the number of copies of such newspaper circulated during the calendar year by the total number of days on which such newspaper was published in that year. 15.2 Since it is difficult for any single authority to certify the circulation of all newspapers, the Finance Act, 1979 has modified the provisions of Explanation I below section 37(3B) so as to exclude the requirement of certification of the circulation of the newspaper by the prescribed authority. The effect of this modification will be that the burden of proving that the average circulation of the newspaper during the calendar year did not exceed 15,000 copies would hereafter be on the taxpayer. 15.3 In this connection, it may be relevant to mention that under the Press and Registration of Books Act, 1867, every newspaper is required to furnish an annual return to the Registrar of Newspapers functioning under the Ministry of Information and Broadcasting, Government of India. Where the average circulation of the newspaper exceeds 2,000 copies, the publisher of the newspaper has to obtain a certificate from a chartered accountant certifying the circulation figures of the newspaper. A taxpayer who claims to exclude the expenditure on advertisement in a small newspaper under section 37(3B)(i) would be able to obtain an extract of the information regarding the average circulation given by the news- paper in its annual return. However, if a taxpayer produces a certificate from a chartered accountant regarding the average circulation of the newspaper before an income-tax authority in support of his claim in this behalf, it should be regarded as relevant evidence. 15.4 This provision takes effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 7 of the Finance Act] Modification of the provisions relating to the exemption of long-term capital gains - Section 54E 16.1 Under section 54E, capital gains arising on the transfer of a 'long- term capital asset" are exempted from income-tax if the full value of the consideration received or accruing as a result of the transfer is invested or deposited in specified financial assets within six months of the date of the transfer. Where only a part of the consideration is so invested, a proportionate part of the capital gains is exempted from income-tax. The financial assets specified in this behalf (hereinafter referred to as 'the preferred assets') are Government securities; small savings certificates; units in the Unit Trust of India; specified debentures; equity shares forming part of an "eligible issue of capital" and fixed deposits with nationalised or cooperative banks, subject to certain conditions. The Finance Act, 1979 has made the following three modifications in the scheme of exemption of the long-term capital gains under section 54E: 1. The first modification is that in respect of a transfer of a long-term capital asset made after 28-2-1979, the capital gains will be exempted only if the investment is made in the new 7-Year National Rural Development Bonds to be issued by the Government. In respect of transfers of capital assets made before 1-3-1979, however, the requirement of making the investment in any of the preferred assets as hitherto will continue. 2. The second modification made by the Finance Act, 1979 is that in order to claim exemption in respect of the whole of the capital gains, it will not be necessary for the taxpayer to invest the full value of the consideration in the National Rural Development Bonds or, as the case may be, any of the preferred assets but only the amount of the 'net consideration" that is to say, the full value of the consideration received or accruing as a result of the transfer as reduced by the expenditure incurred wholly and exclusively in connection with the transfer of the capital asset, Where a part of the net consideration is so invested, a proportionate part of the capital gains shall be exempted from income-tax. Under the existing provisions, where the taxpayer transfers the preferred asset within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original capital asset exempted from tax under section 45 is deemed to be the income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which the preferred asset is transferred. These provisions will, mutatis mutandis, apply in relation to the 7-Year National Rural Development Bonds as well. 3. The third modification is in respect of sub-section (3) of section 54E. Under sub-section (3), where the transfer of the original asset is by way of compulsory acquisition under any law, or where the consideration for transfer of the original asset is determined or approved by the Central Government or the Reserve Bank of India, and the compensation or, as the case may be, the consideration for such transfer is enhanced by any court, tribunal or other authority, and the assessee has within a period of six months after the date of receipt of the additional compensation or additional consideration invested or deposited the entire additional compensation or consideration in the preferred assets, the unadjusted capital gain will not be charged to tax. Under an amendment made by the Finance Act, 1979 the specified asset for the purpose of sub-section (3) means any of the preferred assets referred to in clause (a) of Explanation 1 below sub-section(1) of section 54E, where the additional compensation or additional consideration is received before 1-3-1979 and the 7-year National Rural Development Bonds in relation to any additional compensation or consideration received after 28-2-1979. 16.2 These provisions will take effect from 1-4-1979 and will, accordingly, apply in relation to the assessment year 1979-80 and subsequent years. As a result, in a case where a long-term capital asset was transferred during the previous year relevant to the assessment year 1979-80 even before 1-3-1979, complete exemption from income-tax will be available if the net consideration (and not necessarily the full value of consideration) is invested in the preferred assets within six months of the transfer. [Section 8 of the Finance Act]. Extension of the scope of provisions relating to intra family transfers of income - Section 64 17.1 Section 64 contains several provisions for checking tax avoidance by persons through the diversion of income to the members of the family. The Finance Act, 1979 has made the following modifications in the provisions of section 64, namely: 1. Under clause (ii) of sub-section (1) of section 64, where the spouse of an individual derives any income by way of salary, commission, fees or other form of remuneration from a concern in which the individual has a substantial interest, such income is included in the total income of the individual. The proviso to clause (ii) provides that where the spouse in receipt of such income possesses technical professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience, the clubbing provisions of clause (ii) do not apply. The Finance Act, 1979 has amended Explanation 1 below section 64(1) to provide that where both the husband and wife have a substantial interest in the concern and both are in receipt of the remuneration from such concern, the remuneration from such concern will be included in the total income of the husband or, as the case may be, the wife whose total income excluding such remuneration is higher. 2. Under clause(i) of section 64(1), the income arising directly to the spouse of the individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner is included in the total income of the individual. The Finance Act, 1979 has inserted a new Explanation 1A below section 64(1) to provide that where the spouse of an individual is a beneficiary under a trust and the trustee joins in any partnership business with the individual, the income arising from such partnership to the trust to the extent it is for the immediate or the deferred benefit of the spouse, will be included in the total income of the individual. It should be noted that the provisions of the new Explanation 1A will be attracted even in i case where, under the term of the trust, the income is required to be accumulated for a specified period and thereafter the accumulations are to be paid over to the spouse and, accordingly, the income attributable to the deferred benefit will be includible in the total income of the individual in the year of accrual. 3. Under clause (iii) of section 64(1), the income arising to a minor child from the admission to the benefits of partnership is included in the total income of that parent who has higher income, although neither of the parents is a partner in the firm to the benefits of which the minor is admitted. In order to effectively counter the device for circumventing this provision through interpolation of a trust, the Finance Act, 1979 has inserted a new Explanation 2A to provide that where a minor child of an individual is a beneficiary under a trust and the trustee joins in any partnership business with any person, the income arising to the trust, to the extent it is for the benefit of the minor child, will be included in the total income of that parent who has the higher income. 4. Under sub-section (2) of section 64, where an individual, being a member of a Hindu undivided family, converts at any time after 31-12-1969, his separate property into property belonging to the Hindu undivided family, he is deemed to have transferred the property through the family to the members of the family for being held by them jointly and the entire income derived from the converted property is included in the total income of the individual. Recently, the Supreme Court has held in the case of CIT v. J. G. Shah (SC)that the provisions of section 64(2) do not apply where the individual makes a direct gift of his separate property to the Hindu undivided family of which he is a member. Since the effect of a gift is essentially the same as that of conversion of the separate property by the member into the property of the Hindu undivided family, the Finance Act, 1979 has modified the provisions section 64(2) to provide that where an individual makes a transfer of his separate property to the Hindu undivided family, whether directly or indirectly, otherwise than for adequate consideration, the income from such property will be included in the total income of the individual The effect of this provision will be that where an individual makes a direct or indirect gift of his separate property to the Hindu undivided family of which he is a member or where he transfers his separate property to his family for less than its fair market value, the provisions of section 64(2) will be attracted and the income from such separate property (which is deemed to be the converted 'property) will be included in the total income of the individual. It may be relevant to mention that where the separate property of the member is transferred to his Hindu undivided family otherwise than for adequate consideration, the provisions of section 4(i)(a) of the Gift-tax Act are attracted and the amount which represents the difference between the fair market price of the asset on the date of its transfer and the consideration for which it is transferred is chargeable to gift-tax. Under the provisions of section 64(2), as amended by the Finance Act, 1979, in such cases, the entire income arising from such separate property transferred to the Hindu undivided family will be included in the total income of the individual and not merely the part of such income attributable to the amount representing the difference between the fair market value of the asset and the consideration for the transfer. Under section 64(2), the clubbing provisions in respect of the converted property are applicable where the individual has, after 31-12-1969, converted his separate property into that of Hindu undivided family of which he is a member. Where such an individual has made transfer, directly or indirectly, of his separate property to his Hindu undivided family of which he is a member, otherwise than for adequate consideration, after 31-12- 1969, the amended provisions of section 64(2) will apply from the assessment year 1980-81 and subsequent years. The amended provisions will, however, have no application in relation to any assessment year prior to 1980-81.17.2 Under the provisions of section 64, the income of the specified persons is liable to be included in the total income of the individual in certain circumstances. The Finance Act, 1979 has inserted a new Explanation 2 below section 64(2) to provide that the term "income" for the purposes of section 64 would include a loss. Hence, for example, where the individual and his spouse are both partners in a firm carrying on a business and the firm makes a loss, the share of loss attributable to the spouse will be included in determining the total income of the individual. 17.3 These provisions will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 9 of the Finance Act] Modification in the provision relating to deduction in respect of long-term savings In specified media - Section 80C 18.1 Under section 80C, tax relief is allowed in respect of long-term savings effected by certain categories of taxpayers out of their income chargeable to income-tax. In the case of an individual, long-term savings through life insurance or deferred annuity policies (without cash option) on the life of the individual, I is spouse or child; 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 a 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 (without cash option) 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. 18.2 The tax relief in all these cases is allowed by deducting the whole of the first Rs. 5,000 of the qualifying savings plus 50 per cent of the next Rs. 5,000 plus 40 per cent of the balance of such savings in computing the taxable income of the taxpayer. The long- term savings qualify for the tax relief only to the extent that such savings do not exceed the ceiling limits laid down in this behalf. In the case of individuals, Hindu undivided families and married couples governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, the ceiling limit is 30 per cent of the "gross total income" or Rs. 30,000, whichever is less. A higher ceiling limit is laid down in the case of authors, playwrights, artists, musicians and actors. The ceiling limit in their case is 40 per cent of the professional income of the specified professionals plus 30 per cent of the remaining part of the "gross total income", or Rs. 50,000, whichever is less. 18.3 With a view to restricting the disproportionately large tax benefit derived by persons in the higher income brackets in this behalf, the Finance Act, 1979 has made the following modifications in the relevant provisions: 1. While the quantum of deduction in respect of long-term savings for the first Rs. 5,000 of the qualifying savings is being retained at the existing level, the quantum of deduction in respect of the next Rs. 5,000 would be granted at the rate of 35 per cent as against 50 per cent at present. 2. The quantum of deduction in respect of the balance would be granted at the lower rate of 20 per cent as against 40 per cent at present. 18.4 The changes indicated in the preceding paragraph will take effect from 1-4-1980 and will, accordingly, apply for the assessment year 1980-81 and subsequent years. [Section 10 of the Finance Act] Deduction of contributions to approved associations or Institutions engaged in carrying out rural development programmes or to approved scientific research associations, etc. - New section 80GGA 19.1 Under section 35(1)(ii), a taxpayer carrying on a business or profession is entitled to a deduction, in the computation of his taxable profits, of any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research. It is, however, necessary that such scientific research association, university, college or institution should be approved by the "prescribed authority". 19.2 Under section 35CCA, sums paid by taxpayers carrying on business or profession to any approved association or institution which has as its object the undertaking of programmes of rural development to be used for carrying out an approved programme of rural development are allowed as deduction in the computation of their taxable profits. Under an amendment made to section 35CCA by section 5 of the Finance Act, 1979, sums paid by such taxpayers to any approved association or institution which has as its object the training of persons for implementing programmes of rural development will also be allowed as deduction in the computation of their taxable income. 19.3 Under the provisions referred to above, the deduction in respect of sums paid to approved scientific research associations or approved associations or institutions set up for executing programmes of rural development was hitherto allowed only in the case of taxpayers carrying on business or profession. The Finance Act, 1979 has inserted a new section 80GGA to provide that in the case of taxpayers, other than those carrying on business or profession, the following sums paid during the previous year will qualify for deduction in the computation of the total income, namely: 1. Sums paid to an approved scientific research association which has as its object the undertaking of scientific research, or to an approved university, college or other institution to be used for scientific research. 2. Sums paid to an approved association or institution which has as its object the undertaking of any programme of rural development to be used for the purposes of carrying out any approved programme of rural development. 3. Sums paid to an approved association or institution which has as its object the training of persons for implementing programmes of rural development. 19.4 Sub-section (3) of the new section 80GGA restricts the operation of this new provision to those taxpayers who do not derive income from business or profession. Sub-section (4) provides that any deduction claimed under this section cannot be allowed in respect of the same payments under any other provision of the Income-tax Act for the same or any other assessment year. 19.5 These provisions will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section II of the Finance Act] Withdrawal of "tax holiday" concession in the case of industrial undertakings engaged In low-priority industries - Section 80J 20.1 Under section 80J, a "tax holiday" is granted in respect of profits and gains derived from any industrial undertaking including a cold storage plant newly set up in India. This concession is also available in relation to profits derived by an Indian company from the business of an approved hotel or from plying of ships. 20.2 The "tax holiday"concession consists of exemption from income-tax up to a specified percentage of the capital employed in the undertaking, hotel or ship for five successive assessment years beginning with the assessment year relevant to the previous year in which the undertaking goes into production or starts operation of the cold storage plant or the hotel starts functioning or the ship is first put to use. The specified percentage in the case of a company is 7.5, while, in the case of other categories of taxpayers, it is 6. In the case of cooperative societies, the tax holiday period extends to 7 years as against 5 years in the case of other categories of taxpayers. Under the existing provisions, the benefit of this tax concession will be available in respect of industrial undertakings which commence to manufacture or produce articles before 1-4-1981. Similarly, cold storage plants, hotels and ships will be entitled to the "tax holiday" concession only if they start functioning or are put to use before that date. 20.3 The Finance Act, 1979 has amended section 80J(4) by insertion of a proviso to provide that the 'tax holiday" provisions will not be applicable to an industrial undertaking which begins to manufacture or produce any articles specified in the fist in the Eleventh Schedule after 31-3-1979. It should be noted that the withdrawal of the benefit of tax holiday concession in respect of industrial undertakings which manufacture or produce articles specified in the Eleventh Schedule also applies in respect of any small-scale industrial undertaking. 20.4 This provision has come into force with effect from 1-4-1979. [Section 12 of the Finance Act] Deduction in respect of profits and gains derived from growing mushrooms under controlled conditions - New section 80JJA 21.1 Under section 10(1), agricultural income is exempt from income-tax. For this purpose,"agricultural income" includes any income derived from land situated in India and used for agricultural purposes. Mushrooms are generally grown in a closed chamber and not necessarily in an open field. Its raw material is a composite made of wheat straw, poultry manure, calcium carbonate, gypsum and other fertilisers. Different layers of artificial soil are prepared in wooden trays and temperature is controlled to a specified degree by closing the inlets and outlets of air to provide the necessary humidity for cultivation of mushrooms. The process is known as "mushrooms growing under controlled conditions". Income derived from a business of growing mushrooms under controlled conditions cannot be regarded as agricultural income and is, therefore, chargeable to income-tax. 21.2 With a view to encouraging cultivation of mushrooms under controlled conditions, the Finance Act, 1979 has inserted a new section 80JJA in order to provide that in computing the total income of a taxpayer deriving profits and gains from the business of growing mushrooms under controlled conditions a deduction will be allowed in an amount equal to one-third of such profits and gains, or Rs. 10,000, whichever is less. 21.3 This provision will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 13 of the Finance Act] Increase in the quantum of tax-exempt profits in the case of consumers co- operative societies - Section 80P 22.1 Profits derived by a consumers' co-operative society are at present exempt from income-tax up to Rs. 20,000. In view of the important role played by consumers' co-operative societies in supplying essential commodities to consumers at reasonable prices, the Finance Act, 1979 has amended section 80P(2)(c) so as to raise the monetary limit of exemption in their case from Rs. 20,000 to Rs. 40,000. It may be noted that the enhancement in the exemption limit will apply only in relation to consumers' co-operative societies and not other categories of co-operative societies carrying on business activities. 22.2 This amendment will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 14 of the Finance Act] Deduction in respect of income derived by authors of text books of university level in Indian languages - New section 80QQA 23.1 The Finance Act, 1979 has inserted a new section 80QQA to provide for a deduction, in the computation of the total income of an author, in an amount equal to 25 per cent of his income from standard text books of University level in specified Indian languages. The deduction will be available in respect of any lump sum consideration for the assignment or grant of any of his interests in the copyright of any such book or of royalties or copyright fees, whether receivable in lump sum or otherwise. The deduction will be allowed only where the following conditions are fulfilled: 1. The book has been prescribed or recommended as a text book by any University for a degree or post-graduate course or is a dictionary, thesaurus or encyclopaedia. 2. The book, dictionary, thesaurus or encyclopaedia is written in a language specified in the Eighth Schedule to the Constitution. The Central Government has been empowered to notify any other language for the purpose of this tax concession, having regard to the need for promotion of publication of such text books in that language. 23.2 The deduction will be admissible for the assessment years 1980-81 to 1984-85 (both inclusive). It may, however, be relevant to mention that it is not necessary that such a text book should have been prescribed or recommended as a text book by any University for a degree or post- graduate course for the first time during the previous year relevant to the assessment years 1980-81 to 1984-85 (both inclusive). 23.3 The new provision will take effect from 1-4-1980. [Section 15 of the Finance Act] Lowering of threshold for payment of advance tax in the case of registered firms - Section 208 24.1 Under Chapter XVIIC, income-tax is payable in advance during every financial year in three equal instalments on days specified in section 211 on the taxpayer's current income (other than capital gains and winnings from gambling) liable to tax for the assessment year next following the financial year. 24.2 Under section 208(2)(b), advance tax is payable by a registered firm, only if its income subject to advance tax exceeds Rs. 30,000. The Finance Act, 1979 has amended this provision in order to lower the threshold for payment of advance tax in the case of registered firms to Rs. 20,000. In other words, registered firms having income exceeding Rs. 20,000 will now be liable to pay advance tax. 24.3 This provision has come into force with effect from 1-4-1979. [Section 16 of the Finance Act]. Modification of the dates for furnishing of statement / estimate of advance tax - Sections 209A, 212 and 218 25.1 Advance tax is payable by a taxpayer during every financial year in three equal instalments. In the case of taxpayers whose income to the extent of at least 75 per cent is derived from any source or sources for which the previous year ends on or before 31st December of the financial year in which such advance tax is payable, the instalments are payable on 15th June, 15th September and 15th December. In the case of other taxpayers, the instalments are payable on 15th September, 15th December and 15th March of the relevant financial year. 25.2 Under section 209A, a taxpayer, who has previously been assessed by way of regular assessment under the Income-tax Act, is required to send a statement of advance tax payable by him to the Income-tax Officer before the date on which the first instalment of advance tax is payable by him. The advance tax payable in such cases-is computed with reference to the last assessed income of the taxpayer or the income returned by him for a later year on the basis of which he has paid self-assessment tax under section 140A, if such returned income is higher. However, the taxpayer has the option to pay a lower amount of advance tax if his current income, according to his own estimate, would be lower. In such cases, the taxpayer may, instead of sending a statement, send an estimate in lieu of such statement specifying the advance tax payable by him before the date on which the first instalment of advance tax is payable in his case. Further, a person who has not previously been assessed to tax is required to pay advance tax voluntarily with reference to his current income estimated by him. Such a person is required to furnish an estimate of advance tax before the date on which the last instalment of advance tax is payable in his case. Thus, the statement or, as the case may be, the estimate of advance tax is required to be furnished a day before the date on which the first or, as the case may be, the last instalment is due. A statement/estimate of advance tax made on the specified date is considered to be non-existent in the eyes of law and is, therefore, ignored. This has resulted in avoidable hardships in cases where the statement or estimate of advance tax is filed on the specified date and not before that date. The Finance Act, 1979 has amended the provisions of section 209A in order to provide that the statement or estimate of advance tax may be furnished on the same date on which the relevant instalment becomes payable. 25.3 The taxpayer also has the option of revising the statement or estimate of advance tax sent by him if his current income, according to his own estimate, would be lower than that shown in the statement or estimate by making a lower estimate of advance tax before the date on which the last instalment of advance tax is payable by him and pay the balance amount of advance tax in equal instalments on the remaining dates. Conversely, it is obligatory on a taxpayer to pay a higher amount of advance tax if the advance tax computed on his estimated current income is likely to exceed the amount of advance tax payable according to the statement or estimate by more than 331/3 per cent of the latter, by making such higher estimate of advance tax before the date on which the last instalment of advance tax is payable in his case. The Finance Act, 1979 has amended section 209A to provide that such revised estimates of advance tax can be furnished on or before the date on which the last instalment of advance tax is payable by the taxpayer. 25.4 Although section 209A requires every taxpayer to pay advance-tax voluntarily, under section 210, the Income-tax Officer is empowered to issue a notice for payment of advance tax on the basis of the last assessed income of the taxpayer or the returned income of a later year for which the tax payer has paid tax on self-assessment, if such income is higher than the last assessed income. Section 212 gives the option to the taxpayer to pay a lower amount of advance tax, if his current income on the basis of his own estimate would be lower than the income on which advance tax has been demanded by the Income-tax Officer, by furnishing an estimate of advance tax before the date on which the last instalment of advance tax is payable in his case. On the other hand, it is obligatory on a person to furnish an estimate of advance tax before the date on which the last instalment of advance tax is payable in his case if the advance tax computed on his current income is likely to exceed the amount of advance tax demanded from him by more than 33'/3 per cent of the latter. The Finance Act, 1979 has amended section 212 to provide that such revised estimates may be furnished on or before the date on which the last instalment of advance tax is payable. 25.5 Under section 218(2), the assessee is deemed to be an assessee in default in respect of an instalment of advance tax if he does not pay such instalment on the specified date and fails to send an estimate or revised estimate before that date. The Finance Act, 1979 has amended section 218(2) in order to provide that the assessee will not be deemed to be an assessee in default even in a case where he sends the estimate or revised estimate of advance tax payable on the specified date. 25.6 These provisions have come into force with effect from 1-4-1979 and will, accordingly, apply in relation to advance tax payable during the financial year 1979-80 and subsequent years. [Sections 17, 18 and 19 of the Finance Act] Amendment of provisions relating to the settlement cases - Section 245D 26.1 Chapter XIXA. contains provisions relating to the settlement of cases. An application for settlement of cases can be made by a taxpayer at any stage of a proceeding. On receipt of the application, the Settlement Commission calls for a preliminary report from the Commissioner who has jurisdiction over the case. At this stage, the Commissioner can object to the application being proceeded with by the Settlement Commission, if he is of the view that concealment of income or perpetration of fraud for evading any tax other sum chargeable under the 1961 Act or the 1922 Act on the part of the applicant has been established (or is likely to be established) in relation to the case by any income-tax authority. In such an event, the Settlement Commission is at present debarred from proceeding with the application. 26.2 While it may be desirable to prevent the taxpayer from taking advantage of the provisions relating to settlement of cases involving concealment of income detected by the department, there is need for review of the Commissioner's objection by the Settlement Commission. The Finance Act, 1979 has amended section 245D in order to empower the Settlement Commission to go into the merits of the objection raised by the Commissioner and to proceed with the application if it is not satisfied with the correctness of the objection. However, the Commissioner of Income- tax be allowed an opportunity of being heard before the Settlement Commission overrules the objection. 26.3 These provisions have come into force with effect from 1-4-1979. [Section 20 of the Finance Act] Modification of the provisions relating to the jurisdiction of the Commissioner (Appeals) - Section 246 27.1 The Finance (No. 2) Act, 1977 has created a new appellate authority known as "Commissioner of Income-tax (Appeals)" [hereafter referred to as "Commissioner (Appeals)"]. Under sub-section (2) of section 246, an appeal lies to the Commissioner (Appeals) against any of the following orders: a. an order under section 104 relating to the payment of additional income-tax on undistributed profits by closely-held companies; b. an order specified in clauses (c) to (o) (both inclusive) of section 246(1), where such order is made by the Inspecting Assistant Commissioner in exercise of the powers. or functions conferred or assigned to him under section 125 or section 125A; c. an order made by the Inspecting Assistant Commissioner imposing a fine under section 131(2); d. an order made in the case of a foreign company where the company denies its liability to be assessed under the Income-tax Act or any order of assessment under section 143(3) or section 144, and the assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which it is assessed; e. an order made in the case of a domestic company, where the domestic company denies its liability to be assessed under the Income-tax Act or any order of assessment under section 143(3) or section 144, and the company objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which it is assessed, provided that the amount of income assessed or the amount of loss computed exceeds Rs. 5 lakhs; f. an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under section 144B; g. an order imposing a penalty under section 271(1)(c), where the penalty has been imposed with the previous approval of the Inspecting Assistant Commissioner under the proviso to clause (iii) of sub-section (1) of that section; h. an order made by the Inspecting Assistant Commissioner imposing a penalty under section 272A; and an order made by an Income-tax Officer under the provisions of the Income-tax Act in the case of such persons or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct. 27.2 At present, appeals against assessments made in the case of all foreign companies and those domestic companies whose assessed total income or loss exceeds Rs. 5 lakhs lie to the Commissioner (Appeals). This has led to the position that in some cases of companies while appeals against assessment order lie to the Commissioner (Appeals), appeals against orders of rectification, penalty, etc., lie to the Appellate Assistant Commissioners. Moreover, in the case of a domestic company, the appeal for one assessment year may lie to the Appellate Assistant Commissioner while the appeal for the next year may lie to the Commissioner (Appeals) depending upon the quantum of total income assessed. It is likely that these authorities may give conflicting decisions on identical issues involved in two successive years. This situation has created an avoidable confusion in the minds of the taxpayers regarding the jurisdiction of the Commissioner (Appeals) in relation to the assessment and other proceedings in the case of companies. 27.3 With a view to obviating difficulties and streamlining the appellate machinery, the Finance Act, 1979 has amended sub-section (2) of section 246 in order to provide that appeals against all orders in the case of all categories of companies would lie to the Commissioner (Appeals) and that appeals in the case of companies pending before the Appellate Assistant Commissioners on 1-6-1979 will stand transferred to the Commissioner (Appeals). 27.4 The Finance Act, 1979 has also inserted a new sub-section (5) in section 246 to empower the Board to transfer an appeal pending before the Appellate Assistant Commissioner to the Commissioner (Appeals) in cases where it may so direct, having regard to the nature of the case, the complexities involved and other relevant considerations. It is also provided that the Commissioner (Appeals) will proceed with such appeal or matter from the stage at which it was before it was so transferred. The proviso to sub-section (5) provides that the appellant will, however, have the right to demand that before proceeding further with the appeal or matter, the previous proceeding or any part thereof may be reopened or that he be reheard. 27.5 These provisions have come into force with effect from 1-6-1979. [Section 21 of the Finance Act] AMENDMENT TO WEALTH-TAX ACT Extension of the scope of the provisions relating to conversion of separate property of an individual into a Hindu undivided family property- Section 4 28.1 Under section 4(1A), where an individual, being a member of a Hindu undivided family, converts at any time after 31-12-1969, his separate property into property belonging to the Hindu undivided family, he is deemed to have transferred the property to the members of his family for being held by them jointly. Further, the converted property is included in the net wealth of the individual. After the partition of the Hindu undivided family (Whether partial or total), only the converted property or any part thereof which is received by the individual's spouse or minor child is so included. The provisions of sub-section(1A) apply where the conversion of the separate property of the individual into the joint family property takes place by the act of the individual impressing his separate property with the character of the joint family property or by throwing such property into the common stock of the Hindu undivided family. 28.2 As mentioned in paragraph 17.1, these provisions do not cover cases where the individual makes a direct or indirect gift of is separate property to the Hindu undivided family of which he is a member, or were he makes a transfer, directly or indirectly, of his separate property to such family for less than its market value. With a view to closing this loophole for the avoid acne or reduction of tax liability through the device of making a direct or indirect gift of the property by an individual to the Hindu undivided family or through the device of making a transfer of the separate property to the Hindu undivided family otherwise than for adequate consideration, the Finance Act, 1979 has amended section 4(1A) to cover sch cases. Under the amendment, in a case where the individual makes a direct or indirect gift of his separate property to the Hindu undivided family of which he is a member or where such individual makes a direct or indirect transfer of his separate property to the Hindu undivided family, otherwise than for adequate consideration, he will be deemed to have transferred the separate property through the family to the members of his family for being held by them jointly and the value of the gifted or transferred property will be included in the net wealth of the individual. Further, in the event of a partial or total partition of the Hindu undivided family, the value of the property allotted to the spouse or minor children out of the gifted or transferred property will be included in the net wealth of the individual. 28.3 Under section 4(1)(a), assets transferred by an individual without adequate consideration to his minor children or spouse or to trustees for the immediate or deferred benefit of his minor children or spouse, as also assets transferred to any other person under a revocable transfer, are to be included in computing the net wealth of the transferor. Under section 4(3), the exemption in respect of specified assets under section 5 would also apply in relation to the assets transferred by an individual to his spouse, minor children, etc., as if such assets belonged to the transferor. Similarly, debts referable to assets belonging to others which are included in the net wealth of the individual are allowed as deduction in the computation of the net wealth of the individuals. 28.4 Since doubts had been expressed whether the debts referable to the converted property" will be allowable as deduction in computing the net wealth of the individual who has thrown it into the common stock of the family, the Finance Act, 1979 has amended section 4(3) to provide that in computing the net wealth of the individual, the debts referable to separate property converted by the individual into the property of the Hindu undivided family or the separate property gifted or transferred for inadequate consideration to the Hindu undivided family of which he is a member, will be allowed as deduction. 28.5 For the purpose of the amendment made by the Finance Act, 1979, it is relevant to mention that the provisions for including the separate property gifted or transferred otherwise than for adequate consideration in the net wealth of the individual or, as the case may be, for allowing deduction in respect of debts referable to such converted property will apply where such property has been, at anytime, so gifted or transferred after 31-12-1969. In other words, although the amendment made by the Finance Act, 1979 is not retrospective and applies only in relation to the assessment year 1980-81 and subsequent years, the separate property gifted or transferred to Hindu undivided family would be includible in the net wealth of the individual if the property was gifted or transferred after 31-12-1969. 28.6 This provisions will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 23 of the Finance Act] Amendment of provisions relating to Wealth-tax Settlement Commission Section 22D. 29.1 Under section 22, an application for settlement of wealth-tax cases is not proceeded with if the Commissioner of Wealth-tax objects to the application being proceeded with on the ground that concealment of particulars of net wealth on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Wealth-tax Act has been established or is likely to be established by any wealth-tax authority in relation to that case. The Finance act, 1979 has amended section 22D in order to empower the Settlement Commission to go into the merits of the objection raised by the Commissioner and to proceed with the application if it is not satisfied with the correctness of the objection. However, the Commissioner of Wealth-tax will be allowed an opportunity of being heard before the Settlement Commission overrules the objection. This amendment is on the lines of the amendment made in section 245D of the Income-tax Act as explained in paragraph 25. 29.2 This provisions has come into force with effect from 1-4-197. [Section 24 of the Finance Act] Modification of the provisions relating to the jurisdiction of the Commissioner (Appeals) - Section 23 30.1 The Finance (No. 2) Act, 1977 has created a new appellate authority known as Commissioner (Appeals).Sub-section (1A) of section 23 of the Wealth-tax Act provides that any person may appeal to the Commissioner(Appeals) against an assessment or, as the case may be, order where he objects to- a. the amount of net wealth determined under the Wealth-tax Act or the amount of wealth-tax determined as payable by him under that Act, where the net wealth determined on assessment exceeds Rs. 15 lakhs; b. any penalty imposed under section 18(1)(c) with the previous approval of the Inspecting Assistant Commissioner under section 18(3); c. any assessment or order referred to in clauses (a) to(h) (both inclusive) or clause (i) of sub-section (1) of section 23, where such assessment or order has been made by the Inspecting Assistant Commissioner in exercise of the power or functions conferred on or assigned to him under section 8AA; d. any order made by a Wealth-tax Officer in the case of such person or classes of persons as the Board may, having regard to the nature of the cases, the complexities involves and other relevant consideration, direct. 30.2 The Finance Act, 1979 has inserted a new sub-section(1C) in section 23 with a view to empowering the Board to transfer any appeal which is pending before an Appellate Assistant Commissioner of Wealth-tax to the Commissioner of Wealth-tax (Appeals) is the Board is satisfied that it is necessary or expedient so to do having regard to the nature of the case, the complexities involved and other relevant considerations. After the appeals is so transferred, the Commissioner (Appeals) will be empowered to proceed with such appeal from the stage at which it was before it was so transferred. However, the appellant will have a right to demand that before proceeding with the appeal, the previous proceeding or any part thereof may be reopened or that he may be reheard. This amendment is on the lins of the amendment made is section 246(2) of the Income-tax Act as explained in paragraph 26. 30.3 This amendment has come into force with effect from 1-6-1979. [Section 25 of the Finance Act] Increase in the rats of wealth-tax - Part I of Schedule I 31.1 Under the existing provisions of the Wealth-tax Act the rates of wealth-tax in the case of individuals and Hindu undivided families (other than Hindu undivided families having at least one member with independent net wealth exceeding Rs. 1,00,000) range from 1/2 per cent of the net wealth in the first slab up to Rs. 2.50,000 to a maximum of 3 1/2 per cent on the net wealth in the slab over Rs. 15 lakhs. The Finance act, 1979 has substituted Part I of Schedule I with a view to increasing the rates of wealth-tax on the higher slabs of net wealth. In the case of individuals and Hindu undivided families(other than those having one or more members with independent net wealth exceeding Rs. 1 lakh), the new rates of wealth-tax will be 3 per cent on the slab of net wealth from Rs. 10,00,000 - Rs. 15,00,000 as against 2 1/2 percent and 5 per cent on the slab of net wealth over Rs. 15,00,000 as against 3 1/2 per cent at present. In the case of Hindu undivided families having at least one member with independent net wealth exceeding Rs. 1,00,000, the Finance Act, 1979 has raised the rates of wealth-tax respect of the net wealth exceeding Rs. 5,00,000. In these cases, the new rates will be 3 per cent on the slab of net wealth from Rs. 5,00,000 - Rs. 10,00,000 as against 2 1/2 per cent at present and 5 per cent on the slab of net wealth over Rs. 10,00,000 as against 3 1/2 per cent at present. The rates of wealth-tax on the lower slabs in all cases remain unchanged. 31.2 The new rate schedule will come into effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. [Section 26 of the Finance Act] AMENDMENT OF GIFT-TAX ACT Modification of the provisions relating to the jurisdiction of Commissioner of Gift-tax (Appeals) - Section 22 32.1 The Finance (No. 2) Act, 1977 has created a new appellant authority known as Commissioner (Appeals). Under sub-section (1A) of section 22 of the Gift-tax Act, any person may appeal to the Commissioner (Appeals) against an assessment or, as the case may, be order where he objects to- a. the value of taxable gifts determined under the Gift-tax Act or the amount of gift-tax determined as payable by him under that Act, where the value of taxable gifts determined on assessment exceeds Rs. 2 lakhs. b. any assessment or order referred to in clauses (a) to(h) (both inclusive) of sub-section (1) of section 22 where such assessment or order has been made by the Inspecting Assistant Commissioner in exercise of the powers or functions conferred on or assigned to him under section 7AA; c. any penalty imposed under section 17(1)(c) with the previous approval of the Inspecting Assistant Commissioner under section 17(3); d. any penalty imposed by an Inspecting Assistant Commissioner under section 17A; and e. any order made by a Gift-tax Officer in the case of such persons or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant consideration, direct. 32.2 The Finance Act, 1979 has inserted a new sub-section(1C) in section 22 with a view to empowering the Board to transfer any appeal pending before an Appellate Assistant commissioner of Gift-tax to the Commissioner (Appeals) if the Board is satisfied that it is necessary or expedient so to do, having regard to the nature of the case, the complexities involved and other relevant consideration. The Commissioner of Gift-tax (Appeals) will be empowered to proceed with such appeal from the Stage at which it was before it was so transferred. However, the appellant will have the right to demand that before proceeding with the appeal, the previous proceeding or any part thereof may be reopened or that he may be reheard. This amendment is on the lines of the amendment made in section 246 of the Income-tax Act as explained in paragraph 26. 32.3 This amendment has come into force with effect from 1-6-1979. [Section 27 of the Finance Act] AMENDMENT TO AGRICULTURAL REFINANCE AND DEVELOPMENT CORPORATION ACT Exemption from income-tax to Agricultural Refinance and Development Corporation 33.1 The Agricultural Refinance and Development Corporation has been set up under the Agricultural Refinance and Development Corporation Act, 1963, for granting medium and long-term credit by way of refinance for the development of agriculture. About 55 per cent of its share capital is held by the Reserve Bank of India and the balance by the Central land development banks, State co-operative banks scheduled commercial banks, Life Insurance Corporation of India and other insurance and investment companies. The Corporation serves a desirable socioeconomic purpose and with a view to enabling it to perform its functions effectively and to build up its reserves the Finance Act, 1979 has inserted anew section 42A in the Agricultural Refinance and Development Corporation Act to exempt from income-tax and surtax the income of the Corporation for a 5 year period covering the assessment years 1979-80 to 1983-84 (both inclusive). 33.2 These provisions have come into force with effect from 1-4-1979. [Section 44 of the Finance Act] AMENDMENT TO FINANCE ACT, 1973 Exemption of Credit Guarantee Corporation of India Ltd. 34.1 The Credit Guarantee Corporation of India Ltd. is registered as a company under the Companies Act, 1956. About 60 pe 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 advance by banks and financial institutions to small borrowers in the priority and other sectors which have remained relatively neglected. The Corporation serves a desirable socio-economic purpose and with a view to enabling it serves a desirable socio-economic purpose and with a view to enabling it to perform its functions effectively and to build up it reserves, the Corporation was exempted from income-tax and surtax by section 23 of the Finance act, 1973 for a 5 year period covering the assessment years 1972-73 to 1976-77. This exemption was extended for a further period of two years up to the assessment year 1978-79 by the Finance(No.2) Act, 1977. The Credit Guarantee Corporation of India Ltd. has merged with the Deposit Insurance Corporation setup under the Deposit Insurance Corporation Act, 1962, with effect from 15-7-1978, in terms of the Deposit Insurance(Amendment and Miscellaneous Provisions) Act, 1978. The Finance Act, 1979 has extended the exemption of the Credit Guarantee Corporation of India Ltd. for one more year, i.e., assessment year 1979-80 in respect of its income for the previous year beginning with 1-1-1978 , and ending on 14-7-1978. For this purpose, a specific amendment has been made to section 23 of the Finance Act, 1973. 34.2 This amendment has come into force with effect from 1-4-1979, and will, accordingly, apply in relation to the assessment year 1979-80. [Section 45 of the Finance Act] AMENDMENT TO COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT Continuance of the scheme of compulsory deposit by income-tax payers for two years. 35. Under the Compulsory Deposit Scheme (Income-tax Payers)Act, 1974, individuals who are citizens of India, Hindu undivided families and trustees of discretionary trusts were required to make compulsory deposits for the assessment years 1975-76 to 1979-80 (both inclusive ) if their "current income" exceeded Rs. 15,000. The Finance Act, 1979 has amended the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, with a view to continuing the compulsory deposit scheme in the case of income-tax payers for a further period of two years, i.e., for the assessment years 1980-81 and 1981-82. The rates of deposit will remain unchanged. [Section 46 of the Finance Act]