Explanatory Notes on the provisions of the Taxation Laws (Amendment) Act, 1991 - Income Tax - 591/1991

Explanatory Notes on the provisions of the Taxation Laws (Amendment) Act, 1991 Circular No. 591 Dated 30/1/1991 1.1 Under the Finance (Second Amendment) Ordinance, 1990, promulgated on 15th October, 1990 (see [1990] 186 ITR (St.) 13), the rate of surcharge on income-tax in the case of domestic companies having taxable income exceeding Rs.75,000 was increased from 8 per cent. to 15 per cent. The Taxation Laws (Amendment) Bill, 1990, was introduced in the Lok Sabha on 27th December 1990 (see [1991] 187 ITR (St.) 52), to replace the aforesaid Ordinance and also to provide for certain other matters. It was passed by both the Houses of Parliament during the Winter Session and received the assent of the President on 15th January, 1991. It has been enacted as the Taxation Laws (Amendment) Act, 1991 (No. 2 of 1991) ([1991] 187 ITR (St.) 145). 1.2 Abbreviations used.-- In these explanatory notes following abbrevations have been used:-- (i) The Taxation Laws (Amendment) Act, 1991, has been referred to as the "Amending Act, 1991". (ii) The various provisions of the Finance Act, 1990, as they stood before amendments by the Taxation Laws (Amendment) Act, 1991, have been referred to as the 'old provisions'. 2. Scope of this circular .--This circular explains the provisions of the Amending Act, 1991, relating to:-- (i) increasing surcharge on income-tax payable by domestic companies ; (ii) increasing surcharge on income-tax payable by non- corporate resident assessees ; (iii) restricting in the case of all companies the depreciation on written down value of a block of assets to 75% of the amount calculated at the percentage prescribed under the Income-tax Act. 3. Surcharge on income-tax in the case of domestic companies Rate of surcharge on income-tax.--Domestic companies having taxable income exceeding Rs.75,000 were required to pay a surcharge on income-tax at the rate of 8 per cent. under the old provisions. The Amending Act, 1991, has increased the rate of surcharge from 8 per cent. to 15 per cent. [It is clarified that no surcharge on income-tax is payable by a company other than a domestic company.] Payment of surcharge in respect of instalments of "advance tax".-- As the increase in the rate of surcharge was announced after the date of payment of the first instalment of "advance tax" had passed, the Amending Act, 1991, provides that the additional liability in respect of the instalment of "advance tax" payable on or before 15th September, 1990, arising as a result of increase in the rate of surcharge shall be payable on or before 15th November, 1990. The subsequent two instalments of "advance tax" due on 15th December, 1990, and 15th March, 1991, respectively, will be inclusive of the surcharge at the enhanced rate. Payment of surcharge in search and seizure cases.-- In a case where income-tax has to be calculated under the first proviso to sub-section (5) of section 132 of the Income-tax Act (relating to calculation of tax liability in respect of undisclosed income estimated in a summary manner) at the rates in force for the financial year 1990-91, surcharge at the rate of 15 per cent. shall be payable where such income- tax is so calculated after the 15th day of October, 1990. [It is clarified that the rate of surcharge on income-tax calculated on or before 15th October, 1990, under the first proviso to sub-section (5) of section 132 shall be 8 per cent.] Payment of surcharge in case of shipping business of non- residents.-- In a case where income-tax has to be charged under sub-section (4) of section 172 of the Income-tax Act (relating to collection of tax in respect of profits of non- residents from occasional shipping business) at the rates in force for the financial year 1990-91, surcharge at the rate of 15 per cent. shall be payable where such income-tax is so charged after the 15th day of October, 1990. [It is clarified that the rate of surcharge on income-tax charged on or before 15th October, 1990, under sub-section (4) of section 172 shall be 8 per cent.] Payment of surcharge in case of persons trying to alienate their assets.-- In a case where income-tax has to be charged under section 175 of the Income-tax Act (relating to assessment of persons likely to transfer property to avoid tax) at the rates in force for the financial year 1990-91, surcharge at the rate of 15 per cent. shall be payable where such income-tax is so charged after the 15th day of October, 1990. [It is clarified that the rate of surcharge on income-tax charged on or before 15th October, 1990, under section 175 shall be 8 per cent.] Payment of surcharge in case of discontinued business.-- In a case where income-tax has to be charged under sub-section (2) of section 176 of the Income-tax Act (relating to recovery of tax in cases where a business or profession is discontinued) at the rates in force for the financial year 1990-91, surcharge at the rate of 15 per cent. shall be payable where such income-tax is charged after the 15th day of October, 1990. [It is clarified that the rate of surcharge on income-tax charged on or before 15th October, 1990, under sub-section (2) of section 176 shall be 8 per cent.] 4. Surcharge on income-tax in the case of non-corporate resident assessees. Rate of surcharge on income-tax.-- A non-corporate resident assessee having a taxable income exceeding Rs.75,000 was required to pay a surcharge on income-tax at the rate of 8 per cent. under the old provisions. The Amending Act, 1991, has increased the rate of surcharge from 8 per cent. to 12 per cent. [It is clarified that no surcharge on income-tax is payable by a non-resident assessee.] Payment of surcharge in respect of instalments of "advance tax".-- As the increase in the rate of surcharge was announced after the dates for payment of the first two instalments of "advance tax" had passed, the Amending Act, 1991, provides that the additional liability in respect of the instalments of "advance tax" payable on or before 15th September, 1990, and 15th December, 1990, arising as a result of increase in the rate of surcharge, shall be payable on or before 15th March, 1991. The instalment of "advance tax" due on 15th March, 1991, will be inclusive of the surcharge at the enhanced rate. Payment of surcharge in search and seizure cases.-- In a case where income-tax has to be calculated under the first proviso to sub-section (5) of section 132 of the Income-tax Act (relating to calculation of tax liability in respect of undisclosed income estimated in a summary manner) at the rates in force for the financial year 1990-91, surcharge at the rate of 12 per cent. shall be payable where such income- tax is so calculated after the 15th day of January, 1991. [It is clarified that the rate of surcharge on income-tax calculated on or before 15th January, 1991, under the first proviso to sub-section (5) of section 132 shall be 8 per cent.] Payment of surcharge in case of shipping business of non- residents.-- In a case where income-tax has to be charged under sub-section (4) of section 172 of the Income-tax Act (relating to collection of tax in respect of profits of non- residents from occasional shipping business) at the rates in force for the financial year 1990-91, surcharge at the rate of 12 per cent. shall be payable where such income-tax is so charged after the 15th day of January, 1991. [It is clarified that the rate of surcharge on income-tax charged on or before 15th January, 1991, under sub-section (4) of section 172 shall be 8 per cent.] Payment of surcharge in case of persons leaving India .--In a case where income-tax has to be charged under sub-section (2) of section 174 of the Income-tax Act (relating to collection of tax from individual who may leave India) at the rates in force for the financial year 1990-91, surcharge at the rate of 12 per cent. shall be payable where such income-tax is so changed after the 15th day of January, 1991. [It is clarified that the rate of surcharge on income-tax charged on or before 15th January, 1991, under sub-section (2) of section 174 shall be 8 per cent.] Payment of surcharge in case of persons trying to alienate their assets.-- In a case where income-tax has to be charged under section 175 of the Income-tax Act (relating to assessment of persons likely to transfer property to avoid tax) at the rates in force for the financial year 1990-91, surcharge at the rate of 12 per cent. shall be payable where such income-tax is so charged after the 15th day of January, 1991. [It is clarified that the rate of surcharge on income-tax charged on or before 15th January, 1991, under section 175 shall be 8 per cent.] Payment of surcharge in case of discontinued business.-- In a case where income-tax has to be charged under sub-section (2) of section 176 of the Income-tax Act (relating to recovery of tax in cases where a business or profession is discontinued) at the rates in force for the financial year 1990-91, surcharge at the rate of 12 per cent. shall be payable where such income-tax is so charged after the 15th day of January, 1991. [It is clarified that the rate of surcharge on income-tax charged on or before 15th January, 1991, under sub-section (2) of section 176 shall be 8 per cent.] 5. Surcharge on income-tax deducted at source in certain cases. Surcharge on income-tax deducted at source in the case of a domestic company .--Where tax is to be deducted at source under the provisions of sections 193, 194, 194A, 194B, 194BB, 194C, 194D and 195 of the Income-tax Act, the amount of tax was required under the old provisions, to be increased by a surcharge of 8 per cent. The Amending Act, 1991, provides that while making deduction of tax under any of the provisions mentioned above the amount of income-tax shall be increased by surcharge of 15 per cent. where such deduction is made on or after the 15th October, 1990. Surcharge on income-tax deducted at source in the case of non-corporate resident assessee .--Where tax is to be deducted at source under the provisions of sections 192, 193, 194, 194A, 194B, 194BB, 194C, 194D and 195 of the Income-tax Act, the amount of tax was required under the old provisions, to be increased by a surcharge of 8 per cent. The Amending Act, 1991, provides that while making deduction of tax under any of the provisions mentioned above the amount of income-tax shall be increased by surcharge of 12 per cent. where such deduction is made on or after 15th January, 1991. Adjustment of surcharge in cases of deduction at source.-- The Amending Act, 1991, provides that the person responsible for making the payment referred to in sub-section (1) or sub-section (2) or sub-section (2A) or sub-section (2B) of section 192 of the Income-tax Act relating to deduction at source from salary income shall, at the time of making such payment after 15th January, 1991, adjust any deficiency arising out of any previous deduction resulting on account of the increase in the rate of surcharge. 6. Surcharge on income-tax collected at source in certain cases Surcharge on income-tax collected at source in the case of a domestic company.-- Where income-tax has to be collected at source in the case of a domestic company under the provisions of section 206C of the Income-tax Act, the amount of income-tax collected was to be increased by a surcharge at the rate of 8 per cent. under the old provisions. The Amending Act, 1991, provides that income-tax collected at source under the aforesaid provision, on or after 15th October, 1990 shall be increased by a surcharge of 15 per cent. Surcharge on income-tax collected at source in the case of a non-corporate resident assessee.-- Where income-tax has to be collected at source in the case of non-corporate resident the amount of income-tax collected was to be increased by a surcharge at the rate of 8 per cent. under the old provisions. The Amending Act, 1991, provides that income-tax collected under the aforesaid provision on or after 15th January, 1991, shall be increased by a surcharge of 12 per cent. 7. Restricting in the case of all companies the depreciation on written down value of a block of assets. Restricting in the case of all companies the depreciation on written down value of a block of assets to 75 per cent. of the amount calculated at the percentage prescribed under the Income-tax Act.--The Amending Act, 1991, provides that in the case of all companies the deduction in relation to any block of assets in respect of the previous year relevant to the assessment year commencing on 1st April, 1991, shall be restricted to seventy-five per cent. of the amount calculated at the percentage, on the written down value of such block of assets, prescribed under the Income-tax Act immediately before the commencement of the Amending Act, 1991. [It is clarified that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction without any restriction, in respect of the previous year in which the machinery or plant is first put to use by the company for the purpose of its business or profession. It is further clarified that the written down value of the block of assets as on 1st April, 1991, for the purpose of computing the depreciation allowance in respect of the previous year relevant to the assessment year commencing on 1st April, 1992, shall be higher to the same extent as the reduction in the depreciation allowance made for computing the taxable income of the previous year relevant to the assessment year commencing on 1st April, 1991.] 8. Interest for deferment of advance tax under section 234C of the Income-tax Act, 1961. Interest for deferment of advance tax in the case of a domestic company.-- The Amending Act, 1991, provides that in the case of a domestic company, the provisions of sub- section (1) of section 234C of the Income-tax Act shall not apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of-- (i) restricting the amount of deduction on account of depreciation to 75 per cent. of the amount calculated at the percentage prescribed under the Income-tax Act; or (ii) increase in the rate of surcharge from 8 per cent. to 15 per cent., Provided that the domestic company has paid the amount of shortfall in the case covered by (i) above, as part of the instalment of "advance tax" payable on 15th March on or before 15th March, 1991, and in the case covered by (ii) above, on or before 15th November, 1990. Interest for deferment of advance tax in the case of a company other than a domestic company.-- The Amending Act, 1991, provides that in the case of a company other than a domestic company, the provisions of sub-section (1) of section 234C of the Income-tax Act shall not apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of restricting the amount of deduction on account of depreciation to 75 per cent. of the amount calculated at the percentage prescribed under the Income-tax Act, provided that the company has paid the amount of shortfall as part of the instalment of "advance tax" payable on 15th March on or before 15th March, 1991. Interest for deferment of advance tax in the case of a non- corporate resident assessee.-- The Amending Act, 1991, provides that in the case of a non-corporate resident assessee, the provisions of sub-section (1) of section 234C of the Income-tax Act, shall not apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge from 8 per cent. to 12 per cent. provided that the assessee has paid the amount of shortfall as part of the instalment of advance tax payable on 15th March on or before 15th March, 1991. (Sd.) Anil Vivian Singh, Under Secretary to the Government of India.