Income-tax both on the incomes of company assessees and non-company assessees. - Income Tax - 1120/CBDT

INSTRUCTION NO. 1120/CBDT Dated : December 3, 1977 As you are aware, income-tax is levied under the Income-tax Act, 1961 both on the incomes of company assessees and non-company assessees. The tax on the income of the companies is known as Corporation-tax (Entry 85 in the seventh Schedule of the Constitution of India). The collections of this tax are accounted for under the account head "020-CORPORATION-TAX". The income-tax on incomes of non-company assessees is referred to in the Constitution as "Taxes on income other than agricultural income" (Entry 82 in the Seventh Schedule to the Constitution read with Article 270). It is commonly referred to as 'Income-tax' to distinguish it from 'Corporation-tax' and is accounted for under the account head "021-Taxes on Income other than Corporation-tax". The collections of corporation-tax including Surcharge on the tax leviable on the incomes of the companies are meant entirely for the Central Government. Tax on the incomes of non-company assessees (excluding Surcharge thereon, the tax payable in respect of Union emoluments and amount credited under the minor head "Other Receipts" i.e. Penalties, interest, fines, fees etc.) is assigned to the State, after deducting a percentage of the collections attributable to Union territories. At present, 80% of the net proceeds of such Income-tax, called "Divisible Pool" is assigned to the States in accordance with an Order of the President under Article 270(2) of the Constitution passed after considering the report of the Sixth Finance Commission. Interest-tax is levied under the Interest-tax Act, 1974 and like the Corporation-tax, its collections are meant entirely for the Central Government. It is accounted for under the account head "Interest-tax - Central Government 028- Other Taxes on Income and Expenditure". 2. It has been noticed by the Board that the receipt accounts of Direct Taxes are not being properly maintained and the collections are not being properly classified among the various heads of accounts. The main reason for the misclassification of collections among the various Direct Taxes and more particularly among Corporation-tax, Income tax and Interest-tax appears to be the use of wrong challans by the assessees. As the challan, like the voucher in a commercial/industrial organisation, is a basic document for compiling the accounts of the receipts of Direct Taxes, it is of utmost importance that the appropriate form of challan is supplied to the assessee. Further , in respect of the challans for the payment of tax on regular assessment, apart from using the appropriate form of challan, the minor/sub-headwise classification printed on the back side of the challan must be properly filled in by the Income-tax clerk. The various challan forms currently in use for the payment of various Direct Taxes are mentioned in the Annexure. 3. Immediate action is required to ensure that assessees have been supplied the appropriate form of challans for the payment of advance-tax instalments due in December, 1977 and March, 1978. More particularly, the assessees liable for payment of Corporation-tax (i.e company assessees) and those liable for the payment of Interest-tax (i.e. scheduled banks) should be supplied with the appropriate form of challans, if not done so already. In case the challans for the payment of Corporation -tax are not readily available, they should be got locally printed for the current financial year's requirements on any coloured paper other than white paper. If other types of challans are not readily available, while supplying the chalan, the correct account head must be written (or preferably stamped) on each counterfoil of the challan. Simultaneously, the matter should be taken up with the Forms Stores and the DI (P PR) New Delhi if the supply of the challan form has been less than indented. 4. It has also been notice that there is misclassification, inter se, between Income-tax and Surcharge (Union). As stated in para 1 above, while Income-tax collections are shared between the Central Government and the States, the collections of Surcharge (Union) are meant entirely for the Central Government. It is, therefore, necessary that the assessees are made aware of in importance of filling up the Surcharge (Union) correctly with regard to the payments of advance-tax, self-assessment tax and tax deducted at source. As regards the payment of tax on the basis of regular assessment, the ITOs should ensure that the Surcharge (Union) is correctly computed and separately indicated in the challan sent to the assessee for payment (detailed instructions to correct the misclassification between Income-tax and Surcharge (Union) have been issued vide Board's letter File No.385/26/74-IT(B) * dated 9th January, 1975 and 28th April, 1975 which may continue to be followed. 5. Chambers of Commerce have also been advised by Board's Circular No.232 dated 26.11.77 (copy endorsed to all the Commissioners of Income-tax) that the taxpayers may be requested to use the right form of challans for the payment of Direct Taxes as well as to compute and indicate in the challans the correct amount of Surcharge of Income-tax. This aspect is also being emphasised in several other Tax-Payer education programmes of the Board being devised by DI(P PR), New Delhi. 6. As this is a very important matter, Board desires that the Commissioners of Income-tax may organise discussions with the IACs who may, in turn, organise discussion with their respective ITOs and through the ITOs with their respective clerks so that the need for maintaining complete and correct accounts is fully understood in the Department and the above instructions are followed strictly.