Recommendations of the Seventh Finance Commission. - Income Tax - 1264/CBDT

INSTRUCTION NO. 1264/CBDT Dated : June 12, 1979 You might be aware that the report of the Seventh Finance Commission was submitted to the Government recently and its recommendations regarding the principles which would govern the distribution amongst the States of the net proceeds of estate duty in respect of property other than agricultural lands for the financial years 1979-80 to 1983-84 have been accepted by the Government of India. [The distribution of net proceeds of estate duty in respect of agricultural lands is outside the purview of the Finance Commission and is done on the basis of actual collections made in a State from this property as certified by the Comptroller Auditor General of India]. 2. The Finance Commission has recommended "that the net proceeds of estate duty in respect of property other than agricultural land brought to assessment in each of the years from 1979-80 to 1983-84, should be distributed among the States in proportion to the gross value of the immovable property as also property other than immovable property taken together located in each State, excepting in regard to property located abroad. We have noticed, in the Statistics furnished by the Central Board of Direct Taxes, that there is a small element of duty collected in respect of property held abroad. We recommend that this element of the net proceeds of the duty in any year should be included in the share of the States where the relevant assessment was done. Sikkim will also be entitled to a share in the net proceeds of this duty, determined in accordance with these recommendations, if and when duty becomes leviable in that State in the Period covered by our report". 3. With a view to implementing the recommendations of the Seventh Finance Commission, it has been found necessary to make suitable changes in the existing system of data collection for a proper State-wise allocation of the net proceeds of estate duty as envisaged in the said recommendation. This would involve certain modifications/changes in the Return Forms/Assessment Forms etc. as also maintenance of certain statistical source record by the Assistant Controllers of Estate Duty. 4. It has been decided to have the Returns Forms viz,. ED-1 ED-1A and ED-5 amended so as to provide for columns which would give the State-wise location of immovable properties other than agricultural lands and movable properties in India. (Regarding agricultural land, the Form already provides for giving State-wise location.) The Estate Duty Assessment/Refund Form viz., ED-8 would also be suitably amended with consequent amendment of Rules, where necessary, so that the status of immovable property other than agricultural lands in India and movable property in India is properly reflected therein. Since the amendment of these forms may take some time, the Assistant Controllers of Estate Duty in the meantime shall have to collect the relevant information during the course of assessment proceedings. 5. You are requested to issue suitable instructions to all the assessing officers in your Charge so as to fully provide for the following: (i) The Assistant Controllers should maintain a State-wise register regarding the details of movable and immovable properties brought into assessment each year. A format (Annexure A) of the entries to be made in the register is enclosed herewith. Instructions should also be issued to the assessing officers to the effect that the assessment order should contain complete details regarding the gross value of immovable and movable properties and their location in different States and that entries in the above register should be made by them in their own hand as soon as the assessment order is signed. The Assistant Controllers may also be advised to keep a separate folio in this Register in respect of each State. For this purpose all the Union Territories taken together should be treated as a separate State. ( In this connection it may be noted that the earlier Finance Commissions had treated Union Territories on a different footing inasmuch as from the net proceeds of estate duty from property other than agricultural lands, 2% approximately was set apart for distribution amongst the Union Territories. The Seventh Finance Commission has, however, recommended that the portion of the net proceeds attributable to the Union Territories "should be determined in the same manner and on the same principles as for the determination of the shares of each State, taking the Union Territories as one unit for the purpose"] Further the relevant details in respect of the assessments completed before the receipt of the Instruction should be gathered from the Accountable persons now and entered in the Register. (ii) A quarterly statement (as per proforma enclosed-Annexure-B) based on the details as per the Register mentioned in (i) above should be prepared by the Assistant Controllers of Estate Duty and submitted to you by the 15th of the month following the end of the quarter. Such statements, after consolidation in your office, should reach DI(RS P) by 30th/31st of the month following the end of the quarter with your comments/remarks, wherever necessary. The Statement for the quarter ending 30.6.1979, however, which would normally be due in the office of DI(RS P) by 31st July may reach by 15.8.1979. [It may be clarified that though strictly according to the recommendations of the Finance Commission, the gross value of agricultural lands is not required to be determined, it has been decided that columns reflecting the same in the formats of the Register and Statements mentioned in (i) and (ii) above, should be maintained for statistical purpose in view of the fact that this information has very often to be supplied to Parliament and other high-powered bodies] (iii) Regarding the interpretation of the term "gross value of properties" required to be entered in the Register mentioned in (i) above, the following clarifications may be noted:- (a) The value of properties to be taken should be on the basis of regular assessment and not provisional assessments. (b) The value of property reduced or enhanced in appeal/rectification etc. is to be disregarded. (c) If the total estate passing on death is below the dutiable limit, the value of such properties is not to be taken into account. (d) Where a property passing on death is totally exempt, this should be ignored altogether. But where the property is partially exempt, the net value of the property after applying the necessary exemption should be taken into account. All debits/encumbrances have however to be ignored altogether. (e) The value of property aggregated under section 34 of the Estate Duty Act for the rate purposes is not to be taken into account. (f)It should be reiterated that separate challans should be issued in respect of Estate Duty on agricultural lands and Estate Duty on property other than agricultural lands (as per foot-note to Form ED-7 i.e. Notice of Demand). (g) For determining the State-wise status of movable property in India, the criteria and principles underlying Rule 8 (which governs status of movable property in India and abroad) should be followed. In this connection, the recommendation of the Finance Commission in para 7 of its Report on Estate Duty (Chapter 5) may be quoted:- "We have examined also the question whether it would be possible to determine the location of properties other than immovable property subjected to estate duty. We find that the rules framed under the Estate Duty Act lay down the manner in which properties other than immovable property which are held abroad, should be treated for the purpose determining location. These are principles which are well established and can equally be applied for the determination of the location of such properties in India". 6. Since the Government has already accepted the recommendations of the Seventh Finance Commission, the Board have no option but to re-condition the existing machinery to the extent necessary, so as to be to fulfill the same pertaining to estate duty. You are, therefore, requested to ensure that there is no let-up in this regard. The difficulties experienced in practice, however, in collecting/maintaining the necessary statistics may be brought to the notice of the Board.