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TMI BlogAmendments at a glance, Rate Structure, Amendment to Income-tax Act, Amendments to Wealth-tax Act, Amendments to Gift-tax Act, Amendments to Companies (Profits) Surtax ActX X X X Extracts X X X X X X X X Extracts X X X X ..... 1), 208(1) (a), 209(a)(ii), 211(1), Expln. 212(1) 10(10) Tax treatment of gratuities 24 10(25) Exemption from income-tax of income of approved gratuity funds 25 54C Withdrawal of exemption in respect of capital gains arising from transfer of personal jewellery 28 80C(2)(v) Deduction in respect of long-term savings in specified media - Area of tax incentives widened 12-14 80G(5), Donations to charitable trusts or institutions 20-22 Expln. 2 80-1, 80B(7) Withdrawal of relief in respect of specified priority and 6th Sch. industries 8 80Q, 80L(1)(ix) Withdrawal of deduction in respect of dividends from co-operative societies 9 90, 228A Provisions for enabling the Central Government to enter into tax treaties with foreign countries for exchange of information for preventing evasion or avoidance of taxes and recovery thereof 23 132A(4)(a), Increase in the rate of interest chargeable from assessees, 201(1A), 213, and also payable to assessees by Government under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46(1)(cc) and Powers to make rules for admission of additional rule 5A evidence 49 Surtax Act 24A Extension of scope of tax treaties between the Central Government and the Government of a foreign country 50 25(1)(cc) and Power to make rules for admission of additional evidence 51 rule 8A Rate Structure Finance Act, 1972 Rates of income-tax for the assessment year 1972-73 3. The rates of income-tax for the assessment year 1972-73 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, 1972. In the case of taxpayers other than companies, the rates are the same as were specified in Part III of the First Schedule to the Finance (No. 2) Act, 1971, for 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 special cases, during the financial year 1971-72. In the case of the Life Insurance Corporation of India and other com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e briefly explained hereinbelow : Payments in respect of lottery and crossword puzzle prizes to residents other than companies - In the case of income by way of winnings from lotteries and crossword puzzles payable to resident recipients other than companies during the financial year 1972-73, tax will be deductible at the rate of 34.5 per cent made up of basic income-tax of 30 per cent and surcharge of 4.5 per cent (being 15 per cent of the income-tax). In view of a specific provision made in the new section 194B inserted by section 28 of the Finance Act, 1972, income-tax will be deductible only where the payment exceeds Rs. 1,000. It is also provided in that section that no deduction will be made from winnings from lotteries and crossword puzzles where the payment is made before 1-6-1972. The provisions of the new section 194B have been explained in paragraph 10 of this circular. Payments to contractors and sub-contractors resident in India - Under the new section 194C, inserted by section 28 of the Finance Act, 1972, income-tax will be deductible at source from income comprised in payments made by the Central Government or any State Government, local authorities, statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on tax-free securities 44 2.2 e. on any other income 70 3.5 It will be seen that the rates for deduction of basic income-tax in the case of foreign companies are the same as laid down in Part II of the First Schedule to the Finance (No. 2) Act, 1971. Finance Act, 1972 Rates for deduction of tax at source from "salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 1972-73 5. The Finance Act, 1972 follows the principle adopted in the Finance Acts of the preceding years that in prescribing the rates of tax and in making new provisions in the taxation laws which have the effect of bringing about a change in the tax liability or which provide tax incentive or disincentive in any sphere should apply to current incomes falling due for assessment in the next following assessment year, and not retrospectively to incomes earned in the past except where there are special circumstances justifying the retrospective operation of any particular provision. In conformity with this principle, changes in the rates of tax which were considered necessary or desirable have been made operative pros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, receipts, which are of a casual and non-recurring nature, are exempt from tax except where the receipts constitute capital gains or arise from a business or the exercise of profession, vocation or occupation or are by way of additions to the remuneration of an employee. In view of this exemption, no tax is currently chargeable in respect of winnings from lotteries, crossword puzzles, races, card games or from gambling or betting. The exemption from tax of such receipts is not in keeping with the principle of taxing equally persons with equal capacity to pay. The exemption also provides scope for tax evasion and conversion of "black" money into "white" by ascribing income, which would normally be taxable, to winnings from lotteries, races, card games, etc. The Finance Act, 1972 has made the following amendments to the Income-tax Act with a view to withdrawing the exemption currently available in respect of casual and non-recurring receipts : 1. The definition of "income" in section 2( 24 ) has been amended to specifically provide that winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources". Accordingly, expenditure, not being in the nature of capital expenditure, incurred wholly and exclusively for the purpose of making or earning such income will be allowed as deduction in computing the income from the aforesaid sources. [Section 10 of the Finance Act] 5. A new section 74A has been inserted in the Income-tax Act. Under this section, losses from lotteries, crossword puzzles, races, card games, etc., will be allowed to be set off only against income from the same source. Losses relating to these sources incurred in one year will also not be allowed to be carried forward to be set off against income of a subsequent year. For this purpose, each of the following sources will be regarded as a separate and distinct source : a. lotteries ; b. crossword puzzles ; c. races, including horse races ; d. card games ; e. other games of any sort ; f. betting or gambling of any form or nature not falling under any of the foregoing items. Thus, while losses from bridge may be set off against winnings from any other card game, these will not be set off against income from any other source. Consequential amendments have been made to sections 75 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80J and the Sixth Schedule has also been omitted from 1-4-1973. [Sections 15, 18, 19 and 43 of the Finance Act] Finance Act, 1972 Withdrawal of deduction in respect of dividends from co-operative societies 9. Under section 80Q, dividends received by an assessee from a co-operative society are completely exempt from income-tax without any ceiling limit. This exemption facilitates tax avoidance by persons who would otherwise earn taxable income by arranging to carry on their activities through the medium of one or more co-operative societies. This special concession in respect of dividends from co-operative societies has, therefore, been withdrawn by omitting section 80Q. Such dividends have, however, been included in the categories of financial assets income wherefrom qualifies for deduction up to Rs. 3,000 in the aggregate in the hands of an individual or a Hindu undivided family by adding a new clause ( ix ) to sub-section (1) of section 80L. The above changes will take effect from 1-4-1973 and will, accordingly, apply to the assessment year 1973-74 and onwards. [Sections 20 and 21 of the Finance Act] Amendments to Wealth-tax Act Finance Act, 1972 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospective effect from 1-4-1957, i.e. , the date of commencement of the Wealth-tax Act. [Section 45( a )( i ) of the Finance Act] Finance Act, 1972 Exemption from wealth-tax of assets forming part of an industrial undertaking 34. The Wealth-tax Act provides for exemption from tax in respect of investments made in specified financial assets up to an aggregate value of Rs. 1,50,000. The specified investments qualifying for this exemption are: 1. Government securities including small savings securities of the Central Government. 2. Fixed deposits with the Central Government as also in Post Offices on Government account and Recurring and Time Deposits in Post Offices. 3. Shares in Indian companies. 4. Notified debentures. 5. Units in the Unit Trust of India. 6. Deposits with banking companies, including co-operative banks, land mortgage banks and land development banks. 7. Deposits with approved financial institutions engaged in providing long-term finance for industrial development in India. 8. Shares in co-operative society. 9. Deposits made by a member of a co-operative society with the society (other than deposits made with a co-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these were first issued even if the holding period is less than six months. This restriction has been placed in order to prevent misuse of the tax exemption by changing investments from non-exempt assets to exempt assets for a short period merely to obtain the benefit of the tax concession. This provision, sometimes, results in hardship even in bona fide cases of conversion of one category of exempt assets to another category of exempt assets. For example, an employee receiving the balance to his credit in a recognised provident fund (which is exempt from wealth-tax) and depositing the amount in a bank may forfeit exemption from tax in respect of the amount merely because he has not been able to hold the bank deposit for a period of six months. In order to obviate hardship in such cases, section 5(3) has been amended to provide that in computing the period of six months in relation to any asset, in a case where such asset was acquired by the assessee by conversion of, or in exchange for, or with the proceeds of, or with the money constituting, any other asset exempt from wealth-tax under sub-section (1) or sub-section (2) of section 5, so much of the period for which the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty of the trust or institution by such persons, the provisions in the Wealth-tax Act, have been brought in line with the provisions in the Income-tax Act. Accordingly, a new section 21A has been introduced to secure that where any part of the income of the trust or institution enures for the direct or indirect benefit of the author of the trust, substantial contributor, etc., or where any income or property of the trust or institution is used or applied, directly or indirectly, for the benefit of any such person, the trust or institution will be liable to pay wealth-tax on the value of its entire property at the rate of 1.5 per cent or the rate applicable in the case of an individual, whichever is beneficial to the Revenue. For the purposes of this provision, it has been specifically provided that any part of the property or income of a trust shall be deemed to have been used or applied for the benefit of any of the specified categories of persons if it can be deemed to have been so used or applied within the meaning of clause ( c ) of sub-section (1) of section 13 of the Income-tax Act at any time during the period of twelve months ending with the relevant valuation date. Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment to enter into agreement with the Government of a foreign country also for enabling exchange of information for the prevention of evasion or avoidance of wealth-tax (including investigation of cases of such evasion or avoidance) and for recovery of such tax in the treaty countries. Finance Act, 1972 40. The new section 228B relating to the recovery of tax in pursuance of agreements with foreign countries inserted in the Income-tax Act under section 39 of the Finance Act, 1972 has also been made applicable to Wealth-tax Act by amending section 32. [Sections 48 and 49 of the Finance Act] Finance Act, 1972 Power to make rules for admission of additional evidence 41. The Finance Act, 1972 has amended the Income-tax Act with a view to regulating the admission of evidence which is not produced by the assessees before the Income-tax Officer but is produced for the first time in the course of proceedings before the Appellate Assistant Commissioner. Corresponding amendments have also been made to the Wealth-tax Act by inserting a new clause ( cc ) in sub-section (2) of section 46 and the Central Board of Direct Taxes has been empowered to prescribe in the Weal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 44. On the lines of the amendments made to the corresponding provisions in the Income-tax Act and the Wealth-tax Act, the scope of section 44 has been enlarged to empower the Central Government to enter into agreement with the Government of a foreign country also for enabling exchange of information for the prevention of evasion or avoidance of gift-tax (including investigation of cases of such evasion or avoidance) and for recovery of such tax in the treaty countries. The new section 228A relating to recovery of tax in pursuance of agreements with foreign countries inserted in the Income-tax Act has also been applied to the Gift-tax Act by amending section 44 of the Gift-tax Act. [Sections 53 and 54 of the Finance Act] Finance Act, 1972 Exemption of gifts made by charitable or religious institutions or funds 45. Section 45( e ) excludes from the purview of that Act any gifts made, inter alia, by an institution or fund, the income whereof is exempt from income-tax under section 11 of the Income-tax Act. Under an amendment made to the Gift-tax Act through the Finance (No. 2) Act, 1971, it has been provided that a charitable institution or fund will not forfeit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to provide that a charitable institution or fund will not forfeit exemption from gift-tax in respect of gifts made by it merely because ( a ) subsequent to the gift any income of the institution or fund by way of voluntary contributions becomes chargeable to income-tax due to non-compliance with the provisions of the substituted section 12 of the Income-tax Act ; or ( b ) the institution or fund is denied exemption from income-tax by reason of the non-fulfilment of the conditions in new section 12A relating to the filing of an application for registration with the Commissioner of Income-tax or the audit of the accounts of the institution or fund by a chartered accountant, etc., or the institution or fund forfeits exemption in respect of its income by way of voluntary contributions on the ground that the funds of the institution or fund have been invested in a prohibited concern provided, however, the investment in such concern does not exceed 5 per cent of its capital. Finance Act, 1972 48. The changes set forth in the preceding paragraphs will be effective from 1-4-1973 and will, accordingly, apply in relation to the assessment year 1973-74 and subsequent years. [Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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