9911796707
TMI BlogThe Finance Act, 1986-Explanatory Notes on the provisions relating to direct taxesX X X X Extracts X X X X X X X X Extracts X X X X ..... ) omitted sections 80K, 80S, 80TT, 276AA and Twelfth Schedule to the Income-tax Act, 1961; (v) amended section 5 of the Wealth-tax Act, 1957; (vi) amended sections 3, 5, 18, 19A and Schedule to the Gift-tax Act, 1958; (vii) omitted section 6A of the Gift-tax Act, 1958; and (viii) amended section 4 of the Companies (Profits) Surtax Act, 1964. PROVISIONS IN BRIEF 3. The provisions in the Finance Act, 1986, in the sphere of direct taxes relate of the following matters:- (i) Prescribing the rates of income-tax on incomes liable to tax for the assessment year 1986-87; the rates at which income-tax will be deductible at source during the financial year 1986-87 from interest (including interest on securities), dividends, salaries, insurance commission, winnings from lotteries and crossword puzzles, horse races and other categories of income liable to such deduction under the Income-tax Act; rates for computation of "advance tax" and charging of income-tax on current incomes in certain cases for the financial year 1986-87. (ii) Abolition of surcharge on companies with immediate effect. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduction of tax at source have been generally made applicable with effect from 1st June, 1986. The substance of the main provisions in the Finance Act relating to direct taxes is explained in the following paragraphs. RATE STRUCTURE OF INCOME-TAX (i) Rates of income-tax in respect of incomes liable to tax for the assessment year 1986-87. 4.1 In respect of incomes of all categories of tax-payers (corporate as well as non-corporate) liable to tax for the assessment year 1986-87, the rates of income-tax (including surcharge thereon) have been specified in Part I of the First Schedule to the Finance Act. These rates are the same as those laid down in Part III of the First Schedule to the Finance Act, 1985, 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 tax payable in certain cases during the financial year 1985-86. 4.2 The Finance Act, 1985, had allowed companies required to pay advance tax during the financial year 1985-86 to make a deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical services payable by the Government or an Indian concern under an approved agreement made after 31st March, 1976, is 40 per cent. The rate for deduction during the financial year 1986-87 in all the aforesaid cases will be 30 per cent. (iii) 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 1986-87. 6. The rates for deduction of tax at source from "Salaries" in the case of individuals during the financial year 1986-87 and also for computation of "advance tax" payable during the year in the case of all categories of taxpayers have been specified in Part III of the First Schedule to the Finance Act. These rates are also applicable for deduction of tax at source during the financial year 1986-87 from retirement annuities payable to partners of registered firms engaged in certain professions (such as, chartered accountants, solicitors, lawyers, etc), and for charging income-tax during the financial year 1986-87 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exceptions, to the extent such receipts do not exceed 1,000 rupees in the aggregate, are not included in computing the total income of an assessee. The Finance Act has raised this exemption limit to Rs. 5,000 which will be applicable to the assessment year 1987-88 and subsequent years. [Section 3(a) of the Finance Act] (ii) Raising the exemption available in respect of house rent allowance. 11. Under section 10(13A), any special allowance granted by an employer to his employee to meet expenditure actually incurred on payment of rent for residential accommodation is exempt to such extent, not exceeding Rs. 400 per month, as may be prescribed by rules, having regard to the area or place in which such accommodation is situated. With a view to removing the disparity to the extent possible in the matter of liability to income-tax as between an employee getting house rent allowance and another provided with rent-free accommodation by the employer, the Finance Act has omitted the above ceiling of Rs. 400 per month. Consequently rule 2A of the Income-tax Rules, 1962, is being amended by a notification which is expected to be issued shortly. Under the proposed amendment, clause (d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.2 The Finance Act has amended section 23, modifying the method of determining the annual value of a self-occupied house property. The annual value, accordingly, will be determined as under:- 13.3 House property consisting of a house or a part of the house in the occupation of the owner for residence from which no other benefit is being derived by him. Annual value ( a ) If the property is not let during any part of the previous year. Nil ( b ) If the property is let in parts during the previous year. The annual value of the entire property will be first determined as if it is let. Out of the above, the annual value of the self-occupied portion will be de ducted for the full year. Further, for the let out portion, the proportionate annual value for the period during which that part was self-occupied is to be excluded. The balance will be the tax able annual value. ( c ) If the property is let during any part of the previous year. The annual value will be determined as if the property had been let. Out of the above, the proportionate value for the period for which it is self-occupied will be excluded and the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le income of an amount equal to 20 per cent. of the profits and gains derived from a small scale industrial undertaking set up in a rural area for ten initial assessment years. Under section 80-I of the Income-tax Act, an assessee owning a small scale industrial undertaking is entitled to a deduction in the computation of his taxable income of an amount equal to 20 per cent. of the profits and gains (25 per cent. in the case of a company) derived from a small scale industrial undertaking which may be engaged in the manufacture or production of any article or thing, including an article or thing of low priority specified in the Eleventh Schedule to the Income-tax Act for eight initial assessment years (10 years in the case of a co-operative society). 15.2 For the purposes of the above mentioned tax concessions, a "small scale industrial undertaking" has been defined as an industrial undertaking in which the aggregate value of the machinery and plant installed, as on the last day of the previous year, does not exceed Rs. 20 lakhs. With a view to promoting the growth of the small scale sector, the limit of investment in a small scale industrial undertaking was increased from Rs. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall be effective, is not necessary. The notification in this regard has been made. 16.3 By inserting a new sub-section (8B) in section 32A, it has been provided that no deduction by way of investment allowance shall be allowed in the case of an assessee who has claimed deduction allowable under the new section 32AB (relating to the new scheme of investment deposit account). However, the benefit of set off of the unabsorbed investment allowance for an earlier year will not be denied. This amendment will apply in relation to the assessment year 1987-88 and subsequent years. [Section 7(a)(i), (b) (c) of the Finance Act] (viii) Substitution of the provisions relating to investment allowance by an investment deposit account scheme. 17.1 The 1985-86 Budget had initiated a process of reform of the corporation tax. It had been announced that the scope for further reform would be examined, along two alternative lines as under:- (i) A further reduction in the rate of tax by 5 per cent. for the next year and withdrawal of surcharge and surtax in the third year along with withdrawal of the investment allowance in the phased manner; or (ii) retention of the investment allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a non-priority item listed in the Eleventh Schedule, like alcoholic spirits, tobacco preparations, cosmetics, etc. The new scheme is applicable to all existing types of assessees as also to the professionals and the leasing companies which have not leased out machinery to those industrial undertakings other than a small scale industrial undertaking, engaged in the manufacture or production of articles or things listed in the Eleventh Schedule to the Income-tax Act. In other words, the deduction is admissible to all the assessees who carry on "eligible business or profession", which as per section 32AB(2) means business or profession other than the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule (in case it is not a small scale industrial undertaking) and the business of leasing or hiring of machinery or plant to an industrial undertaking other than a small scale industrial undertaking engaged in the business of low priority items as specified in the list in the Eleventh Schedule. It may be clarified that the business of construction is an eligible business for the purposes of this provision. (b) In ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head "Profits and gains of business or profession". However, for arriving at the book profit, a uniform system of accounting is yet to be enforced even in the organised sector. Hence, the term "profit of eligible business or profession" has been defined as per section 32AB(3) in order to ensure uniformity in determining the profits qualifying for deduction, as also to reduce uncertainty about the interpretation of this term. In terms of section 32AB(3)(a), it has been provided that the profits of eligible business or profession for the purposes of deduction under these provisions will mean, in a case where separate accounts in respect of such business or profession are maintained, an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provision of section 32(1) of the Income-tax Act from the amount of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956, as increased by an amount equal to the depreciation, if any, debited in the audited profit and loss account. This implies that the profit has to computed, taking into account only the depreciation for the current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d may be given, disclosing the break-up in respect of each class of goods and indicating the quantities thereof. (vii) In the case of all concerns having work-in-progress, the amounts for which such works have been completed at the commencement and at the end of accounting year should be given. (viii) The amount provided for depreciation, renewals or diminution in the value of fixed assets should also be given. If such provision is not made by means of depreciation charge, the method adopted for such provision may be disclosed. If no provision is made for depreciation, this fact may be stated. The quantum of arrears of depreciation computed should be disclosed by way of a note. (ix) The amount of interest on debentures and other fixed loans, the charge for income-tax and other Indian taxation on profits, etc., should be disclosed. (x) The expenditure incurred on consumption of stores and spare parts, power and fuel, rent, repairs, salaries, wages and bonus, contribution to provident fund, etc., may be shown separately for each item. 17.6 The definitions as per Part III of the Sixth Schedule to the Companies Act are as under:- (i) The term provision means any amount writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch purchases. (f) No deduction shall be allowed in respect of any amount utilised for the purchase of (i) any machinery or plant to be installed in any office premises or residential accommodation including any accommodation in the nature of a guest house; (ii) any office appliances (not being computer); (iii) any road transport vehicle; and (iv) any machinery or plant the whole of the actual cost of which is allowed as a deduction whether by way of depreciation or otherwise in computing the income from business or profession of any one previous year. Computer for this purpose, is not a plant or a machinery. Hence in respect of any amount utilised for the purchase of a computer installed even in office premises, deduction will be admissible. (g) The term "computer" does not include calculation machines and calculating devices. (h) For getting the benefit under this provision, the deposit in the Development Bank or the purchase of any new ship, plant, etc., should be out of income from the eligible business or profession. There is an underlying reason for this pre-condition. As mentioned in the Long Term Fiscal Policy (Para. 5.14) since the benefit of investment allowance is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. It was found that certain tax-payers supported by some court decisions had resorted to a major change in accounting practice by capitalising the interest paid or payable in connection with acquisition of an asset relatable to the period after such asset is first put to use. This capitalisation implies inclusion of interest in the actual cost of the asset for the purposes of claiming depreciation, investment allowance, etc., under the Income-tax Act. 18.2 It is an accepted accounting principle that where an asset is acquired out of borrowed funds, the interest paid or payable on such funds constitutes the cost of borrowing and not the cost of the asset acquired with those funds. It is for this reason that as per the clear guidelines issued by the Institute of Chartered Accountants of India, the interest on moneys which are specifically borrowed for the purchase of a fixed asset may be capitalised only relating to the period prior to the asset coming into production, i.e., relating to the erection stage of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation of such gains in so far as they are attributable to inflation. 20.2 The amendments will be applicable for the assessment year 1987-88 and subsequent years. [Sections 10 13 of the Finance Act] 21.1 Modification in the provisions relating to exemption of capital gains arising on the transfer of a residential house. Section 54 of the Income-tax Act provides that the long-term capital gains arising from the transfer of a residential house are exempt from income-tax if the assessee, within a period of one year before or after the date of transfer purchases or within a period of three years after the date of such transfer constructs a residential house. The exemption of capital gains is restricted to the amount of such gains utilised for the purchase or construction of the new residential house. Where the amount of capital gains is greater than the cost of the house so purchased or constructed, the balance amount of the capital gains is charged to tax. If, however, the amount of capital gains is equal to or less than the cost of the residential house so purchased or constructed, the amount of capital gains is totally exempted from income-tax. The process of selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India; (c) notified National Rural Development Bonds; and (d) notified debentures issued by the Housing and Urban Development Corporation Ltd. With a view to promoting investments in desired channels and to enlarge the option available to the assessees in this regard, notified bonds issued by public sector companies have been included as specified assets for this purpose. As per Explanation inserted "public sector company", for this purpose, means any corporation established by or under any Central, State or Provincial Act or a government company as defined in section 617 of the Companies Act, i.e., a company in which not less than fifty-one per cent. of the paid-up share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company. The holding of fifty-one per cent. or more of shares (equity or even preference shares carrying no voting rights) by the Central and/or any State Government-and not municipal and other local authorities or public corporations-makes a company, a Government company. 22.2 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital assets in the case of assessees other than companies is not allowed to be carried forward unless it exceeds Rs. 5,000. Since the limit of initial deduction in respect of long-term capital gains has been raised from Rs. 5,000 to Rs. 10,000 as a consequential amendment, the limit under the proviso to section 74(1)(a) of the Income-tax Act has also been raised to Rs. 10,000. 24.2 The amendment will apply in relation to the assessment year 1987-88 and subsequent years. [Section 15 of the Finance Act] (xi) Withdrawal of certain tax concessions. 25.1 Deduction in respect of dividends attributable to profits and gains from new industrial undertakings or ships or hotel business. Under the existing provisions of section 80K of the Income-tax Act, any dividends paid by a company out of profits in respect of which the company is entitled to a deduction under section 80J are exempt from income-tax in the hands of the shareholders. However, the dividends distributed out of profits derived from industrial undertakings, hotels and ships which, respectively, went into production or started functioning or were put to use after 31st March, 1976, are not entitled to the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winnings from lotteries will be taxed at a flat rate of 40 per cent. In line with the aforesaid amendment, the deduction under section 80TT has been discontinued. However, winnings up to Rs. 5,000 will be exempt as they can come under the general exemption under section 10(3) subject to there not being any other casual and non-recurring income. Consequential amendment has been made in section 80A(3). 27.2 The amendments will apply in relation to the assessment year 1987-88 and subsequent years. [Sections 24 and 39(a)(iii) of the Finance Act] (xii) Modification in the provisions relating to deduction of tax at source. 28. Winnings from lotteries or crossword puzzle. Under the existing provisions of section 194B of the Income-tax Act, any person responsible for paying to any other person any income by way of winnings from lotteries or crossword puzzles in excess of Rs. 1,000 is required to deduct income-tax on such payments at the rates in force. By an amendment, the aforesaid limit has been raised from Rs. 1,000 to Rs. 5,000. This amendment takes effect from 1-6-1986. [Section 30 of the Finance Act] 29. Winnings from horse races. As per the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign currency account in the name of non-residents and predominantly owned overseas bodies corporate. 30.2 This provision of making the authorised dealer responsible for deducting and paying tax to Government will also achieve the purpose of integrating the exchange control procedure with tax concessions. Accordingly, the Reserve Bank will issue necessary guidelines to the authorised dealers to enable them to permit remittance of such long-term capital gains subject to the deduction of tax at a rate of 20 per cent. thereon without production of a no objection certificate from the income-tax authorities. It will be the responsibility of the Reserve Bank to obtain a declaration from the seller of a specified asset [in the application under section 19(5) of the FERA or in the suitable form] that the asset sold by him is a capital asset and no stock-in-trade. Also that the capital asset was held by him for more than 36 months. In order to facilitate verification of this kind of statement, hereafter, when a foreign exchange asset is initially purchased by a non-resident Indian, a declaration may be obtained from him that the same is acquired as capital asset and not as stock-in-trade. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 74A(3) of the Act, however, losses arising from the activity of owning or maintaining race horses for running in horse races are entitled to be carried forward and set off against the income from the source including horse races, in a subsequent year. The benefit of carry forward and set off of such losses is allowed for four assessment years next following the assessment years for which the loss was first computed. In view of the insertion of a new section 115BB in the Act levying a flat rate of tax on winnings from lotteries, crossword puzzles, races including horse races, etc., sub-sections (1) and (2) of section 74A of the Act have been deleted. Sub-section (3) has been amended to provide that in the case of a tax-payer, being the owner of horses maintained by him for running in horse races, the amount of loss incurred in the activity of owning or maintaining such race horses in any assessment year shall not be set off against income, if any, from any other source and shall be allowed to be carried forward to the four assessment years next following the assessment year for which such loss was first computed for being set off against income, if any, from the same acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc., abroad were not taxable prior to 1976, it was decided that such lump sum amount should be taxed at the concessional rate of twenty per cent. of the gross amount of such payments. 34.3 It may be mentioned that when the provisions of section 115A of the Income-tax Act were enacted, it was felt that it might be difficult to segregate the royalty payment relating to the supply of know-how simpliciter from the payment relatable to the technical service. This is because of the fact that a number of our technical collaboration agreements envisage composite situations where the collaborator tenders various types of services of technical nature apart from making available patents and know-how. It had been apprehended at that time that a higher rate of tax on royalty might result in inflating fees for technical services. Hence a uniform rate of tax of forty per cent. for both royalty and technical services fees was prescribed. It may appear to be ironical that with the passage of time, the lower rate of tax at 20 per cent. applicable to lump sum payments for supply of technical know-how abroad has given rise to the problems which had been apprehended relating to royalty vis-a-vis fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business premises for obtaining such information as may be prescribed. Further, at present, under section 133A(1) of the Income-tax Act, an Inspector of Income-tax has to get separate authorisation from an I.T.O. with respect to each place or business premises to be surveyed. This generates tremendous workload and results in delaying the survey operations. In order to overcome this difficulty, an I.T.O. has been empowered under the new section to authorise an Inspector of Income-tax with respect to a specified locality. The power of the income-tax authorities to collect the prescribed information has been restricted to business premises only for the present. The prescribed information will relate, inter alia, to the sources of income of the occupant of a business premises, the nature of business/profession, the details regarding the account books, bank accounts and stock-in-trade, etc. 35.2 The new section 272AA provides for penalty extending up to Rs. 1,000 for failure to comply with the provisions of section 133B. 35.3 These provisions are effective from 13th May, 1986. [Sections 27 and 35 of the Finance Act] (xviii) Measures for raising resources for the public sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initially to the metropolitan cites and also to properties worth more than Rs. 10 lakhs" (para. 5.30). In the Budget speech 1986-87 also, it has been stated that "to begin with, this provision will apply to properties valued at Rs. 10 lakhs located in metropolitan cites" (para. 33). Accordingly, the new section 269UC(1) provides that no transfer of any immovable property of such value exceeding Rs. 5 lakhs as may be prescribed shall be effected except after an agreement for transfer is entered into between the transferor and the transferee at least three months before the intended date of transfer. Such agreement shall be reduced in writing in the form of a statement by each of the parties to such transfer in the prescribed manner and shall be furnished to the appropriate authority' within the prescribed period. To begin with, it is proposed to issue a notification making this provision applicable to metropolitan cites and to transactions of the value of Rs. 10 lakhs and above. 37.4 The cases coming under this Chapter will not involve deprivation of property or any rights therein but will only imply a restriction on the contractual rights of the parties. This restriction is just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have continued to vest, if such order had not been made. This implies that the rights of the tenant are extinguished when the property so vests in the Central Government. It is implied that while deciding whether a particular property is to be purchased by the Central Government, the appropriate authority may consider the adequacy of apparent consideration in the context of the tenancy rights also. However, a provision for such vesting in the Central Government subject to the rights of tenants would have been open to abuse because immediately before the transfer, a transferor might have entered into a collusive agreement with a tenant in order to defeat the purpose of this provision. This is the main reason for vesting of property in the Central Government, as per these provisions, free from all encumbrances. 37.8 As per section 269UK, no person entering into an agreement for the transfer of immovable property in respect of which a statement has been furnished, shall revoke or alter such an agreement for transfer of such property unless the appropriate authority has not made an order for purchase of the said property by the Central Government under section 269UD and the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of less than 6 months. [Sections 34 36 of the Finance Act] (xx) Discontinuance of the provisions relating to acquisition of immovable property. 38.1 The existing provisions of Chapter XXA envisage acquisition by the Central Government of immovable properties, etc., on payment of the consideration shown in the instrument of transfer and 15 per cent. of the said amount. Before these provisions can be invoked, it has to be proved that the consideration for transfer of an immovable property as agreed to between the parties has not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax in respect of any income arising from the transfer or concealing of any income or any moneys or other assets not disclosed by the transferee for the purposes of income-tax or wealth-tax. 38.2 As mentioned in the LTFP (para. 5.29) these provisions have not proved to be effective and have generated a great deal of litigation, etc. Further, it is essential to find ways in which taxpayers could be induced to disclose the true value of their properties. In order to achieve this purpose, the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessment year next following the date on which such person returns to India. With a view to providing further incentive, in the case of such persons, the moneys and the value of assets brought by him into India and the value of assets acquired by him out of such moneys within one year immediately preceding the date of his return and any time thereafter, will henceforth qualify for exemption and will not be included in the net wealth of such a person as per an amendment of the above provision of the Wealth-tax Act. The exemption will, however, be limited to the period of seven successive assessment years commencing with the assessment year next following the date on which such persons returned to India as at present. 40.2 This amendment will apply in relation to the assessment year 1987-88 and subsequent years. 40.3 Certain representations had been received by the CBDT mentioning that it was not clear as to whether the exemption was available under the above provisions in respect of moneys or assets which were not brought into the country at the time when the person returned to India but were brought before or after the person's return. It has been clarified by the CB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss to the taxpayers in the form of payment of gift tax has to exceed the gain arising to him in the matter of income-tax/wealth-tax through diversion of income/asset. Whereas gift-tax is a one time tax, the benefit arising in income-tax/wealth-tax is of a recurring nature. If not wholly, at least a part of the present worth of future income-tax/wealth-tax has to be built into the gift-tax rates. Keeping in view the above factors, by an amendment of section 3 of the Gift-tax Act, it has been provided that in respect of all taxable gifts made by a person, the rates of gift-tax will be as under: (a) For every assessment year commencing on and from 1-4-1958 but before 1-4-1987, the rates specified in the Schedule to the Gift-tax Act. (b) For every assessment year commencing on and after 1-4-1987, at the rate of thirty per cent. 41.2 Consequential amendments have been made in sections 18 and 19 and Schedule to the Gift-tax Act. 41.3 These amendments will apply in relation to the assessment year 1987-88 and subsequent years. [Sections 41, 44, 45 46 of the Finance Act] 42.1 Withdrawal of exemptions in respect of certain gifts. Under the provisions of section 5(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 5 of the Gift-tax Act, any gift of policies of insurance or annuities to a dependent person (other than wife) up to a limit of Rs. 10,000 in one or more years to each donee is exempt. Separate exemptions are provided in respect of gifts for benefit of dependents, as per example, gifts on the occasion of marriage [clause (vii) of sub-section (1) of section 5 of the Act] gifts for education [clause (xii)]. Hence, there is no justification for the additional concession in respect of gifts of policies of insurance, etc. Accordingly, the provision has been deleted. 42.5 As per clause (xiv) of sub-section (1) of section 5 of the Gift-tax Act, gifts to the extent considered to have been made bona fide in the course of carrying on a business, profession or vocation for the purpose of such business, profession or vocation is exempt. The condition relating to the satisfaction of the officer regarding the bona fide nature of gifts in relation to carrying on of business has given rise to litigation and interpretations by the courts which were not in conformity with the legislative intent. For example, even gift of 25 per cent. of the share of a senior partner to a young lawyer pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eover, unlike income-tax, gift-tax is not an annual feature. The question of assessment would, therefore, arise only when a gift is made. It becomes difficult to maintain a regular file of an assessee and to keep it alive even in the years when no gifts are made. Apart from this practical difficulty, the provision loses much of its significance when viewed in the context of the proposed levy of tax at a flat rate of 30 per cent. Hence, the provision has been deleted. Consequently, section 18 of the Gift-tax Act has also been amended. This amendment will be applicable in relation to the assessment year 1987-88 and subsequent years. [Section 43 and 44 of the Finance Act] AMENDMENT TO THE COMPANIES (PROFITS) SURTAX ACT 45. The Companies (Profits) Surtax Act, 1964, was enacted to "impose a special tax on the profits of certain companies" as a substitute for the Super Profits Tax Act, 1963. As per section 4 of the Act, surtax is charged in respect of so much of the "chargeable profits" of the previous year of an assessee as exceed the "statutory deduction" at the rates specified in the Third Schedule to the Act, for every assessment year commencing on or after 1st April, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
