Circular No.126-Income Tax dated 26/11/1973

1. Amendments at a glance

15

FINANCE ACT, 1973

SECTION/SCHEDULE	PARTICULARS
	Finance Act
2 and 1st Sch.	Rate structure 3-26
23	Exemption from tax of income of Credit Guarantee Corporation of India Ltd. 55
	Income-tax Act
2(42A)	Definition of “short-term capital assets” 27-28
28(ii)(d), 80S,	Taxation of management compensation as profits and
112A(b)	gains of business 29-30
35B(1), Expln. 2	Export markets development allowance 44-46
54B, 54D,	Relief from tax on capital gain arising on the transfer
155(10)	by way of compulsory acquisition of lands and buildings in certain cases/Amendment of assessment order for excluding capital gain arising from transfer by way of compulsory acquisition in certain circumstances 37-40
80C(1)	Further incentive for effective long-term savings through specified media 34
80G(5) and	Tax concession in respect of donations made to sports
Expln. (4)	associations and institutions 35-36
80(J)(6)(c)	Withdrawal of existing condition regarding number and types of rooms, for purposes of “tax-holiday” concession in the case of approved hotels 42-43
104(1)/(2),	Levy of additional tax on undistributed income in the
105 Expln.	case of closely-held companies 47-48
155(9)	Amendment of assessment order for excluding capital gain arising from transfer of agricultural land in certain circumstances 40-41
194C(1)(e), 3(iii)	Deduction of income-tax from payments by co-operative societies to contractors and sub-contractors resident in India 33
194D	Deduction of income-tax from payments in respect of insurance commission 32
	Wealth-tax Act
Sch. I	Separate rate schedule for ordinary wealth-tax in the case of certain HUFs 49-50
	Gift-tax Act
5(1)(v)	Relief in respect of donations to approved sports associations and institutions 51-52
	SURTAX ACT
Rules 1(iv), 3	Exclusion of debentures, other than long-term debentures,
of the 2nd Sch.	from the capital base 53-54

2. Rate structure

(a) in the case of resident non-corporate taxpayers	10%;
(b) in the case of non-corporate nonresident taxpayers	34.5% (I.T. 30% + surcharge 4.5%) or the appropriate rate applicable in the case of individual having a total income equal to the amount of insurance commission, whichever is higher;
(c) in the case of domestic companies	23% (I.T.22% + 1% surcharge);
(d) in the case of foreign companies	73.5% (I.T.70% + surcharge 3.5%).

	Rs.
Total income	4,000
Net agricultural income	1,00,000
No income-tax is payable as the total income does not exceed Rs. 5,000.
EXAMPLE II
Total income	7,000
Net agricultural income	3,000
Income-tax on aggregate of Rs. 10,000	500
Surcharge at 10%	50
Income-tax (including surcharge) on aggregate income [I.T. Rs. 500+SC Rs. 50)	550(A)
Income-tax on net agricultural income as increased by Rs. 5,000 (i.e. Rs. 8,000)	300
Surcharge at 10%	30
Income-tax including surcharge [I.T.Rs. 300+S.C. Rs. 30]	330(B)
Income-tax payable by the individual (A-B)[I.T.Rs. 200+ SC Rs. 20]	220
EXAMPLE III
Total income	10,100
Net agricultural income	5,000
Surcharge-tax on aggregate income of Rs. 15,100	1,373
Surcharge in accordance with marginal provision	175
Income-tax (including surcharge) on aggregate income [I.T.Rs. 1,373+ S.C. Rs. 175]	1,548(A)
Average rate of surcharge : 175×100/1,373 = 12.75%
Income-tax on agricultural income as increased by Rs. 5,000 (i.e. Rs. 10,000)	500
Surcharge on above at 12.75%	64
Income-tax (including surcharge) on net agricultural income as increased by Rs. 5,000 [I.T.Rs. 500+S.C. Rs. 64]	564(B)
Tax payable by the individual (A-B) [I.T. Rs. 873+S.C. Rs. 111]	984
EXAMPLE IV
Total income	10,000
Net agricultural income	8,000
Income-tax on aggregate income of Rs. 18,000	2,040
Surcharge at 15%	306
Income-tax (including surcharge) on aggregate income [I.T. Rs. 2,400+S.C. Rs. 306]	2,346(A)
Tax on net agricultural income as increased by Rs. 5,000 (i.e.Rs. 13,000)	1,010
Surcharge at 15%	152
Income-tax (including surcharge) on net agricultural income as increased by Rs. 5,000 [I.T. Rs. 1,010+S.C. Rs. 152)	1,162(B)
Income-tax payable by the individual (A-B) [I.T. Rs. 1,030+ S.C. 154]	1,184
EXAMPLE V
Total income	10,000
Net agricultural income	15,000
Income-tax on aggregate income of Rs. 25,000	4,000
Surcharge at 15%	600
Income-tax (including surcharge) on aggregate income [I.T. Rs. 4,000 + S.C. Rs. 600]	4,600(A)
Income-tax on net agricultural income as increased by Rs. 5,000 (i.e. Rs. 20,000)	2,500
Surcharge at 15%	375
Income-tax (including surcharge) on net agricultural income as increased by Rs. 5,000 [I.T. Rs. 2,500+S.C. Rs. 375]	2,875(B)
Tax payable by the taxpayer (A-B) [I.T. Rs. 1,500+S.C. Rs. 225]	1,725

3. Amendments to Income-tax Act

MEASURES FOR RAISING ADDITIONAL REVENUE

FINANCE ACT, 1973

Enlargement of the scope of “short-term” capital gains

27. Under the provisions of the Income-tax Act prior to its amendment by the Finance Act, 1973, gains arising from the transfer of a capital asset held by the taxpayer for not more than twenty-four months prior to the date of the transfer were treated as capital gains relating to “short-term capital assets” and were chargeable to tax as ordinary income. Gains arising from the transfer of capital assets held by the taxpayer for more than twenty-four months prior to the date of the transfer were treated as “long-term” capital gains, and charged to tax on a concessional basis. The relevant provision in section 2(42A) has been amended by the Finance Act, 1973 to enlarge the scope of “short-term” capital gains by providing that gains arising from the transfer of any capital asset held by the taxpayer for not more than sixty months prior to the date of the transfer will be treated as capital gains relating to “short-term capital assets”. The provision in that section excluding bank certificates evidencing remittance of money from any foreign country to India during the period specified therein from the scope of the definition of “short-term capital asset” has also been omitted as it had become otiose.

FINANCE ACT, 1973

28. The above changes will take effect from 1-4-1974 and will accordingly apply in relation to assessments for the assessment year 1974-75 and subsequent years.

[Section 3(b) of the Finance Act]

FINANCE ACT, 1973

Taxation of management compensation as profits and gains of business

29. Several laws have been enacted in recent years for taking over the management of industrial undertakings, mines, insurance companies, etc., pending their final take over by the Government. These laws provided for the payment of compensation in respect of the vesting in the Government of the management of the business of industrial undertakings, etc., taken over by the Government. A doubt had been raised regarding the taxability of the management compensation paid by the Government in such cases. With a view to clarifying the position, a specific provision has been made in section 28, retrospectively, from 1-4-1972 to the effect that any compensation or other payment due to, or received by, any person for the vesting in the Government (or in any corporation owned or controlled by the Government) of the management of the business or property of a taxpayer will be chargeable to income-tax as profits and gains of business. Management compensation paid by the Government for taking over the management of insurance companies will be liable to tax as profits and gains of business other than the business of insurance. In other words, the profits and gains of insurance business in the case of such companies will be computed in accordance with the rules contained in the First Schedule to the Income-tax Act, while the taxable amount of management compensation will be determined under the provisions contained in Chapter IVD in the same manner as profits and gains of a business other than insurance business.Consequential amendments have also been made in sections 80S and 112A. The effect of the amendment made in section 80S is that the deduction of 25 per cent allowed in computing the income by way of compensation for termination of managing agency, etc., will not be admissible in relation to management compensation. The amendment to section 112A secures that the management compensation is included in the total income of the taxpayer for the purpose of calculating tax payable in respect of interest on National Savings Certificates (First Issue) of the Bank Series of such certificates.

FINANCE ACT, 1973

30. These amendments have come into force with effect from 1-4-1972 and accordingly apply in relation to the assessment year 1972-73 and subsequent years.

[Sections 4, 11 and 14 of the Finance Act]

 

ENLARGEMENT OF THE SCOPE OF PROVISIONS RELATING
TO DEDUCTION OF TAX AT SOURCE

FINANCE ACT, 1973

31. The Finance Act, 1973 has introduced a new section 194D and has amended section 194C with a view to widening the area of collection of income-tax by deduction at source. The substance of the new provisions is explained below:

FINANCE ACT, 1973

Deduction of income-tax from payments in respect of insurance commission

32. Under the new section 194D, any person responsible for paying to a resident in India any income by way of insurance commission will be required to deduct income-tax at source at such rates, as may be prescribed in the Finance Act of the relevant year. For this purpose, “insurance commission” will mean any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance). Consequential changes have also been made in sections 197, 198, 199, 200, 202, 203, 204, 205, 209 and 215 with a view to placing the tax deducted at source from insurance commission on a par with tax deducted from other categories of income. In this connection, it may be noted that under section 195, income-tax is already deductible at source from various sums, including insurance commission paid to non-resident non-corporate taxpayers, as also foreign companies which have not made the prescribed arrangement for the declaration and payment of dividends within India. The provisions relating to deduction of income-tax from insurance commission have been explained in Board’s Circular No. 112 of 31-5-1973 and Nos. 120 and 121 of 8-10-1973. The main features of the provisions in section 194D are as follows:

1. The deduction will be made at the time of the credit of insurance commission to the account of the payee or at the time of payment thereof in cash or by issue of cheque, or draft or by any other mode, whichever is earlier.

2. No tax will be deducted at source where the amount is credited or paid before 1-6-1973.

3. Income-tax will be deductible from the amounts credited or paid after 31-5-1973 even if the relevant amount accrued on or before that date.

4. In view of the existing provision in section 288B, the amount of tax to be deducted at source will be rounded off to the nearest rupee by ignoring amounts less than 50 paise and increasing the amounts of 50 paise or more to one rupee;

5. The tax deducted by, or on behalf of, the Government should be paid to the credit of the Central Government on the same day by book adjustment. In other cases, the tax deducted at source is required to be paid to the credit of the Central Government within the following time limits :

(a) where the sum is credited by a person carrying on a business or profession to the account of the payee as on the date up to which the accounts of such business or profession are made, within two months of the expiration of the month in which that date falls ;

(b) in any other case, within one week from the last day of the month in which the deduction is made

The Income-tax Officer has, however, been authorised to permit, in special cases and with the approval of the Inspecting Assistant Commissioner, any person to pay the income-tax deducted from insurance commission to the credit of the Central Government quarterly on 15th July, 15th October, 15th January and 15th April.

6. The person responsible for making deduction of income-tax under section 194D is required to issue a certificate showing therein the amount of the insurance commission credited or paid, the amount of tax deducted at source, etc., in Form No. 19D prescribed in the Income-tax Rules.

7. It is open to taxpayers, other than companies, to make an application to the Income-tax Officer concerned and obtain from him a certificate authorising the payer to deduct tax at such lower rate or deduct no tax as may be appropriate in his case. The application for this purpose has to be made in Form No. 13D prescribed in the Income-tax Rules.

8. The person making deduction of tax from insurance commission is required to send the following periodical statements to the Income-tax Officer having jurisdiction to assess him, namely :

(a) a certificate in Form No. 26D on 15th July, 15th October, 15th January and 15th April showing the amount of income-tax deducted and paid to the credit of the Central Government during the immediately preceding quarter;

(b) an annual statement in Form No. 26E on or before 30th June in each year giving names and addresses of the persons in whose accounts insurance commission was credited or to whom insurance commission was paid during the immediately preceding financial year, the amount of insurance commission credited/paid and the amount of tax deducted therefrom ;

(c) an annual statement in Form No. 26F on or before 30th June in each year giving names and addresses of persons in whose account insurance commission was credited or to whom insurance commission was paid during the immediately preceding financial year without deduction of tax and the details of insurance commission credited or paid to them.

[Sections 3(a), 17, 18 and 19 of the Finance Act and the Income-tax (Third Amendment) Rules, 1973]

FINANCE ACT, 1973

Deduction of income-tax from payments by co-operative societies to contractors and sub-contractors resident in India

33. Under section 194C inserted by the Finance Act, 1972, income-tax is deductible at source from income comprised in payments made by the Central Government or any State Government, local authorities, statutory corporations and companies to resident contractors engaged for carrying out any work or for supplying labour for carrying out such work, at the rate of 2 per cent of such payments. Similarly, deduction is made from payments made by contractors, other than individuals and Hindu undivided families, to resident sub-contractors at the rate of 1 per cent of the payment. No deduction is, however, required to be made if the consideration for the contract or the sub-contract does not exceed rupees five thousand. Section 194C has been amended with a view to including co-operative societies in the categories of persons who are required to deduct tax at source from payments made by them to contractors. As explained in paragraph 4(b ) of this circular, the provisions of section 194C as explained in paragraph 11 of the Board’s Circular No. 108, dated 20-3-1973 will apply in relation to deduction of income-tax from payments made by co-operative societies to contractors or by contractors obtaining contracts from co-operative societies to sub-contractors, as they apply in relation to contracts granted by the Government, statutory corporations, companies and local authorities.

[Section16 of the Finance Act]

DEDUCTION IN RESPECT OF CERTAIN PAYMENTS

FINANCE ACT, 1973

Further incentive for effective long-term savings through specified media – Section 80C

34. Under the provisions of section 80C, tax relief is allowed in respect of long-term savings effected by certain categories of taxpayers out of their taxable income. In the case of an individual, long-term savings through life insurance or deferred annuity policies on the life of the individual, his spouse or children, certain provident funds and superannuation funds, Unit-linked Insurance Plan and 10-Year and 15-Year Cumulative Time Deposit Accounts qualify for tax relief. In the case of Hindu undivided families, long-term savings effected through insurance policies on the life of any member of the family qualify for tax relief. In the case of a taxpayer, being an association of persons or body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, long-term savings through life insurance or deferred annuity policies on the life of any member of such association or body or on the life of any child of either member, as also through the Public Provident Fund, Unit-linked Insurance Plan, and 10-year and 15-Year Cumulative Time Deposit Accounts qualify for tax relief. The tax relief, in all cases, was hitherto allowed by deducting the whole of the first Rs. 1,000 of the qualifying savings plus 50 per cent of the next Rs. 4,000 plus 40 per cent of the remainder of such savings in computing the taxable income of the taxpayer. The Finance Act,1973 has made the following amendments in regard to the aforesaid provisions :

1. With a view to providing a further incentive for effecting long-term savings, particularly by taxpayers in the middle income brackets, the quantum of deduction in respect of long-term savings has been varied so as to allow a deduction of the whole of the first Rs. 2,000 of the qualifying savings plus 50 per cent of the next Rs. 3,000 plus 40 per cent of the remainder of such savings. The effect of this change is that in the case of a person who saves Rs. 2,000 or less, the whole of the qualifying savings will now qualify for deduction from his taxable income. In the case of a person who saves Rs. 2,000 or more, the amount of deduction stands increased by Rs. 500 as compared to the position existing hitherto.

2. Sums paid under a contract of deferred annuity hitherto qualified for deduction even in cases where the contract for deferred annuity contained a provision for the exercise by the insured of an option to receive cash payments in lieu of the payment of annuity. It has now been specifically provided that payments made under contracts of deferred annuities will qualify for tax concessions only if the contract does not contain a provision for the exercise by the insured of an option to receive the cash payment in lieu of the payment of the annuity.

These amendments will take effect from 1-4-1974 and will accordingly apply to the assessments for the assessment year 1974-75 and subsequent years.

[Section 8 of the Finance Act]

FINANCE ACT, 1973

Tax concession in respect of donations made to sports associations and institutions – Section 80G

35. Under section 80G, a taxpayer is entitled, subject to certain conditions, to a deduction in the computation of his taxable income of a specified percentage of the donations made by him to certain funds or charitable institutions, or for the repair or renovation of any temple, mosque, gurdwara, church or other place of worship, which is notified by the Central Government in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States. The deduction is equal to 50 per cent of the amount of the qualifying donations in the case of a company and 55 per cent of such amount in the case of other categories of taxpayers. Donations made by taxpayers to sports associations and institutions, however, do not qualify for tax relief under this provision as the mere promotion of any game or sport is not regarded as a “charitable purpose”. With a view to providing an incentive to taxpayers to make more liberal donations to associations and institutions established in India for promotion of specified sports and games and which are approved by the Central Government for the purposes of section 10(23), section 80G has been amended to secure that donations made by the taxpayers to such approved associations or institutions are regarded as donations made to charitable institutions and qualify for tax concession accordingly. In this connection, it may be mentioned that sports associations and institutions approved by the Central Government for the purposes of section 10(23) already enjoy exemption from income-tax in respect of their own income.

FINANCE ACT, 1973

36. This amendment will take effect form 1-4-1974 and will accordingly apply to the assessments for the assessment year 1974-75 and subsequent years.

[Section 9 of the Finance Act]

OTHER AMENDMENTS

FINANCE ACT, 1973

Relief from tax on capital gain arising on the transfer by way of compulsory acquisition of lands and buildings in certain cases

37. A new section 54D has been inserted in order to provide relief from tax in the case of persons owning industrial undertakings in respect of capital gain arising on compulsory acquisition of any land or building used by them for the purposes of the business of the undertaking. The relief will be available in cases where the land or building which is acquired was used by the taxpayer for the purposes of the business of the industrial undertaking during the two years immediately preceding the date of compulsory acquisition and the taxpayer purchases any other land or building or constructs any other building, within three years from the date of compulsory acquisition, for the purposes of shifting or re-establishing the industrial undertaking or setting up another industrial undertaking. In such cases, the capital gain will not be charged to tax to the extent it is utilised for purchasing or, as the case may be, constructing the new asset. In other words, in a case where the amount of the capital gain exceeds the cost of purchase or construction, only the excess amount will be chargeable to tax. Where the new asset is transferred within a period of three years of its purchase or construction, then, for the purposes of determining the amount of capital gain arising from the transfer of the new asset (i ) the cost of the new asset will be taken at nil if the amount of the capital gain arising from the transfer of the old asset exceeded the cost of new asset ; and (ii) the cost of the new asset will be reduced by the amount of the capital gain arising from the transfer of the old asset if such capital gain was equal to or less than the cost of the new asset.

FINANCE ACT, 1973

38. A taxpayer whose land or building is compulsorily acquired may sometimes not be in a position to purchase other land or building or construct other building for the purposes of shifting or re-establishing the industrial undertaking or setting up another industrial undertaking before the completion of the assessment for the assessment year in which the capital gain arising from compulsory acquisition of his land or building is charged to tax. In such cases, capital gain arising on compulsory acquisition will have to be included in the assessment of the taxpayer for the relevant assessment year. However, if after completion of the assessment, the taxpayer purchases another land or building or constructs a new building within the specified period of three years, it is but fair that the benefit of the tax concession should be allowed to him by amending the assessment order made earlier. Accordingly, section 155 has been amended to provide that, in such cases, the Income-tax Officer will amend the assessment order made by him so as to exclude the amount of the capital gain not chargeable to tax in accordance with the provisions of new section 54D. The period of limitation of four years for amending an assessment order laid down in the Income-tax Act will, in such cases, run from the date of assessment order for the year in which the capital gain arising on the transfer by way of compulsory acquisition is charged to tax.

FINANCE ACT, 1973

39. These changes will take effect from 1-4-1974 and will accordingly apply to the assessment year 1974-75 and subsequent years.

[Sections 6, 7 and 15(b) of the Finance Act]

FINANCE ACT, 1973

Amendment of assessment order for excluding capital gain arising from transfer of agricultural land in certain circumstances

40. Under section 54B inserted by the Finance Act, 1970, tax relief is provided, in certain circumstances, in respect of capital gain arising from transfer of land which in the two years immediately preceding the date of transfer was being used by the taxpayer or his parent for agricultural purposes. Under this provision, such capital gain is not charged to tax to the extent it is utilised by the taxpayer within a period of two years after the date of transfer for purchasing any other land for being used for agricultural purposes. In other words, in a case where the amount of the capital gain exceeds the cost of acquisition of the new land, only the excess is chargeable to tax. A taxpayer may sometimes not be in a position to purchase another agricultural land before the completion of the assessment for the assessment year in which the capital gain arising from the transfer of agricultural land is charged to tax. With a view to ensuring that the existing tax concession is not denied in cases where the new land is purchased by the taxpayer after the completion of the assessment for the relevant assessment year, but within the specified period of two years, a specific provision has been made in the Income-tax Act, that, in such cases, the Income-tax Officer will amend the order of assessment so as to exclude the amount of capital gain not chargeable to tax. For the purposes of this provision, the four-year period of limitation for amending the order of assessment laid down in the Income-tax Act will be reckoned from the date of the assessment order for the year in which the capital gain is charged to tax.

FINANCE ACT, 1973

41. This amendment has come into force retrospectively from 1-4-1970, that is, the date from which section 54B was inserted by the Finance Act, 1970.

[Section 15(a) of the Finance Act]

FINANCE ACT, 1973

Withdrawal of existing condition regarding number and types of rooms, etc., for purposes of “tax holiday” concession in the case of approved hotels

42. Under section 80J, Indian companies carrying on the business of a hotel approved by the Central Government are entitled to the 5-year “tax holiday” concession, if they fulfil certain conditions specified in this behalf in the Income-tax Act. One of the conditions laid down in the law is that the hotel should have such number and types of guest rooms and should provide such amenities as may be prescribed in rules made by the Central Board of Direct Taxes, having regard to the population and the tourist importance of the place in which the hotel is located. Rule 18 of the Income-tax Rules, made by the Central Board of Direct Taxes provides that a hotel should have not less than 50 guest rooms with attached bath-rooms equipped with modern sanitary fittings if it is situated in a town with a population of five lakhs or more and not less than 25 such guest rooms if it is situated in a town with a population of less than five lakhs. The existence of a rigid condition regarding the number of rooms, etc., could, sometimes, result in the denial of the tax concession to small hotels which may otherwise be of an adequately high standard to cater to the needs of foreign tourists. The condition that for the purposes of the “tax holiday” concession the hotel should have the prescribed number and types of guest rooms and amenities has, therefore, been omitted.

FINANCE ACT, 1973

43. This amendment will take effect from 1-4-1974 and will accordingly apply in relation to the assessments for the assessment year 1974-75 and subsequent years.

[Section 10 of the Finance Act and rule 2 of the Income-tax (Third Amendment) Rules, 1973]

FINANCE ACT, 1973

Amendment of provision for grant of export markets development allowance so as to bring out the intention underlying the said provision

44. The Finance Act, 1968 introduced a new section 35B under which domestic companies and resident non-corporate taxpayers, incurring expenditure under specified heads for development of export markets for Indian goods on a long-term basis, are entitled to an export markets development allowance in the computation of their taxable profits. This allowance consists of a weighted deduction in an amount equal to 1¹/3rd times the amount of the qualifying expenditure. One of the heads of expenditure specified in the relevant provision as qualifying for the weighted deduction relates to expenditure incurred on “distribution, supply or provision outside India” of the goods, services or facilities dealt in or provided by the taxpayer in the course of his business. Another head of expenditure qualifying for the weighted deduction relates to expenditure incurred on “performance of services outside India” in connection with, or incidental to, the execution of any contract for the supply outside India of such goods, services or facilities.

FINANCE ACT, 1973

45. These provisions are susceptible of the interpretation that in the case of taxpayers engaged in the business of operating ships or aircraft, expenditure incurred on the transportation outside India of passengers, cargo, etc. (e.g., expenditure on the purchase of fuel and lubricants), will qualify for the weighted deduction. Similarly, it is also possible for a travel agent to claim that expenditure incurred by him on the carriage of, or making arrangement for the carriage of, passengers outside India, is also eligible for the weighted deduction. As such an interpretation of the relevant provisions would not be in conformity with the intention underlying these provisions, section 35B has been amended so as to make it clear that expenditure incurred by a taxpayer engaged in the business of operating any ship or other vessel, aircraft or vehicle, or the carriage of, or making arrangements for the carriage of, passengers, livestock, mail or goods, on or in relation to such operations, carriage or arrangements for carriage will not be regarded as expenditure incurred on the supply outside India of goods, services or facilities.

FINANCE ACT, 1973

46. This amendment has come into force retrospectively from 1-4-1968, i.e., the date from which section 35B was introduced in the Income-tax Act.

[Section 5 of the Finance Act]

FINANCE ACT, 1973

Amendment of provisions relating to levy of additional tax on undistributed income in the case of closely-held companies

47. Under section 104, closely-held companies are required (subject to certain exceptions) to distribute dividends up to the statutory percentage of their distributable income within a period of twelve months immediately following the expiry of the accounting year. If a closely-held company fails to comply with this requirement, it is liable to pay additional income-tax at a specified percentage of the distributable income as reduced by the amount of the dividends actually distributed, if any. In the case of CIT v. Abdul Rahim Osman & Co. (India) (P.) Ltd. [1972] 86 ITR 436, the Supreme Court has held that for the purposes of levying additional income-tax (under a similar provision contained in the 1922 Act), dividends declared by a company after the expiry of the said period of twelve months but before an order under this provision is made should also be taken into account. As the interpretation placed by the Supreme Court is not in conformity with the intention underlying the relevant provision, section 104 has been amended to secure that dividends distributed by a closely-held company after the expiry of twelve months from the end of the accounting year will not be taken into account for purposes of levying additional income-tax under this provision. Certain consequential amendments have also been made in section 105.

FINANCE ACT, 1973

48. These amendments will take effect from 1-4-1974 and will accordingly apply in relation to the assessment year 1974-75 and subsequent years.

[Sections 12 and 13 of the Finance Act]

4. Amendments to Wealth-tax Act

5. Amendments to Gift-tax Act

Finance Act, 1973

Relief in respect of donations to approved sports associations and institutions

51. Under section 5(1)(v), gifts made to institutions or funds established for charitable purposes are not charged to gift-tax if the institution or fund satisfies the conditions laid down in section 80G of the Income-tax Act for the purposes of tax relief under that Act in respect of donations made to such institutions or funds. Under an amendment made in the Income-tax Act by section 9 of the Finance Act, 1973, donations made by taxpayers to associations or institutions which are established in India for the promotion of sports and games and which are approved for purposes of section 10(23) of that Act will be regarded as donations made to a charitable institution and qualify for tax relief admissible under section 80G of that Act. A similar amendment has been made in section 5(1)(v) to secure that gifts made to such approved associations or institutions are also exempt from gift-tax.

Finance Act, 1973

52. This amendment will take effect from 1-4-1974 and will accordingly apply in relation to the assessment year 1974-75 and subsequent years.

[Section 21 of the Finance Act]

6. Amendments to Companies (Profits) Surtax Act

7. Miscellaneous provisions