Circular No. 229-Income Tax dated 9/8/1977

1. Amendments at a glance

23

FINANCE (NO. 2) ACT, 1977

SECTION/SCHEDULE	PARTICULARS
	Finance Act
2 and 1st Sch.	Rate structure 3-5
	Income-tax Act
2(42A)	Definition of short-term capital asset 6
9(1)(vii), Prov.	Modification of the source rule for fees for technical
and Expln. 1	services 7
Thereto
10(6)(i)(aa)	Exemption of certain passage moneys paid to foreign employees 8
10(26A)	Exemption from tax of certain incomes of residents of Ladakh 9
11(2)(b)(ii)	Modification of the provisions relating to investment
and Expln.	or deposit of moneys accumulated or set apart for
thereto	application to charitable or religious purposes 10
13(5)(a)(iii)	Modification of the provisions relating to forms and modes of investing or depositing funds of charitable or religious trusts and institutions 11
24(1)(ix),	Modification of the provision for grant of vacancy
Expln.	allowance in computing income from house property 12
32A(2)(b)(ii)/	Modification of the provisions relating to investment
(iii), (2A), (2B),	allowance 13
(8A) and 11th
Sch.
35CC	Rural development allowance 14
36(1)(viii)(b)	Higher deduction in respect of profits transferred to special reserve in the case of certain financial corporations 15
50(2), 55(1)(a)	Substitution of the fair market value of an asset as on
& (b)/(2)(i) & (ii)	1-1-1964 in place of its cost of acquisition for purposes of computing capital gains 16
54E, 155(10A)	Exemption of long-term capital gains in cases where sale proceeds received or accruing as a result of transfer are invested or deposited in specified financial assets 17
72A	Relaxation of the provisions relating to carry forward and set off of accumulated business loss and unabsorbed depreciation in certain cases of amalgamation 18
80G(4), Prov.	Increasing the monetary ceiling limit in respect of donations for charitable purposes 19
80HHA	Tax concessions for small-scale industrial undertakings set up in rural areas 20
80RRA	Tax relief in respect of remuneration received by Indian technicians, etc., for services rendered outside India 21
104(4), 109(iii)	Exemption of closely-held industrial companies from
(1)/(3)	compulsory distribution of dividends 22
115A(1A)	Concessional taxation of royalties in respect of books on scientific, technical and educational subjects in the case of foreign companies 23
194 Prov.,	Payment of dividends without deduction of tax at
206B	source in certain cases 24
208(2)(c)	Exemption limit for payment of advance tax in the case of non-residents (other than companies) 25
273(ia) and	Removal of lacuna in provision relating to imposition
Expln. thereto	of penalty for making false estimate of advance tax under section 212(3A) 26
2(16A), 121A	Creation of a new appellate authority, namely, Com-
and 246(2)/(3) [with	missioner (Appeals) 27
consequential changes]
	Wealth-tax Act
Sch. I	Increase in the rates of wealth-tax 28
2(gg), 9A and	Creation of a new appellate authority, namely, Com-
23(1A)/(1B)/(3)	missioner (Appeals) 29
[with consequ-
ential changes]
	Gift-tax Act
2(via), 8A and	Creation of a new appellate authority, namely, Com-
22(1A)/(2B) [with	missioner (Appeals) 30
consequential changes]
	Surtax Act
11 and 11A [with	Creation of a new appellate authority, namely, Com-
consequential changes]	missioner (Appeals) 31
	Interest-tax Act
15 and 15A [with	Creation of a new appellate authority, namely, Com-
consequential changes]	missioner (Appeals) 32
	Compulsory Deposit Scheme (Income-tax Payers) Act
3(3)	Persons over 70 years of age exempted from requirement of making compulsory deposits 33.1/3
4(1)(ii)(3)	Continuance of the scheme of compulsory deposit by income-tax payers for two years 33.2/3
	Voluntary Disclosure of Income and Wealth Act
14(5)(Expln.)/	Extension of time for payment of tax and for making
(5A)/(5B)/(6),	deposits in notified securities 34
15(5) (Expln.)/
(5A)/(5B)(7)
	Khadi and Village Industries Commission Act
24A	Exemption of the Khadi and Village Industries Commission 35
	Finance Act, 1973
23	Exemption of Credit Guarantee Corporation of India Ltd. 36
	Oil Industry (Development) Act
22A	Exemption of Oil Industry Development Board 37

2. Rate structure

Rates of income-tax for the assessment year 1977-78

3.1 The rates of income-tax for the assessment year 1977-78 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 (No. 2) Act, 1977. These rates are the same as those specified in Part III of the First Schedule to the Finance Act, 1976 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 the tax payable in certain cases where accelerated assessments were required to be made during the financial year 1976-77. These rates had earlier been prescribed for the assessment year 1977-78 under the Finance Act, 1977, which applied the relevant provisions of the Finance Act, 1976 to the financial year 1977-78.

Finance (No. 2) Act, 1977

3.2 As in the past, the Finance (No. 2) Act, 1977 provides that in the case of individuals, Hindu undivided families, unregistered firms or other associations of persons or bodies of individuals and artificial juridical persons, the net agricultural income will be taken into account for determining the rates of income-tax on incomes liable to tax for the assessment year 1977-78 [vide section 2(2) of the Finance Act]. The mode of computation of net agricultural income in such cases has been set out in Part IV of the First Schedule to the Finance (No. 2) Act, 1977. These provisions are the same as those contained in the Finance Act, 1976, except for slight modifications as explained in paragraph 5.6 of this circular.

Finance (No. 2) Act, 1977

3.3 Sub-section (8) of section 2 of the Finance Act, 1976 had provided that a company may make a deposit at any time during the financial year 1976-77 with Industrial Development Bank of India under a scheme to be notified by the Central Government in this behalf and, if it does so, the surcharge on income-tax payable by it for the assessment year1977-78 shall be reduced by the amount of the deposit so made. The Central Government had notified the Companies Deposits (Surcharge on Income-tax) Scheme, 1976 for this purpose. The proviso to sub-section (1) of section 2 of the Finance (No. 2) Act, 1977 has accordingly provided that the surcharge on income-tax payable by a company for the assessment year 1977-78 shall be reduced by the amount of deposit made by it during the financial year 1976-77 with the Industrial Development Bank of India under the aforesaid Scheme.

Finance (No. 2) Act, 1977

Rates for deduction of tax at source during the financial year 1977-78 from incomes other than salaries and retirement annuities

4. The rates for deduction of tax at source during the financial year 1977-78 from incomes, other than salaries and retirement annuities payable to partners of registered firms engaged in specified professions, have been specified in Part II of the First Schedule to the Finance (No. 2) Act, 1977. These rates apply to incomes by way of interest on securities, other categories of interest, dividends, insurance commission, winnings from lotteries and crossword puzzles and non-salary income of non-residents. These rates differ from the rates specified in Part II of the First Schedule to the Finance Act, 1976 for purposes of deduction of tax at source from such incomes during the financial year 1976-77 in the following respects:

1. Payments to residents other than companies – In the case of income by way of winnings from lotteries and crossword puzzles payable to resident taxpayers during the financial year 1977-78, tax will be deducted 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). This is higher than the rate at which tax was deducted from such income during the financial year 1976-77 by 1.5 per cent. The increase has been made in the context of the increase in the rate of surcharge on income-tax in the case of non-corporate taxpayers as explained in paragraph 5.3 of this circular.

In the case of income by way of interest on securities (not being interest on a tax-free security) or dividends payable to resident taxpayers during the financial year 1977-78, tax will be deducted at the rate of 23 per cent, i.e., the same rate at which tax was deducted at source from such incomes during the financial year1976-77. However, the rate of 23 per cent will be made up of basic income-tax of 20 per cent and surcharge of 3 per cent (being 15 per cent of the income-tax), as against the basic income-tax of 21 per cent and surcharge of 2 per cent in force during the financial year 1976-77.

2. Payments to non-residents other than companies – In the case of income (other than interest on a tax-free security) payable to non-residents during the financial year 1977-78, tax will be deducted at the minimum rate of 34.5 per cent made up of income-tax of 30 per cent and surcharge of 4.5 per cent (being 15 per cent of the income-tax). If the rate of income-tax and surcharge appropriate to such income [at the rates prescribed under Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance (No. 2) Act, 1977] is higher than 34.5 per cent, tax will be deducted at such higher rate. In respect of interest on a tax-free security payable to non-corporate non-residents, the rate for deduction will be 17.25 per cent made up of income-tax of 15 per cent and surcharge of 2.25 per cent (being 15 per cent of the income-tax).

3. Payment of copyright royalties to foreign companies in respect of books on certain subjects – As explained in paragraph 23.1 of this circular, section 115A has been amended by the Finance (No. 2) Act, 1977 to secure that royalty received by a foreign company from an Indian concern in consideration of the transfer of all or any rights (including the granting of any licence) in respect of copyright in any book will be chargeable to income-tax at the rate of 40 per cent of the gross amount of such income, if the book is on a subject, the books on which are permitted, according to the import trade control policy of the Government of India for the financial year 1977-78, to be imported into India under an Open General Licence. A list of these subjects is given in Annex. I to this circular. In view of the amendment made in section 115A, the rate for deduction of tax at source from income by way of royalty in such cases has also been specified at 40 per cent, i.e., the rate at which such income will be chargeable to tax for the assessment year 1978-79.

Finance (No. 2) Act, 1977

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 1977-78

5.1 The rates for deduction of income-tax at source from salaries in the case of individuals during the financial year 1977-78, as also for computation of advance tax payable during that year in the case of all categories of taxpayers, have been specified in Part III of the First Schedule to the Finance (No. 2) Act, 1977. These rates are also applicable for deduction of income-tax at source during the financial year 1977-78 from retirement annuities payable to partners of a registered firm which renders professional service as chartered accountant, solicitor, lawyer, etc., and for charging income-tax during the financial year 1977-78 on current incomes in special cases where accelerated assessments have to be made. The special cases where accelerated assessments have to be made are cases of (i) calculation of income-tax on undisclosed income represented by seized assets [section 132(5)]; (ii) levy of tax on provisional basis on the income of non-residents from shipping of cargo or passengers from Indian ports [section 172(4)]; (iii) assessment of persons leaving India [section 174(2)]; (iv) assessment of persons likely to transfer property to avoid tax [section 175]; and (v) assessment of profits of a discontinued business [section 176(2)]. These rates are the same as the rates specified in Part I of the First Schedule to the Finance (No. 2) Act, 1977 for the assessment of incomes liable to tax for the assessment year 1977-78, except for certain modifications. The modifications in the rate schedule, read with section 2 of the Finance (No. 2) Act, 1977, relate to the following matters:

1. Raising of exemption limit from Rs. 8,000 to Rs. 10,000 in the case of individuals, Hindu undivided families, unregistered firms, etc.

2. Increase in the rate of surcharge in the case of all non-corporate taxpayers from 10 per cent to 15 per cent.

3. Modification of the provisions for calculating income-tax in cases where the taxpayer has any net agricultural income in addition to total income.

4. Discontinuance of the option to companies to make deposits with the Industrial Development Bank of India in lieu of payment of surcharge.

The modifications in regard to above matters are explained in paragraphs 5.2 to 5.7 of this circular.

Finance (No. 2) Act, 1977

5.2 Raising of exemption limit – The exemption limit in the case of individuals, Hindu undivided families, unregistered firms, associations of persons, bodies of individuals and artificial juridical persons has been raised from Rs. 8,000 to Rs. 10,000. It is relevant to note that although the rate schedule (including the nil rate slab of income up to Rs. 8,000) has not been changed, a provision has been made [vide clause (i) of the proviso below Sub-Paragraph I or, as the case may be, Sub-Paragraph II of Paragraph A of Part III of the First Schedule to the Finance (No. 2) Act, 1977] to the effect that no income-tax shall be payable in cases where the total income of taxpayer does not exceed Rs. 10,000. In order to avoid hardship in cases where the total income of the taxpayer exceeds Rs. 10,000 by a small margin, a provision has been made under clause (ii) of the said provisos for the grant of marginal relief in such cases. Under this provision, where the total income of the taxpayer exceeds Rs. 10,000 but does not exceed Rs. 10,540 (Rs. 10,690 in the case of Hindu undivided families having at least one member whose total income for the previous year relevant to the assessment year 1978-79 exceeds Rs. 10,000), the income-tax payable thereon shall not exceed 70 per cent of the amount by which the total income exceeds Rs. 10,000. The operation of this marginal provision in the case of an individual taxpayer is illustrated in the following table :

Total income	Income-tax calculated at the rate laid down under the rate schedule	Income-tax at 70 per cent of the excess over Rs. 10,000
Rs.	Rs.	Rs.
10,100	315	70
10,200	330	140
10,300	345	210
10,400	360	280
10,500	375	350
10,540	381	378
10,550	383	385

It will be observed from the above table that on a total income of Rs. 10,540, the amount calculated under the marginal provision (col. 3) is lower than the amount arrived at by applying the rate laid down in the rate schedule (col. 2). On the other hand, when the total income amounts to Rs. 10,550, the income-tax at the rate laid down in the rate schedule is lower than that calculated by applying the marginal provision. Hence, in the case of an individual, the marginal provision will cease to apply when the total income exceeds Rs. 10,540. In the case of Hindu undivided families having at least one member with independent total income exceeding Rs. 10,000, the marginal provision will cease to apply when the total income of the Hindu undivided family exceeds Rs. 10,690.

Finance (No. 2) Act, 1977

5.3 Increase in the rate of surcharge – The rate of surcharge on income-tax in the case of all categories of non-corporate taxpayers, including individuals, Hindu undivided families, unregistered firms, registered firms, co-operative societies, local authorities, etc., has been increased from 10 per cent to 15 per cent of the income-tax.

Finance (No. 2) Act, 1977

5.4 Modification in the provisions for calculating income-tax in cases where the taxpayer has net agricultural income in addition to total income– Section 2(8) of the Finance (No. 2) Act, 1977 provides that in the case of individuals, Hindu undivided families, unregistered firms, etc., the net agricultural income will be taken into account for computation of advance tax and charging of income-tax on current incomes in cases where accelerated assessments are made during the financial year 1977-78. It is, however, to be noted that with the raising of the exemption limit from Rs 8,000 to Rs. 10,000, the net agricultural income will be taken into account only if the total income of the taxpayer exceeds Rs. 10,000.

Finance (No. 2) Act, 1977

5.5 In consequence of the raising of the exemption limit to Rs. 10,000 concurrently with maintaining the nil rate slab of income at the existing level of Rs. 8,000, the Finance (No. 2) Act, 1977 has made certain modifications in the provisions relating to calculation of income-tax in cases where the taxpayer has net agricultural income in addition to total income. The modified provisions are contained in section 2(6) of the Finance (No. 2) Act, 1977. Under the provisions as modified, income-tax will be calculated in such cases in the following manner :

1. The agricultural and non-agricultural components of the taxpayer s income will be aggregated and income-tax (excluding surcharge) determined on the aggregate income as if such income were the total income. [It may be noted that under section 2(2) of the Finance (No. 2) Act, 1977 (which lays down the method of calculating income-tax in such cases for the assessment year 1977-78), as also under the provisions contained in the Finance Acts of earlier years, income-tax on such aggregate income is determined after including surcharge.] In determining the income-tax on such aggregate income, the new marginal provision in clause (ii) of the proviso below Sub-Paragraph I or, as the case may be, Sub-Paragraph II of Paragraph A of Part III of the First Schedule to the Finance (No. 2) Act, 1977 will not apply. In other words, income-tax on such aggregate income will be determined in accordance with the rates laid down in the rate schedule and the marginal provision that the income-tax payable by a person shall not exceed 70 per cent of the amount by which his total income exceeds Rs. 10,000 will not be applied.

2. The net agricultural income of the taxpayer will be increased by an amount of Rs. 8,000 (i.e., the first slab of income on which tax is charged at nil rate) and income-tax (excluding charge) will be determined on the net agricultural income as so increased as if such increased net agricultural income were the total income. [Here again, it may be noted that under section 2(2) of the Finance (No. 2) Act, 1977 as also under the provisions contained in the Finance Acts of earlier years, income-tax on such increased net agricultural income was determined after including surcharge.] In determining the income-tax on such increased net agricultural income, both clauses (i) and (ii) ofthe proviso below Sub-Paragraph I or, as the case may be, Sub-Paragraph II of the said Paragraph A will not apply. In other words, income-tax on such increased net agricultural income will be determined as if the exemption limit was Rs. 8,000 and not Rs. 10,000, and the marginal provision that the income-tax payable by a person will not exceed 70 per cent of the amount by which his total income exceeds Rs. 10,000 will not be applied.

[In cases where the net agricultural income of the taxpayer does not exceed Rs. 2,000, the net agricultural income as increased by Rs. 8,000 will not exceed the exemption limit of Rs. 10,000 so that income-tax on such increased net agricultural income would be nil. If the exemption limit for this purpose was kept at Rs. 10,000, the taxpayer would not have got any deduction in respect of the income-tax attributable to the net agricultural income, with the result that the agricultural component of the taxpayer s income would have been charged to income-tax. As this would have rendered the provision unconstitutional, it has been provided that, for the purposes of determining the income-tax on the net agricultural income as increased by Rs. 8,000, the exemption limit will be taken to be Rs. 8,000 and not Rs. 10,000]

3. The amount of income-tax determined under (1) shall be reduced by the amount determined under (2). However, where the sum so arrived at exceeds 70 per cent of the amount by which the total income exceeds Rs. 10,000, the excess shall be disregarded.

4. The amount of income-tax as determined under (3) will be increased by a surcharge at the rate of 15 per cent of such income-tax and the amount so arrived at will be the income-tax payable by the taxpayer on his total income.

Finance (No. 2) Act, 1977

5.6 Modification in the rules for computation of net agricultural income – The net agricultural income is to be computed in accordance with the rules contained in Part IV of the First Schedule to the Finance (No. 2) Act, 1977. The mode of computation of the net agricultural income under these provisions is the same as in the relevant provisions of the Finance Act, 1976, except for the modification that the unabsorbed loss in agriculture incurred during the previous year relevant to the assessment year 1976-77 will also be set off against the agricultural income for the previous year relevant to the assessment year 1977-78. Further, any unabsorbed loss in respect of the previous year relevant to the assessment year 1977-78 will also be set off in determining the net agricultural income for the purposes of payment of advance tax during the financial year 1977-78.

Finance (No. 2) Act, 1977

5.7 Discontinuance of the option to companies to make deposits in lieu of payment of surcharge – Under a provision made by the Finance Act, 1976, companies could, in lieu of payment of surcharge on income-tax, make, before the last instalment of advance tax payable during the financial year 1976-77. A deposit with the Industrial Development Bank of India under the Companies Deposits (Surcharge on Income-tax) Scheme, 1976. The option for making deposits in lieu of payment of surcharge is not being continued by the Finance (No. 2) Act, 1977.

[Section 2 of, and the First Schedule to, the Finance Act]

3. Amendments to Income-tax Act

 4. Amendments to Wealth-tax Act

Finance (No. 2) Act, 1977

Increase in the rates of wealth-tax

28.1 Under Part I of Schedule I to the Wealth-tax Act, as substituted by the Finance Act, 1976, with effect from 1-4-1977, the rates of wealth-tax in the case of individuals and Hindu undivided families (other than Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh) ranged from per cent in the first slab of net wealth up to Rs. 5 lakhs to a maximum of 2 per cent on the net wealth in the slab of over Rs. 15 lakhs. In the case of Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh, the maximum rate of 2 per cent was applicable on the slab of net wealth over Rs. 10 lakhs. The Finance (No. 2) Act, 1977 has substituted Part I of the aforesaid Schedule retrospectively from 1-4-1977 with a view to increasing the rates of wealth-tax on all levels of net wealth above Rs. 2,50,000. In the case of individuals and Hindu undivided families (other than those having one or more members with independent net wealth exceeding Rs. 1 lakh) wealth-tax will be chargeable under the revised rate schedule on the new slab of net wealth up to Rs. 2,50,000 at the rate of per cent. The rates of wealth-tax in the other slabs will be 1 per cent on the slab from Rs. 2,50,001 – Rs. 5,00,000 (as against per cent laid down by the Finance Act, 1976); 2 per cent on the slab from Rs. 5,00,001 – Rs. 10,00,000 (as against 1 per cent laid down by the Finance Act, 1976); 2 per cent on the slab from Rs. 10,00,001 – Rs. 15,00,000 (as against 2 per cent laid down by the Finance Act, 1976); and 3 per cent on the slab of net wealth over Rs. 15,00,000 (as against 2 per cent laid down by the Finance Act, 1976).

Finance (No. 2) Act, 1977

28.2 In the case of Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh, the net wealth in the new slab up to Rs. 2,50,000 will be charged to wealth-tax at the existing rate of 1 per cent. The new rates of wealth-tax on the other slabs will be 2 per cent on the slab from Rs. 2,50,001 – Rs. 5,00,000 (as against 1 per cent laid down by the Finance Act, 1976); 2 per cent on the slab from Rs. 5,00,001 – Rs. 10,00,000 (as against 2 per cent laid down by the Finance Act, 1976); and 3 per cent on the slab of net wealth over Rs. 10,00,000 (as against 2 per cent laid down by the Finance Act, 1976).

Finance (No. 2) Act, 1977

28.3 As stated in paragraph 28.1 above, the new rate schedule has come into force with effect from 1-4-1977 and will, accordingly, apply, in relation to the assessment year 1977-78 and subsequent years. Thus, the rate schedule introduced by the Finance Act, 1976 from 1-4-1977 stands superseded.

[Section 30 of the Finance Act]

Finance (No. 2) Act, 1977

Creation of a new appellate authority, namely, Commissioner of Wealth-tax (Appeals)

29.1 As stated in paragraph 27.2 of this circular, the Finance (No. 2) Act, 1977 has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals), for the purposes of the various direct taxes enactments, including the Wealth-tax Act. These provisions will come into force on the appointed day , i.e., such date as the Central Government may, by notification in the Official Gazette, appoint [vide section 39(3) of the Finance Act]. The provisions made by the Finance (No. 2) Act, 1977 regarding transfer of appeals, etc., under the Wealth-tax Act, which are pending immediately before the appointed day with Appellate Assistant Commissioners and Commissioners, to the Commissioners (Appeals), and action required to be taken on or after the appointed day in relation to such appeals disposed of by Appellate Assistant Commissioners and Commissioners before that day, are the same as those applicable in relation to appeals, etc., under the Income-tax Act [vide new sub-section (1B) inserted in section 23 and section 39(2) of the Finance Act]. The substance of these provisions has already been explained in paragraphs 27.4 and 27.5 of this circular. The provisions relating to the categories of orders where appeal will lie on or after the appointed day1 to the Commissioners of Wealth-tax (Appeals) are explained in the following paragraph.

Finance (No. 2) Act, 1977

29.2 Categories of orders where appeals will lie to the Commissioners of Wealth-tax (Appeals) – New sub-section (1A) inserted in section 23 provides that any person may appeal to the Commissioner (Appeals) against an assessment or, as the case may be, order where he objects to

a. the amount of net wealth determined under the Wealth-tax Act or the amount of wealth-tax determined as payable by him under that Act, where the net wealth determined on assessment exceeds Rs. 15 lakhs [an appeal to the Commissioner (Appeals) will also lie in cases where the net wealth determined on assessment exceeds Rs. 15 lakhs and the person denies his liability to be assessed under the Wealth-tax Act];

b. any penalty imposed under section 18(1)(c) with the previous approval of the Inspecting Assistant Commissioner under section 18(3);

c. any assessment or order referred to in clauses (a) to (h) (both inclusive) or clause (i) of sub-section (1) of section 23, where such assessment or order has been made by the Inspecting Assistant Commissioner in exercise of the powers or functions conferred on, or assigned to, him under section 8AA;

d. any penalty imposed by an Inspecting Assistant Commissioner under section 18A [it may be noted that under the existing provisions of section 24(1), an appeal against an order passed by an Inspecting Assistant Commissioner under section 18A lies to the Appellate Tribunal];

e. any order made by a Wealth-tax Officer in the case of such persons or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct.

It may be noted that an appeal against an assessment or order specified above will lie on or after the appointed day to the Commissioner (Appeals) even though the assessment or order may have been made before the appointed day.

Finance (No. 2) Act, 1977

29.3 Other provisions – The Finance (No. 2) Act, 1977 has amended a number of other provisions of, and made a few new provisions in, the Wealth-tax Act to provide for the appointment, jurisdiction, functions and powers of Commissioners of Wealth-tax (Appeals), the procedure to be followed in appeals filed before them and other related matters. These provisions are briefly indicated below :

Section 2(gg) – Definition of Commissioner (Appeals).

Section 8AA – Appellate jurisdiction of Commissioner of Wealth-tax excluded in cases where assessment functions of the Wealth-tax Officer are assigned to the Inspecting Assistant Commissioner.

Section 9A – Jurisdiction of Commissioners of Wealth-tax (Appeals).

Section 13 – Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions.

Sections 18 and 18A – Commissioners (Appeals) to have the same powers as Appellate Assistant Commissioners in regard to imposition of penalty under these sections.

Section 22A – Inclusion of Commissioner (Appeals) as a wealth-tax authority for the purposes of Chapter VA relating to settlement of cases.

Sections 23(2), (2A), (3), (3A), (4), (5), (5A), (5B) and (6) – Provisions relating to limitation for filing appeal; power of appellate authority in disposing of an appeal and related matters to apply to Commissioners (Appeals) as they apply to Appellate Assistant Commissioners.

Section 24 – Appeals against orders passed by Commissioner (Appeals) to lie to Appellate Tribunal, and departmental appeals, to the Tribunal against such orders to be authorised by the Commissioner of Wealth-tax.

Section 25 – Commissioner of Wealth-tax not to revise any order where an appeal against the order lies to the Commissioner (Appeals), and the time within which such appeal can be made has not expired or the assessee has not waived his right of appeal or the order is the subject of an appeal before the Commissioner (Appeals).

Section 34A – Commissioners (Appeals) authorised to set off refund against tax remaining payable.

Section 35 – Rectification of mistakes by Commissioners (Appeals).

Section 35K – Statement made or account or other document produced by a person before the Commissioner (Appeals) not to be inadmissible as evidence in prosecution proceedings merely on the ground that such statement was made or such account or other document was produced in the belief that the penalty imposable on such person would be reduced or waived under section 18B or that the offence in respect of which such proceeding was taken would be compounded.

Section 37 – Commissioners (Appeals) to have the same power as Appellate Assistant Commissioners to take evidence on oath, etc.

Section 42A – Publication of information relating to any penalty imposed on a person prohibited until time for presenting an appeal to the Commissioners (Appeals) has expired without an appeal having been presented or the appeal, if presented, has been disposed of.

Section 46 – Board empowered to frame rules specifying the circumstances in which, the conditions subject to which and the manner in which, the Commissioner (Appeals) may permit an appellant to produce evidence which he did not produce or he was not allowed to produce before the Wealth-tax Officer.

[Section 39 of, and Part II of the Fifth Schedule to, the Finance Act]

5. Amendments to Gift-tax Act

Finance (No. 2) Act, 1977

Creation of a new appellate authority, namely, Commissioner of Gift-tax (Appeals)

30.1 As stated in paragraph 27.2 of this circular, the Finance (No. 2) Act, 1977 has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals) for the purposes of the various direct taxes enactments, including the Gift-tax Act. These provisions will come into force on the appointed day 1, i.e., such date as the Central Government may, by notification in the Official Gazette, appoint [vide section 39(3) of the Finance Act]. The provisions made by the Finance (No. 2) Act, 1977 regarding transfer of appeals, etc., under the Gift-tax Act, which are pending immediately before the appointed day with Appellate Assistant Commissioners and Commissioners, to the Commissioners (Appeals), and action required to be taken on or after the appointed day in relation to such appeals disposed of by Appellate Assistant Commissioners and Commissioners before that day, are the same as those applicable in relation to appeals, etc., under the Income-tax Act [vide new sub-section (1B) inserted in section 22 and section 39(2) of the Finance Act]. The substance of these provisions has already been explained in paragraphs 27.4 and 27.5 of this circular. The provisions relating to the categories of orders where appeal will lie on or after the appointed day to the Commissioners of Gift-tax (Appeals) are explained in the following paragraph.

Finance (No. 2) Act, 1977

30.2 Categories of orders where appeal will lie to the Commissioners of Gift-tax (Appeals) – New sub-section (1A) inserted in section 22 provides that any person may appeal to the Commissioner (Appeals) against an assessment or, as the case may be, order where he objects to

a. the value of taxable gift determined under the Gift-tax Act or the amount of gift-tax determined as payable by him under that Act, where the value of taxable gifts determined on assessment exceeds Rs. 2 lakhs [an appeal to the Commissioner (Appeals) will also lie in cases where the value of taxable gifts determined on assessment exceeds Rs. 2 lakhs and the person denies his liability to be assessed under the Gift-tax Act];

b. any assessment or order referred to in clauses (a) to (h) (both inclusive) of sub-section (1) of section 22 where such assessment or order has been made by the Inspecting Assistant Commissioner in exercise of the powers or functions conferred on or assigned to him under section 7AA of that Act;

c. any penalty imposed under section 17(1)(c) with the previous approval of the Inspecting Assistant Commissioner under section 17(3);

d. any penalty imposed by an Inspecting Assistant Commissioner under section 17A [it may be noted that under the existing provisions of section 23(1) an appeal against an order passed by an Inspecting Assistant Commissioner under section 17A lies to the Appellate Tribunal];

e. any order made by a Gift-tax Officer in the case of such persons or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct.

It may be noted that an appeal against an assessment or order specified above will lie on or after the appointed day to the Commissioner (Appeals) even though the assessment or order may have been made before the appointed day.

Finance (No. 2) Act, 1977

30.3 Other provisions – The Finance (No. 2) Act, 1977 has amended a number of other provisions of, and made a few new provisions in, the Gift-tax Act to provide for the appointment, jurisdiction, functions and powers of Commissioners of Gift-tax (Appeals), the procedure to be followed in appeals filed before them and other related matters. These provisions are briefly indicated below:

Section 2(via) – Definition of Commissioner (Appeals).

Section 7AA – Appellate jurisdiction of Commissioner of Gift-tax excluded in cases where assessment functions of the Gift-tax Officer are assigned to the Inspecting Assistant Commissioner.

Section 8A – Jurisdiction of Commissioners of Gift-tax (Appeals).

Section 12 – Board not to issue instructions, etc., so as to interfere with the discretion of Commissioner (Appeals) in the exercise of his appellate functions.

Sections 17, 17A and 21 – Commissioners (Appeals) to have the same powers as Appellate Assistant Commissioners in regard to imposition of penalty under these sections.

Sections 22(2), (3), (4), (5), (5A), (5B) and (6) – Provisions relating to limitation for filing appeal; procedure in appeal; powers of appellate authority in disposing of an appeal and related matters to apply to Commissioners (Appeals) as they apply to Appellate Assistant Commissioners.

Section 23 – Appeals against orders passed by Commissioner (Appeals) to lie to Appellate Tribunal, and departmental appeals to the Tribunal against such orders to be authorised by the Commissioner of Gift-tax.

Section 24 – Commissioner not to revise any order where an appeal against the order lies to the Commissioner (Appeals) and the time within which such appeal can be made has not expired or the assessee has not waived his right of appeal or where the order has been made the subject of an appeal to the Commissioner (Appeals).

Section 33A – Commissioners (Appeals) authorised to set off refund against tax remaining payable.

Section 34 – Rectification of mistakes by Commissioners (Appeals).

Section 36 – Commissioners (Appeals) to have same powers as Appellate Assistant Commissioners in regard to discovery, production of evidence, etc.

Section 41A – Publication of information relating to any penalty imposed on a person prohibited until time for presenting an appeal to Commissioner (Appeals) has expired without an appeal having been presented or the appeal, if presented, has been disposed of.

Section 46 – Board empowered to frame rules specifying the circumstances in which, the conditions subject to which and the manner in which, the Commissioner (Appeals) to permit an appellant to produce evidence which he did not produce or he was not allowed to produce before the Gift-tax Officer.

[Section 39 of, and Part III of the Fifth Schedule to, the Finance Act]

6. Amendments to Companies (Profits) Surtax Act

Finance (No. 2) Act, 1977

Creation of a new appellate authority, namely, Commissioner (Appeals)

31.1 As stated in paragraph 27.2 of this circular, the Finance (No. 2) Act, 1977 has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals), for the purposes of the various direct taxes enactments, including the Companies (Profits) Surtax Act. These provisions will come into force on the appointed day , i.e., such date as the Central Government may, by notification in the Official Gazette, appoint [vide section 39(3) of the Finance Act].

Finance (No. 2) Act, 1977

31.2 Appeals under the Companies (Profits) Surtax Act not to lie to Appellate Assistant Commissioners – The Appellate Assistant Commissioner will cease to be an appellate authority under the Companies (Profits) Surtax Act from the appointed day and an appeal against any assessment or order made by an Income-tax Officer under that Act will lie from the appointed day to the Commissioner (Appeals) [vide section 11, as amended by the Finance Act]. Where the functions of an Income-tax Officer are assigned to an Inspecting Assistant Commissioner, appeals against any assessment or order made by the Inspecting Assistant Commissioner will lie from the appointed day to the Commissioner (Appeals), and not to the Commissioner of Income-tax. It may be noted that appeals against assessments or orders referred to above will lie on or after the appointed day to the Commissioner (Appeals), even though the assessment or order may have been made before the appointed day.

Finance (No. 2) Act, 1977

31.3 The provisions made by the Finance (No. 2) Act, 1977 regarding transfer of appeals, etc., under the Companies (Profits) Surtax Act, which are pending immediately, before the appointed day with Appellate Assistant Commissioners and Commissioners, to Commissioner (Appeals) and action required to be taken on or after the appointed day in relation to such appeals disposed of by the Appellate Assistant Commissioners and the Commissioners before that day, are the same as those applicable in relation to appeals, etc., under the Income-tax Act [vide new section 11A and section 39(2) of the Finance Act]. The substance of these provisions has already been explained in paragraphs 27.4 and 27.5 of this circular.

Finance (No. 2) Act, 1977

31.4 Other provisions – The Finance (No. 2) Act, 1977 has amended a number of other provisions of, and made a few new provisions in, the Companies (Profits) Surtax Act to provide for the appointment, jurisdiction, functions and powers of the Commissioners (Appeals), procedure to be followed in appeals filed before them and other related matters. These provisions are briefly indicated below :

Section 3(1) – Inclusion of Commissioner of Income-tax (Appeals) as a tax authority.

Section 3(2) – Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions.

Section 11 – Provisions relating to limitation for filing appeals; procedure in appeal; powers of the appellate authority in disposing of appeals, etc., contained in this section will apply to proceedings before Commissioners (Appeals).

Section 12 – Appeals against orders passed by Commissioners (Appeals) to lie to the Appellate Tribunal and Departmental appeals to the Tribunal against such orders to be authorised by the Commissioner of Income-tax.

Section 13 – Rectification of mistakes by Commissioner (Appeals).

Section 17 – Commissioners of Income-tax not to revise any order under that section in cases where an appeal against the order lies to the Commissioner (Appeals) but has not been made and the time within which such appeal may be made has not expired or the assessee has not waived his right of appeal or where the order has been made the subject of an appeal to the Commissioner (Appeals).

Section 25 – Board empowered to frame rules specifying the circumstances in which, the conditions subject to which and the manner in which, the Commissioner (Appeals) may permit an appellant to produce evidence which he did not produce or he was not allowed to produce before the Income-tax Officer.

[Section 39 of, and Part IV of the Fifth Schedule to, the Finance Act]

7. Amendments to Interest-tax Act

Finance (No. 2) Act, 1977

Creation of a new appellate authority, namely, Commissioner (Appeals)

32.1 As stated in paragraph 27.2 of this circular, the Finance (No. 2) Act, 1977 has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals) for the purposes of the various direct taxes enactments, including the Interest-tax Act. These provisions will come into force on the appointed day , i.e., such date as the Central Government may, by notification in the Official Gazette, appoint [vide section 39(3) of the Finance Act].

Finance (No. 2) Act, 1977

32.2 Appeals under the Interest-tax Act not to lie to Appellate Assistant Commissioners – The Appellate Assistant Commissioner will cease to be an appellate authority under the Interest-tax Act from the appointed day and an appeal against any assessment or order made by an Income-tax Officer under that Act will lie from the appointed day to the Commissioner (Appeals) [vide section 15 of the Interest-tax Act, as amended by the Finance Act]. Where the functions of an Income-tax Officer are assigned to an Inspecting Assistant Commissioner, appeals against any assessment or order made by the Inspecting Assistant Commissioner will lie from the appointed day to the Commissioner (Appeals), and not to the Commissioner of Income-tax. It may be noted that appeals against assessments or orders referred to above will lie on or after the appointed day to the Commissioner (Appeals) even though the assessment or order may have been made before the appointed day.

Finance (No. 2) Act, 1977

32.3 The provisions made by the Finance (No. 2) Act, 1977 regarding transfer of appeals, etc., under the Interest-tax Act, which are pending immediately, before the appointed day with Appellate Assistant Commissioners and Commissioners, to Commissioner (Appeals), and action required to be taken on or after the appointed day in relation to such appeals disposed of by Appellate Assistant Commissioners and Commissioners before that day, are the same as those applicable in relation to appeals, etc., under the Income-tax Act [vide new section 15A and section 39(2) of the Finance Act]. The substance of these provisions has already been explained in paragraphs 27.4 and 27.5 of this circular.

Finance (No. 2) Act, 1977

32.4 Other provisions – The Finance (No. 2) Act, 1977 has amended a number of other provisions of, and made a few new provisions in, the Interest-tax Act to provide for the appointment, jurisdiction, functions and powers of Commissioners (Appeals), procedure to be followed in appeals filed before them and other related matters. These provisions are briefly indicated below:

Section 3(1) – Inclusion of Commissioner of Income-tax (Appeals) as a tax authority.

Section 3(2) – Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions.

Section 12 – Commissioner (Appeals) to have power to impose penalty for failure to furnish returns, comply with notices, concealment of interest, etc.

Section 15 – The provisions of this section relating to form of appeal and limitation; procedure in appeal; powers of the appellate authority in disposing of appeals, etc., will apply to proceedings before the Commissioner (Appeals).

Section 16 – Appeals against orders passed by Commissioners (Appeals) to lie to the Appellate Tribunal and Departmental appeals to the Tribunal against such orders to be authorised by the Commissioner of Income-tax.

Section 17 – Rectification of mistakes by Commissioner (Appeals).

Section 20 – Commissioners of Income-tax not to revise any orders under that section in cases where an appeal against the order lies to the Commissioner (Appeals) but has not been made and the time within which such appeal may be made has not expired or the assessee has not waived his right of appeal or where the order has been made the subject of an appeal to the Commissioner (Appeals).

[Section 39 of, and Part V of the Fifth Schedule to, the Finance Act]

8. Amendments to Compulsory Deposit Scheme (Income-tax Payers) Act

Finance (No. 2) Act, 1977

Continuance of the scheme of compulsory deposit by income-tax payers for two years

33.1 Under the Compulsory Deposit Scheme (Income-tax Payers) Act, individuals who are citizens of India, Hindu undivided families and trustees of discretionary trusts were required to make compulsory deposits for the assessment years 1975-76 to 1977-78 if their current income exceeded Rs. 15,000. The Finance (No. 2) Act, 1977 has amended the Compulsory Deposit Scheme (Income-tax Payers) Act with a view to continuing the compulsory deposit scheme in the case of income-tax payers for a further period of two years, i.e., for the assessment years 1978-79 and 1979-80.

Finance (No. 2) Act, 1977

Persons over seventy years of age exempted from requirement of making compulsory deposits

33.2 The Finance (No. 2) Act, 1977 has inserted a new sub-section (3) in section 3 exempting individuals who are over 70 years of age from the requirement of making any compulsory deposit. For the purposes of this provision, the age of the person will be determined as on the first day of the financial year immediately preceding the assessment year for which the compulsory deposit is required to be made. Hence, persons who were more than 70 years of age as on 1-4-1977 will not be required to make any compulsory deposit during the current financial year in relation to the assessment year 1978-79. This exemption will also apply in cases where any person is assessable under the Income-tax Act in respect of the total income of an individual and such individual is or was more than seventy years of age on the first day of the relevant financial year.

Finance (No. 2) Act, 1977

33.3 The amendments extending the operation of the scheme for compulsory deposits by two years have come into force with effect from 1-4-1977. The amendment exempting individuals over the age of 70 years from the requirement of making compulsory deposits will come into force with effect from 1-9-1977 and will, accordingly, apply in relation to the assessment years 1978-79 and 1979-80, and not any earlier assessment year.

[Section 36 of the Finance Act]

9. Amendments to Voluntary Disclosure of Income & Wealth Act

Finance (No. 2) Act, 1977

Extension of time for payment of tax and making deposits in notified securities

34.1 Persons making a disclosure of income under section 14 of the Voluntary Disclosure of Income and Wealth Ordinance, 1975 (later replaced by the Voluntary Disclosure of Income and Wealth Act, 1976) in cases of search and seizure were required to pay at least one-half of the tax chargeable in respect of the income of the previous year or years for which the declaration was made by 31-3-1976 and the remaining amount by 31-3-1977. Persons making a voluntary disclosure of wealth under section 15 were similarly required to pay one-half of the wealth-tax chargeable in respect of the net wealth for the assessment year or years for which the declaration was made by 31-3-1976 and the balance by 31-3-1977. In addition, they were required to invest an amount equal to 2 per cent of the net wealth or, as the case may be, the value of assets declared by them in notified Government securities within thirty days from the date on which the declaration was made. A large number of persons who made declarations under these provisions were, however, not able to comply with the aforesaid time limits for payment of tax and for investment in notified Government securities, thereby forfeiting the benefit of immunity from penalty, prosecution, etc., provided under the Voluntary Disclosure of Income and Wealth Act.

Finance (No. 2) Act, 1977

34.2 In order to give a last chance to such persons to pay their tax dues and to make investment in notified Government securities, the Finance (No. 2) Act, 1977 has amended the relevant provisions of the Voluntary Disclosure of Income and Wealth Act to provide that taxpayers who pay the unpaid amount before 1-1-1978 and, where required, also make investment in notified Government securities before that date, will be entitled to the immunities provided under the said Act. Such persons will be required to pay simple interest at the rate of 12 per cent per annum on the amount of tax remaining unpaid on 31-3-1976. The interest will be payable from 1-4-1976 to the date of payment of such tax. It is relevant to note that the benefit of immunity under the said Act will be available only where both the unpaid tax and interest as so calculated are paid by the declarant before 1-1-1978.

Finance (No. 2) Act, 1977

34.3 The aforesaid amendments have come into force retrospectively with effect from 1-4-1976.

[Section 38 of the Finance Act]

10. Amendments to Khadi & Village Industries Commission Act

Finance (No. 2) Act, 1977

Exemption of Khadi and Village Industries Commission

35.1 The Khadi and Village Industries Commission was established under the Khadi and Village Industries Commission Act, to plan, organise and implement programmes for the development of khadi and village industries. The Commission functions under the control, supervision and direction of the Central Government. Having regard to the laudable objects of the Commission and the fact that the profits derived by it are utilised for the advancement of its objects, the Finance (No. 2) Act, 1977 has inserted a new section 24A exempting the Commission from payment of income-tax on its income, profits or gains.

Finance (No. 2) Act, 1977

35.2 The new section 24A has come into force retrospectively with effect from 1-4-1962, i.e., from the commencement of the Income-tax Act, 1961 and, as such, the exemption provided by this section will apply in relation to the assessment year 1962-63 and subsequent years.

[Section 34 of the Finance Act]

11. Amendments to Finance Act, 1973

12. Amendments to Oil Industry (Development) Act