| SECTION/SCHEDULE | PARTICULARS |
| Finance Act | |
| 2 and 1st Sch. | Rate structure 4-7 |
| 40 | Revival of wealth-tax on closely-held companies 54 |
| Income-tax Act | |
| 2(15) | Definition of charitable purpose 8 |
| 2(18) | Definition of company in which the public are substantially interested 9 |
| 9(1), Expln. (c) | Income deemed to accrue or arise in India 10-11 |
| to clause (i), | |
| and Expln. | |
| to clause (ii) | |
| 10(6A) | Exemption of tax paid on behalf of foreign company in respect of royalty or fees for technical services 12 |
| 10(10)(iii) and | Exemption in respect of gratuities 13 |
| 3rd prov. | |
| thereto | |
| 10(15)(iib) | Exemption in respect of interest on capital investment bonds 14 |
| 10(15)(iv)(a)/ | Exemption of interest payable on moneys borrowed |
| (c)/(d)/(g) | or debt incurred in foreign countries 15 |
| 10(21), prov. | Exemption in respect of income of approved scientific research associations 16 |
| 10(26A), | Exemption in respect of residents of Ladakh 17 |
| Expln. 2 | |
| 11(2)(b)/(3)(b)/ | Exemption of income from property held for chari- |
| (5), 13(1)(d)/ | table or religious purposes 18 |
| (2)/(4) | |
| 11(4A), | Exemption under section 11 not available to business |
| 13(1)(bb), | income of charitable and religious trusts and institu- |
| 164(2), (3) | tions 19 |
| 16(i) | Raising of standard deduction admissible in the case of salaried taxpayers 20 |
| 24(1)(vi), Expln. | Deduction in respect of interest in the computation of income from house property 21 |
| 32(1)(ii) (1st | Depreciation allowance 22 |
| prov.), (iv), (v) | |
| 32A(2)(c) | Investment allowance for ship repair industry 23 |
| 32A(2C) | Investment allowance in respect of machinery and plant for pollution control and protection of environment 24 |
| 35(2A) | Deduction in respect of payment to a scientific research association, etc., to be used for scientific research 25 |
| 35B(1)(a) | Withdrawal of export markets development allowance 26 |
| 35C(1)(a) | Withdrawal of weighted element of agricultural development allowance 27 |
| 35CC(1), prov. | Rural development allowance 28 |
| 35CCA(1)(c), | Expenditure by way of payment to associations and |
| (2), (2A), (2B) | institutions for carrying out rural development programmes 29 |
| 37(2A)(iii) and | Entertainment expenditure 31-32 |
| its Expln. 2 | |
| 37(3A), (3B), | Partial disallowance of certain expenses 33 |
| (3C), (3D) | |
| 37(5) | Expenditure on maintenance of guest houses 34 |
| 43B | Disallowance of unpaid statutory liability 35 |
| 44D(a)/(b)/(c), | Taxation of certain incomes of foreign companies 36 |
| 115A(1)(aa)/ | |
| (b)/(ia)/Expln. | |
| (bb) | |
| 54E(1) [prov. | Exemption of long-term capital gains ýÿin caseýÿ where |
| and Expln. | net consideration received or accruing as a result of |
| 1(c)], (2) | transfer is invested or deposited in specified financial |
| (Expln. 2), | assets 37 |
| (3), [Expln. | |
| (iiia)(c)] | |
| 80C(2)(b), (4)(i) | Deduction in respect of long-term savings in specified modes 38 |
| 80G(5)(i), Prov. | Deduction in respect of donations to certain funds, charitable institutions, etc. 39 |
| 80GG, Prov. | Deduction in respect of rents paid 40 |
| 80GGA(2)(b), | Deduction in respect of certain donations for rural |
| Prov. | development 41 |
| 80HHC | Deduction in respect of export turnover 42 |
| 80-I(4A) | Deduction in respect of profits and gains from certain industrial undertakings 43 |
| 80JJ | Deduction in respect of profits and gains from business of livestock breeding or poultry or dairy farming 44 |
| 80JJA | Withdrawal of deduction in respect of profits and gains from business of growing mushrooms 45 |
| 80L(1)(via), (a)/(b) | Deduction in respect of income from specified |
| concluding portion | Financial assets 46 |
| 80MM | Withdrawal of deduction in the case of an Indian company in respect of royalties, etc., received from any concern in India 47 |
| 80P(2)(b), (3) | Deduction in respect of income of co-operative society 48 |
| 80R | Deduction in respect of remuneration from certain foreign sources in the case of professors, teachers, etc. 49 |
| 80VVA | Levy of a minimum tax on companies making profits 50 |
| 109(ib), Expln. | Incorporation of definition of expression ýÿprovision of technical know-howýÿ for the purpose of the clause 51 |
| 115C to 115-I | Special provisions relating to taxation of income from certain specified assets in the case of non-resident Indian citizens and foreign nationals of Indian origin 52 |
| 280ZA | Tax credit certificate scheme for shifting industrial undertaking from urban area 53 |
| Wealth-tax Act | |
| 5(1)(xa) | Exemption of fees due to assessees carrying on certain professions and maintaining books on cash system of accounting 55 |
| 5(1)(xvic), | Exemption of foreign exchange assets 56 |
| (xvica) | |
| 5(1)(xvid) | Exemption of Capital Investment Bonds in the hands of individual and HUF 57 |
| 5(1)(xviiia) | Exemption of medals, trophies and awards in kind 58 |
| ýÿ | Revival of Wealth-tax on companies 54 |
| Gift-tax Act | |
| 5(1)(iid) | Exemption in respect of gifts of foreign exchange assets 59 |
| 5(1)(iiic) | Exemption in respect of gifts of Capital Investment Bonds 60 |
| Interest-tax Act | |
| 4(1), Prov. | Rate of tax in respect of chargeable interest accruing or arising after March 31, 1983 reduced 61 |
| Compulsory deposit scheme (ITP) Act | |
| 3(1)/(3), | Extension of Compulsory Deposit Scheme in the |
| 4(1)(iv)/ | case of taxpayers for another two years 62 |
| (3)(a)(i)(ii)(b)(c), | |
| 6(2)(i)(ii) |
Rates of income-tax in respect of incomes liable to tax for the assessment year 1983-84
4. In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 1983-84, 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, 1982 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 1982-83.
The Finance Act, 1983
Rates for deduction of tax at source during the financial year 1983-84 from income other than ýÿsalariesýÿ and retirement annuities
5.1 The rates for deduction of income-tax at source during the financial year 1983-84 from incomes, other than salaries and retirement annuities payable to partners of registered firms engaged in specified professions have been given in Part II of the First Schedule to the Finance Act. These rates apply to income by way of interest on securities, other categories of interest, dividends, insurance commission, winnings from lotteries and crossword puzzles, income by way of winnings from horse races; and other categories of non-salary income of non-residents. As explained later in the circular, the rate of surcharge on income in the case of non-corporate taxpayers has been increased from 10 per cent to 12.5 per cent of the income-tax. Similarly, the rate of surcharge on income-tax in the case of companies has been increased from 2.5 per cent to 5 per cent. Consequently, the rates for deduction of income-tax at source during the financial year 1983-84 differ from the rates specified in Part II of the First Schedule to the Finance Act, 1982 for purposes of deduction of tax at source from such incomes during the financial year 1982-83 in certain respects, as explained in paragraphs 5.2 to 5.10 below. As explained in paragraph 5.4 below, the Finance Act also makes a new provision for deduction of tax at source from investment income and long-term capital gains in the case of non-resident Indians.
The Finance Act, 1983
5.2 Payments to residents other than companies – In the case of income by way of winnings from horse races, lotteries and crossword puzzles payable to resident taxpayers (other than companies) during the financial year 1983-84, tax is deductible at the rate of 33.75 per cent, made up of basic income-tax of 30 per cent and surcharge of 3.75 per cent (being 12.5 per cent of the income-tax). This is higher than the rate at which the tax was deductible from such income during the financial year 1982-83 by 0.75 per cent.
The Finance Act, 1983
5.3 In the case of income by way of interest on securities issued by the Central or a State Government (not being interest on a tax-free security) or interest on debentures or other securities issued by or on behalf of a local authority or a statutory corporation or interest on debentures issued by companies where such debentures are listed in a recognised stock exchange in India, payable to resident taxpayers (other than companies) during the financial year 1983-84, tax will continue to be deducted at the rate of 10 per cent. In the case of interest on other securities (not being interest on a tax-free security) or dividends payable to resident taxpayers (other than companies) during the financial year 1983-84, income-tax will, however, be deductible at the rate of 22.5 per cent made up of basic income-tax of 20 per cent and surcharge of 2.5 per cent (being 12.5 per cent of the income-tax). This is higher than the rate at which tax was deductible from such income during the financial year 1982-83 by 0.5 per cent.
The Finance Act, 1983
5.4 Payments to non-residents other than companies – The Finance Act has made special provisions for deduction of tax at source from certain categories of income payable to non-resident Indians. Under these provisions, tax will be deducted at the rate of 22.5 per cent, made up of income-tax of 20 per cent and surcharge of 2.5 per cent (being 12.5 per cent of the income-tax) from any investment income payable to them during the financial year 1983-84. Tax at the same rate will be deducted by the transferee from income by way of long-term capital gains embedded in the consideration payable for the transfer of foreign exchange assets. The expressions non-resident Indian, investment income, long-term capital gains and foreign exchange asset have been defined in section 115C of Chapter XII-A, inserted in the Income-tax Act by section 36 of the Finance Act. Further details in this regard are given in paragraphs 52.1 to 52.11.
The Finance Act, 1983
5.5 In respect of interest on a tax-free security payable to non-residents (including non-resident Indians), the rate for deduction of tax at source is 16.875 per cent, made up of income-tax of 15 per cent and surcharge of 1.875 per cent (being 12.5 per cent of the income-tax) as against 16.5 per cent during 1982-83. On the whole of the other income of non-resident non-corporate taxpayers (including non-resident Indians), the rate for deduction of tax at source is 33.75 per cent made up of income-tax at 30 per cent and surcharge of 3.75 per cent (being 12.5 per cent of the income-tax) as against 33 per cent during 1982-83, or income-tax (including surcharge) chargeable in respect of the whole of such income at the rates laid down in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, whichever is higher.
The Finance Act, 1983
5.6 Payment of income to domestic companies – In the context of the increase in surcharge on income-tax payable by all categories of companies from 2.5 per cent to 5 per cent, the rates for deduction of tax at source from income payable to companies have also been enhanced. The enhanced rates, however, apply only in relation to cases where surcharge on income-tax was deductible at source during 1982-83 as a separate component of income-tax and do not cover cases where no such surcharge was separately deductible.
The Finance Act, 1983
5.7 Thus, in the case of income by way of interest other than interest on securities payable to a domestic company during the financial year 1983-84, tax is deductible at the rate of 21 per cent (made up of income-tax of 20 per cent and surcharge of 1 per cent), as against 20.5 per cent during 1982-83. In the case of any other income (excluding interest payable on a tax-free security) payable to a domestic company during the financial year 1983-84, tax is deductible at the rate of 22.575 per cent (made up of income-tax of 21.5 per cent and surcharge of 1.075 per cent), as against 22 per cent during 1982-83.
The Finance Act, 1983
5.8 Payment of income to foreign companies – In the case of income by way of interest payable to a foreign company by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency, tax will be deductible at the rate of 25 per cent. In the case of income by way of royalty payable to a foreign company by Government or an Indian concern in pursuance of an agreement made by it with Government or the Indian concern and approved by the Central Government before April 1, 1976, tax will be deductible at the rate of 52.5 per cent (made up of income-tax of 50 per cent and surcharge of 2.5 per cent), as against 51.25 per cent during 1982-83
The Finance Act, 1983
5.9 In the case of income by way of fees for technical services payable to a foreign company by Government or an Indian concern in pursuance of an agreement made by it with Government or the Indian concern and approved by the Central Government before April 1, 1976, tax is deductible at the rate of 52.5 per cent (made up of income-tax of 50 per cent and surcharge of 2.5 per cent), as against 51.25 per cent during 1982-83.
The Finance Act, 1983
5.10 Further, in the case of income by way of interest payable on a tax-free security to a foreign company during the financial year 1983-84, tax is deductible at the rate of 46.2 per cent (made up of income-tax of 44 per cent and surcharge of 2.2 per cent), as against 45.1 per cent during 1982-83. In the case of any other income (not being dividends, royalty and fees for technical services referred to in section 115A of the Income-tax Act), payable to a foreign company during the financial year 1983-84, tax is deductible at the rate of 73.5 per cent (made up of income-tax of 70 per cent and surcharge of 3.5 per cent), as against 71.75 per cent during 1982-83.
The Finance Act, 1983
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 1983-84
6.1 The rates for deduction of tax at source from salaries in the case of individuals during the financial year 1983-84 and 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 Act. These rates are also applicable for deduction of tax at source during the financial year 1983-84 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 1983-84 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, assessment of persons leaving India for good during the financial year 1983-84, assessment of persons who are likely to transfer property to avoid tax. These rates differ from the rates specified in Part I of the First Schedule for the assessment of income liable to tax for the assessment year 1982-83 in certain respects as explained in the following paragraphs.
The Finance Act, 1983
6.2 Modification in the rates of income-tax in certain slabs for individuals, Hindu undivided families, unregistered firms, etc. – The exemption limit of income-tax in the case of individuals, Hindu undivided families (other than those with one or more members having separate income exceeding the exemption limit), unregistered firms, association of persons, etc., is Rs. 15,000. Where the taxable income exceeded Rs. 15,000 income in the slab of Rs. 15,001 – Rs. 25,000 was charged to tax at the rate of 30 per cent and incomes in the slab of Rs. 25,001 – Rs. 30,000 was charged to tax at the rate of 34 per cent. With a view to providing relief to taxpayers in the lower and middle income levels, the Finance Act has split the income slab of Rs. 15,001 – Rs. 25,000 into two. Income in the new slab of Rs. 15,001 – Rs. 20,000 will be charged to tax at the rate of 25 per cent and income in the slab of Rs. 20,001 – Rs, 25,000 will be charged to tax at the rate of 30 per cent. Further, the rate of tax in the slab of Rs. 25,001 – Rs. 30,000 has been rounded off from 34 per cent to 35 per cent. The rates of tax in the remaining slab remain unchanged.
The Finance Act, 1983
6.3 Hindu undivided families having one or more members with independent taxable income are charged to tax under a separate rate schedule prescribed in Sub-Paragraph II of Paragraph A of Part III of the First Schedule. No change has been made in the rate schedule applicable to such Hindu undivided families. However, please see paragraph 6.5 below for surcharge on income-tax.
The Finance Act, 1983
6.4 Co-operative societies, registered firms and local authorities – In the case of co-operative societies, registered firms and local authorities, the rates of income-tax as also surcharge thereon have respectively been specified in Paragraph B, Paragraph C and Paragraph D of Part III of the First Schedule to the Finance Act. While the basic rates of income-tax in all these cases remain unchanged, the rate of surcharge on income-tax payable by them has been increased from 10 per cent to 12ýÿ per cent.
The Finance Act, 1983
6.5 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, etc., has been raised from 10 per cent to 12 per cent of the income-tax.
The Finance Act, 1983
6.6 Companies – Hitherto, income-tax was charged at the rate of 45 per cent on the total income of widely-held domestic companies in cases where the total income of the company did not exceed Rs. 1 lakh and at the rate of 55 per cent in cases where the total income exceeded the said amount. The Finance Act has removed this differential rate of tax : income-tax in the case of all widely-held domestic companies will now be charged at a uniform rate of 55 per cent of the total income.
The Finance Act, 1983
6.7 In the case of closely-held domestic and industrial companies whose total income did not exceed Rs. 2 lakhs, income-tax was charged at the rate of 55 per cent and, in cases where the total income exceeded the said amount, at the rate of 60 per cent. This differential rate of tax has also been removed and income of all closely-held domestic industrial companies will now be charged to tax at the rate of 60 per cent of the total income.
The Finance Act, 1983
6.8 Till now, the term ýÿindustrial companyýÿ has been defined to mean a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. The Finance Act has enlarged the definition of the term ýÿindustrial companyýÿ to also include companies which are mainly engaged in the business of carriage, by road or inland waterways, of passengers or goods or in the business of execution of projects. The term ýÿprojectýÿ has been defined to mean a project for the construction of a building, road, dam, bridge or other structure or assembly or installation of any machinery or plant. A company shall be deemed to be mainly engaged in the business of generation or distribution of electricity or any other form of power or carriage by road or inland waterways of passengers or goods or in the construction of ships or in the execution of projects or in the manufacture or processing of goods or in mining, if the income attributable to any one or more of these activities included in its total income of the relevant year (as computed before making any deduction under Chapter VI-A of the Income-tax Act) is not less than 51 per cent of such total income.
The Finance Act, 1983
6.9 Royalties received by a foreign company from an Indian concern in pursuance of an agreement made by it with the Indian concern after March 31, 1961 but before April 1, 1976 is chargeable to income-tax at the basic income-tax rate of 50 per cent plus surcharge thereon at the specified rate, in cases where the agreement has been approved by the Central Government. The same rate is applicable in respect of fees for technical services received by a foreign company from an Indian concern in pursuance of an agreement made by it with the foreign concern after February 29, 1964 but before April 1, 1976, if such agreement has been approved by the Central Government. The relevant provisions in Paragraph E of Part III of the First Schedule to the Finance Act have been amended to secure that the same rate is also applicable in respect of royalties and fees for technical services received by a foreign company from Government under agreements entered into within the aforesaid period and approved by the Central Government. The amended provisions will apply for purposes of payment of ýÿadvance taxýÿ during the financial year 1983-84.
The Finance Act, 1983
6.10 Hitherto, the amount of income-tax in the case of all companies was being increased by a surcharge calculated at the rate of 2ýÿ per cent of such income-tax. The rate of surcharge has been raised to 5 per cent.
The Finance Act, 1983
6.11 The Finance Act has provided that a company may, in lieu of payment of one-half of the surcharge on income-tax, make, before the last instalment of advance tax is due in its case, a deposit with the Industrial Development Bank of India under a scheme to be framed by the Central Government under section 2(7) of the Finance Act and where the amount of the deposit so made is equal to or exceeds one-half of the amount of surcharge on income-tax payable by it, the surcharge payable by it shall be reduced by one-half. Where the amount of deposit so made falls short of one-half of the amount of surcharge, the surcharge payable by the company shall be reduced by the amount of the deposit so made. It may be noted that in order to get the benefit of this provision, it will be necessary for the company to make the requisite deposit with the IDBI before the last instalment of advance tax is due in its case. The liability towards payment of one-half of the surcharge on income-tax will stand reduced only with reference to the deposit made within the time allowed and surcharge on the income-tax will be payable to the extent of the shortfall in the deposit, if any.
The Finance Act, 1983
6.12 It has also been provided that a company may make a deposit with the IDBI under a scheme to be notified by the Central Government in this behalf at any time during the financial year 1983-84. A scheme in this behalf, namely the Companies Deposits (Surcharge on Income-tax) Scheme, 1983 has since been notified on September 14, 1983. Where the amount of deposit so made is equal to or exceeds one-half of the amount of surcharge on income-tax payable by the company for the assessment year 1984-85, the surcharge payable by it shall be reduced by one-half. Where the amount of deposit so made falls short of one-half of the amount of surcharge payable by it for the assessment year 1984-85, the surcharge payable by the company shall be reduced by the amount of deposit so made. In this connection, it may also be noted that the abatement in the liability towards payment of one-half of the surcharge on income-tax will be limited to the amount of deposit made during the financial year 1983-84 and the company will not be liable to make any further deposit after the expiry of the financial year 1983-84 in lieu of its liability towards one-half of the surcharge on income-tax for the assessment year 1984-85, whether such liability arises on self-assessment or is determined on regular assessment or in any subsequent proceeding by way of rectification, appeal or revision.
The Finance Act, 1983
Partially integrated taxation of non-agricultural income with income derived from agriculture
7. As in the past, the Finance Act 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 computation of ýÿadvance taxýÿ and charging of income-tax on certain incomes in cases where accelerated assessments are required to be made during the financial year 1983-84. These provisions are broadly on the same lines as those in earlier years.
[Section 2 and the First Schedule of the Finance Act]
THE FINANCE ACT, 1983
Amendment of the definition of “charitable purpose” – Section 2(15)
8. Under section 2(15 ) “charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. Section 3(a) of the Finance Act has omitted the words “not involving the carrying on of any activity for profit” from the definition. This amendment is consequential to the amendment made in section 11 by section 6(b) of the Finance Act whereunder profits and gains of business in the case of charitable or religious trusts and institutions will not be entitled to exemption under that section, except in cases where the business fulfils the conditions specified in section 11(4). The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 3(a) of the Finance Act]
THE FINANCE ACT, 1983
Amendment of the definition of “company in which the public are substantially interested” – Section 2(18)
9.1 Section 2(18 ) defines the expression “company in which the public are substantially interested” (that is, a widely-held company). Sub-clauses (a), (aa) and (ab ) of the said definition deal with special categories of companies (e.g., Government owned companies, companies registered under section 25 of the Companies Act, 1956, companies having no share capital) which are regarded as widely-held companies. Sub-clause (b ), which is applicable in the generality of cases, provides that a company will be regarded as a widely-held company if it is not a private company as defined in the Companies Act, 1956 and it fulfils either the conditions specified in item (A) or in item (B) of the said clause. The condition specified in item (A) aforesaid is that shares in the company (not being shares entitled to a fixed rate of dividend) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Security Contracts (Regulation) Act, 1956 and the rules made thereunder. A company which does not fulfil the condition laid down in item (A) has to fulfil the three conditions specified in item (B).
THE FINANCE ACT, 1983
9.2 The Finance Act has substituted item (B) by a new item. The effect of the substituted item (B) will be that where the shares of a company are not listed in a recognised stock exchange in India as on the last day of the relevant previous year, the company will not be regarded as a widely-held company, unless the shares in the company (not being shares entitled to a fixed rate of dividend) carrying not less than 50 per cent of the voting power (40 per cent in the case of Indian companies engaged in manufacturing activities, etc.) have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by the Government, or a statutory corporation, or a widely-held company or a wholly owned subsidiary of such company. If the requisite percentage of the shares of the company is not so held, the company would be regarded as a closely-held company even though fifty per cent or more of its shares are held by the public generally.
THE FINANCE ACT, 1983
9.3 The amendment takes effect from April 2, 1983. Hence, the amended definition will not apply in relation to the assessment year 1983-84, but would apply only in relation to the assessment year 1984-85 and subsequent years. It may, however, be noted that the amended definition will have to be taken into account for the purposes of payment of advance tax and deduction of tax at source during the financial year 1983-84.
[Section 3(b) of the Finance Act]
THE FINANCE ACT, 1983
Income deemed to accrue or arise in India – Section 9
10.1 Under section 9(1)( i), any income accruing or arising, whether directly or indirectly,—
a. through or from any business connection in India, or
b. through or from any property in India, or
c. through or from any asset or source of income in India, or
d. through the transfer of a capital asset situate in India,
is deemed to accrue or arise in India.
THE FINANCE ACT, 1983
10.2 The Finance Act has inserted a new clause (c) in the Explanation to provide that in the case of a non-resident engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities confined to collection of news and views in India for transmission out of India.
THE FINANCE ACT, 1983
10.3 This amendment takes effect retrospectively from April 1, 1962, i.e., the date of commencement of the Income-tax Act.
[Section 4(a) of the Finance Act]
THE FINANCE ACT, 1983
11.1 Under section 9(1)( ii), income chargeable to tax under the head “Salaries” is deemed to accrue or arise in India if it is earned in India.
THE FINANCE ACT, 1983
11.2 The Gujarat High Court in a judgment dated February 25, 1980 in CIT v. S.G. Pgnatale [1980] 124 ITR 391 has held that if the liability to pay salary arises outside India and the salary is also payable outside India, the same cannot be deemed to accrue or arise in India even if the services are rendered in India.
THE FINANCE ACT, 1983
11.3 The Finance Act has inserted an Explanation which declares, for the removal of doubts, that income chargeable under the head “Salaries” payable for service rendered in India will be regarded as income earned in India.
THE FINANCE ACT, 1983
11.4 The amendment takes effect retrospectively from April 1, 1979. It is relevant to note that as the Explanation specifically makes the aforesaid provision “for the removal of doubts”, it should be taken to reflect the true legislative intention in regard to the relevant provisions from the commencement of the Income-tax Act. It will, therefore, not be permissible for assessees to contend that for the assessment year 1978-79 and earlier years, their assessments should be revised under section 264 by ignoring the provisions of the new Explanation and following the principle enunciated by the Gujarat High Court. However, as the new Explanation has, in terms, been inserted from April 1, 1979, it will also not be permissible to reopen or rectify completed assessments for the assessment year prior to the assessment year 1979-80.
[Section 4 of the Finance Act]
JUDICIAL ANALYSIS
Explained in- Citing reference to para 11.4, in ITO v. R.T. Lawrence [1986] 15 ITD 490 (All.): the Tribunal observed as follows,
“. . .Regarding the circular or instructions issued by the CBDT in the first place, no specific directions have been issued. The circular is only by way of explanatory notes to the provisions of the Finance Act, 1983. Such explanation is not binding on this Tribunal. Further, an assessee cannot be bound by any circular, unless it is in its favour. The income-tax authorities, of course, are bound by the circular if it is in favour of the assessee. These issues are now well settled by the various pronouncements of the Supreme Court. . .”(p. 499).
THE FINANCE ACT, 1983
Exemption from income-tax of tax paid on behalf of a foreign company in respect of royalty or fees for technical services – Section 10(6A)
12.1 A new clause (6A) has been inserted in section 10 to provide that where income is derived by a foreign company by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after March 31, 1976 and tax on such income is payable, under the terms of such agreement, by Government or the Indian concern to the Central Government, the tax so paid will not be included in computing the total income of the foreign company. In other words, there will not be any “grossing up” in respect of such tax. Where the relevant agreement is made by the foreign company with any State Government or Indian concern, the exemption under this provision will be available only if the agreement is approved by the Central Government. The expressions “royalty” and “fees for technical services” will have the meaning assigned to them respectively under Explanation 2 to section 9(1)(vi) and section 9(1)(vii) and the expression “foreign company” will have the meaning assigned to it in section 80B.
THE FINANCE ACT, 1983
12.2 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to assessment year 1984-85 and subsequent years.
[Section 5(a) of the Finance Act]
THE FINANCE ACT, 1983
Exemption in respect of gratuities – Section 10(10)
13.1 Under section 10(10 ) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or the Central Civil Services (Pension) Rules, 1972 or any other similar schemes applicable to Government employees or employees of a local authority is completely exempt from income-tax. Any gratuity received under the Payment of Gratuity Act, 1972 is also exempt from income-tax to the extent it does not exceed the amount calculated in accordance with section 4(2) and (3) of that Act. As regards other gratuities received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, the exemption from income-tax is restricted to the amount computed at one-half month’s salary (calculated on the basis of average salary for the three years immediately preceding the year in which the gratuity is paid) for each year of completed service, subject to a maximum of Rs. 30,000 or 20 months’ salary so calculated, whichever is less. Where gratuity is received by an employee from two or more employers in the same year, the maximum amount of gratuity exempt from tax is Rs. 30,000. In a case where an employee, who has received any gratuity in any earlier year from his former employer or employers, receives gratuity from another employer in a later year, the limit of Rs. 30,000 is reduced by the amount of gratuity which has been exempted in any earlier year.
THE FINANCE ACT, 1983
13.2 Section 10(10 ) has been amended by the Finance Act raising the exemption limit for payment of income-tax on the amount of gratuity from Rs. 30,000 to Rs. 36,000 in relation to cases where the event on which gratuity is received, that is, retirement of the employee or his becoming incapacitated or termination of his employment or his death occurs on or after January 31, 1982. This has been done because the maximum amount of death-cum-retirement gratuity payable to the Central Government employees was raised to Rs. 36,000, with effect from January 31, 1982. The Central Government has also been empowered, by notification in the Official Gazette, to further raise the aforesaid monetary ceiling, keeping in view the maximum amount of death-cum-retirement gratuity which will qualify for exemption in the case of Government servants’.
THE FINANCE ACT, 1983
13.3 The amendment takes effect retrospectively from April 1, 1982 and will, accordingly, apply in relation to the assessment year 1982-83 and subsequent years. However, the enhanced ceiling of Rs. 36,000 will apply only in relation to cases where the event referred to in the preceding paragraph occurs on or after January 31, 1982.
[Section 5(b) of the Finance Act]
THE FINANCE ACT, 1983
Exemption in respect of interest on Capital Investment Bonds – Section 10(15)
14.1 Section 10(15 )(iib), inserted by the Finance Act, 1982 with effect from April 1, 1983, provided exemption in respect of interest on such Capital Investment Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf. The Capital Investment Bonds issued under Notification No. F. 4(1) -W & M/82 dated June 11, 1982 of the Ministry of Finance (Department of Economic Affairs), was specified by the Central Government for the purposes of the aforesaid provision under Notification No. GSR 413(E) of the same date issued by the Ministry of Finance (Department of Revenue). Under the notification issued by the Department of Economic Affairs, the Capital Investment Bonds could be held only by an individual in his or her name or on behalf of a minor, or jointly with another individual. Later on it was decided that Hindu undivided families may also be allowed to invest in the said Bonds. Accordingly, section 10(15)( iib) has also been amended by the Finance Act to provide that exemption from income-tax in respect of interest on Capital Investment Bonds will be available to individuals and also to Hindu undivided families.
THE FINANCE ACT, 1983
14.2 The amendment takes effect from April 1, 1983, that is, the date from which this provision was inserted by the Finance Act, 1982, and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years.
[Section 5(c)( i) of the Finance Act]
THE FINANCE ACT, 1983
Enlargement of scope of exemption from income-tax of interest payable on moneys borrowed or debt incurred in foreign countries in certain cases – Section 10(15)(iv)
15.1 The Finance Act has made certain changes in section 10(15)( iv) of the Income-tax Act relating to exemption of interest payable on loans, etc., from foreign sources.
THE FINANCE ACT, 1983
15.2 Under section 10( 15 )(iv)(a) interest payable on moneys borrowed by Government or a local authority from sources outside India is exempt from tax. The working of the existing provision did not cover cases where interest was payable in certain other situations, as for instance, interest payable on unpaid price of machinery and plant purchased on credit or where the purchase price is payable in instalments. The Finance Act has accordingly amended this provision to provide that interest payable on debts owed by Government or a local authority to sources outside India will also be exempt from income-tax.
THE FINANCE ACT, 1983
15.3 Under section 10( 15)(iv)( c) interest payable by an industrial undertaking in India on moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of raw materials or capital plant and machinery is exempt from tax, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or the debt and its repayment. The Finance Act has amended this provision and extended the exemption in respect of money borrowed or debt incurred (under similar conditions) for purchase of components. The scope of the exemption has also been extended to include purchase of capital plant and machinery under hire-purchase agreement or a lease agreement with an option to purchase such plant and machinery.
THE FINANCE ACT, 1983
15.4 Under section 10( 15)(iv)( d) interest payable by the Industrial Finance Corporation of India, the Industrial Development Bank of India and the Industrial Credit and Investment Corporation of India on moneys borrowed by them from sources outside India is exempt from tax, to the extent of the interest calculated at the rate approved by the Central Government in this behalf. The Finance Act has amended this provision to extend its scope to interest payable on moneys borrowed from sources outside India by the Export-Import Bank of India established under the Export-Import Bank of India Act, 1981.
THE FINANCE ACT, 1983
15.5 The Finance Act has also inserted a new item (g) in section 10(15)( iv) for providing exemption in respect of interest payable by a public company, formed and registered in India with the main object of providing long-term finance for construction or purchase of houses in India for residential purposes, on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government. The exemption will be limited to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loans and its repayment. This exemption will be available only in cases where the company paying the interest is approved by the Central Government for the purposes of section 36(1)(viii).
THE FINANCE ACT, 1983
15.6 The aforesaid amendments take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years.
[Section 5(c)( ii)(1), (2), (3 ) and (4) of the Finance Act]
THE FINANCE ACT, 1983
Exemption in respect of income of approved scientific research associations – Section 10(21)
16.1 Under section 10(21 ) income of a scientific research association for the time being approved for the purpose of section 35(1)(ii) which is applied solely for the purposes of the association is exempt from tax. The Finance Act has amended this provision to provide that this exemption will not be available if any sums by way of contributions received by the association are invested or deposited after February 28, 1983 otherwise than in one or more of the forms or modes specified in section 11(5) in relation to investment or deposit of certain moneys by charitable or religious trusts and institutions. Exemption from tax will also be denied if any funds of the association, invested or deposited before March 1, 1983 (otherwise than in the forms or modes referred to above), continue to remain so invested or deposited after November 30, 1983. For the purposes of this provision, it is immaterial whether the investment or deposit before 1-3-1983 had been made out of contributions received by the association or from other funds. Further, tax exemption will be denied to such associations also in cases where they hold any shares in companies (not being a Government company as defined in section 617 of the Companies Act, 1956 or a statutory corporation) after November 30, 1983. For the purpose of this provision also, the source of investment in or mode of acquisition of the shares is immaterial.
THE FINANCE ACT, 1983
16.2 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 5(d) of the Finance Act]
THE FINANCE ACT, 1983
Exemption in respect of residents of Ladakh – Section 10(26A)
17.1 Under section 10(26A ) income accruing or arising to persons who were residents of the district of Ladakh in the previous year relevant to the assessment year 1962-63 is exempt from income-tax up to the assessment year 1982-83 if such income is derived from any source in the district of Ladakh or outside India.
THE FINANCE ACT, 1983
17.2 The Finance Act has extended for a period of three years, that is, for the assessment years 1983-84 to 1985-86, the exemption from income-tax under section 10(26A) of the Act in the case of residents of Ladakh. The amendment made by the Finance Act also clarifies that the district of Ladakh will include all the areas comprised in that district on June 30, 1979, that is, the date after which the said district was bifurcated.
THE FINANCE ACT, 1983
17.3 The amendment extending the exemption from income-tax in the case of residents of the district of Ladakh takes effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. The second amendment clarifying that the district of Ladakh will include all the areas comprised in that district on June 30, 1979, takes effect from April 1, 1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years.
[Section 5(e) of the Finance Act]
THE FINANCE ACT, 1983
Modifications of the provisions relating to charitable and religious trusts and institutions – Sections 11 and 13
18.1 Under the existing provisions of the Income-tax Act, the income from any property held under trust for charitable or religious purposes is exempt from tax to the extent to which such income is applied to such purposes in India. Over the years the relevant provisions have been modified with a view to reducing the possibilities of misuse of the tax concession by persons connected with the affairs of the trust or institution.
THE FINANCE ACT, 1983
18.2 The Finance Act has made certain amendments to the relevant provisions with a view to regulating the investment of trust funds and to bring to charge business profits of such trusts, except in certain cases. The substance of the modifications in this regard is explained in the following paragraphs :
THE FINANCE ACT, 1983
18.3 Where any trust or institution does not apply 75 per cent of its income to charitable or religious purposes on the ground that it seeks to accumulate the income for application to charitable or religious purposes in a later year, it has to fulfil the following conditions laid down in section 11(2) :
a. the trust is to give a notice to the Income-tax Officer specifying the purposes for which the income is being accumulated and the period of accumulation;
b. the income so accumulated is to be invested in Government or other approved securities or deposited in Post Office Savings Bank, scheduled banks, co-operative banks and approved financial corporations.
Section 13(1)(d) provides that exemption under section 11 shall not operate for the assessment year 1983-84 or any subsequent year if any funds of the trust or institution are invested or deposited or continue to remain invested or deposited for any period during any previous year commencing on or after April 1, 1982, otherwise than in any of the forms or modes specified in sub-section (5) of section 13.
THE FINANCE ACT, 1983
18.4 The Finance Act has amended the aforesaid provisions and laid down a uniform pattern of investment for the income accumulated under section 11(2) and the funds referred to in section 13(1)(d). The forms and modes of investing or depositing such income or other funds of charitable and religious trusts and institutions are the following :
i. investment in savings certificates as defined in section 2(c) of the Government Savings Certificates Act, 1959 or any other security or certificate issued by the Central Government under the Small Savings Scheme of that Government;
ii. deposits in any account with the Post Office Savings Bank;
iii. deposits in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank).
For the purposes of this provision, “scheduled bank” means the State Bank of India, a subsidiary bank of the State Bank of India, a corresponding bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 or any other bank included in the Second Schedule to the Reserve Bank of India Act, 1934;
iv. investment in units of the Unit Trust of India;
v. investment in any security issued by the Central Government or any State Government;
vi. investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or any State Government;
vii. investment or deposit in any Government company as defined in section 617 of the Companies Act, 1956;
viii. deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India, if such corporation is approved by the Central Government for the purposes of section 36(1)(viii);
ix. deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, if such company is approved by the Central Government for the purposes of section 36(1)(viii);
x. investment in immovable property. For the purposes of this provision, the term “immovable property” will not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to anything attached to, the earth.
THE FINANCE ACT, 1983
18.5 Section 13(1)(d ), as amended by the Finance Act, provides that the income of any charitable or religious trust or institution will not be entitled to exemption under section 11 or section 12, if for any period during the previous year—
i. any funds of the trust or institution are invested or deposited, after February 28, 1983, otherwise than in any one or more of the forms or modes specified above;
ii. any funds of the trust or institution invested or deposited before March 1, 1983, otherwise than in any one or more of the forms or modes specified above, continue to remain so invested or deposited after November 30, 1983; or
iii. any shares in a company (other than a Government company as defined in section 617 of the Companies Act, 1956 or a statutory corporation) are held by the trust or institution after November 30, 1983. The provisions of sub-sections (2) and (4) of section 13 have also been amended to clarify that the provisions of the said sub-sections shall be without prejudice to the requirements laid down in section 13(1)(d).
THE FINANCE ACT, 1983
18.6 However, the aforesaid provisions will not apply in relation to :
i. any assets held by the trust or institution, where such assets formed part of the corpus of the trust or institution as on June 1, 1973 and such assets were not purchased by the trust or institution or acquired by it by conversion of, or in exchange for, any other asset;
ii. any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before March 1, 1983; and
iii. any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year 1984-85 or any subsequent assessment year.
The exception mentioned in (iii) above will, however, not apply unless the trust or institution maintains separate books of account in respect of such business.
THE FINANCE ACT, 1983
18.7 The aforesaid provisions relating to the investment of trust funds take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. It is relevant in this connection to note that the existing provisions of section 13(1)(d), which would otherwise have come into operation from the assessment year 1983-84, stand superseded by the amendments made by the Finance Act.
THE FINANCE ACT, 1983
Business income of charitable and religious trusts and institutions
19.1 The Finance Act has inserted a new sub-section (4A) in section 11 to provide that the provisions of sub-section (1) of that section relating to exemption of income derived from property held under trust for charitable or religious purposes; or of sub-section (2) thereof relating to accumulation or setting apart of such income for application to such purposes; or the connected provisions of sub-sections (3) and (3A) of the said section will not apply in relation to profits and gains of business. This provision will apply irrespective of whether the profits and gains are derived from a business carried on by the trust or institution or from a business undertaking which is held in trust for such purposes. An exception has, however, been made in relation to profits and gains of business in the following cases :
a. where the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or the business is of a kind notified by the Central Government in this behalf in the Official Gazette;
b. the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution.
THE FINANCE ACT, 1983
19.2 The exceptions mentioned under (a) and (b ) above will not be available unless separate books of account are maintained by the trust or institution in respect of such business. In consequence of the new provision made in sub-section (4A) of section 11, clause (bb) of section 13(1) (which restricted the exemption of business income in the case of charitable trusts and institutions for the relief of the poor, education or medical relief, only in cases where the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution) has been omitted.
THE FINANCE ACT, 1983
19.3 It is relevant to note that the provisions of new sub-section (4A) of section 11 do not override the provisions of section 10, and as such, profits derived by any trust, institution, association, etc., referred to in clauses (21), (22), (22A ), (23), (23A), (23B ), (23BB) and (23C) will continue to be exempt from income-tax.
THE FINANCE ACT, 1983
19.4 The Finance Act has also amended section 164 to clarify that profits and gains of business which are not exempt under section 11 will be charged to income-tax as if such profits and gains (including any other income, if any, which is also not exempt under section 11) were the income of an association of persons.
THE FINANCE ACT, 1983
19.5 The aforesaid amendments take effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Sections 6, 7 and 37 of the Finance Act]
JUDICIAL ANALYSIS
EXPLAINED IN – The view taken by the Board in para 19.1 was held as invalid and liable to be quashed, in Thanthi Trust v. CBDT [1995] 213 ITR 639 (Mad.). The court observed:
“The said circular proceeds on the basis that sub-section (4A) will apply irrespective of the fact whether the profits and gains are derived from a business carried on by the trust or institution or from a business undertaking which is held in trust for such purposes. Under point No. 1, while interpreting sub-section (4A), we have held that the said sub-section (4A) will have no application to income derived from business undertaking which is held under trust for charitable purposes. In view of the above view taken by us on a careful interpretation of section 11(4A) read with section 11(4) of the Act, we have no hesitation in holding that Circular No. 372 does not give the correct interpretation of sub-section (4A) of section 11 of the Act and that it is inconsistent with the provisions contained in the said sub-section (4A) read with sub-section (4) of section 11. The view expressed in the said circular that sub-section (4A) will apply, irrespective of whether the profits and gains are derived from a business carried on by the trust or institution or from a business undertaking which is held in trust for charitable purposes, is not warranted by the plain language of sub-sections (1), (4) and (4A) of section 11 and, therefore, it has to be held that the said Circular No. 372 is invalid and liable to be quashed. The second respondent, while passing the impugned orders, denying exemption under section 11(1) to the petitioner also placed reliance on the Circular No. 372. On that ground also, the impugned assessment orders are liable to be quashed…. (pp. 658-659)
THE FINANCE ACT, 1983
Raising of standard deduction admissible in the case of salaried taxpayers – Section 16(i)
20.1 Under section 16(i ) of the Income-tax Act, assessees deriving income under the head “Salaries” are entitled to a standard deduction in the computation of taxable salary. The standard deduction is allowed in an amount equal to 25 per cent of the salary, subject to a ceiling of Rs. 5,000. With a view to providing relief to this category of taxpayers, the Finance Act has raised the ceiling limit to Rs. 6,000.
THE FINANCE ACT, 1983
20.2 This amendment takes effect from April 1,1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 8 of the Finance Act]
THE FINANCE ACT, 1983
Deduction in respect of interest in the computation of income from house property – Section 24
21.1 In computing income from house property, deduction is allowed under section 24(1)(vi) in respect of interest paid on capital borrowed for acquisition, construction, repair, renewal, or reconstruction of the house property.
THE FINANCE ACT, 1983
21.2 The Finance Act has inserted an Explanation to the aforesaid provision to provide that interest payable by an assessee in respect of capital borrowed for the acquisition or construction of a house property and pertaining to the period prior to the previous year in which such property has been acquired or constructed shall, to the extent it is not allowed as a deduction under any other provision of the Act, be deducted in five equal annual instalments commencing from the previous year in which the house is acquired or constructed.
THE FINANCE ACT, 1983
21.3 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 9 of the Finance Act]
THE FINANCE ACT, 1983
Deduction in respect of depreciation allowance – Section 32
22.1 Under section 32 deduction is allowed, in computing the taxable profits and gains of a business or profession, in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of his business or profession if the conditions laid down in this behalf are fulfilled. Generally, the admissible depreciation allowance is computed by applying the rate specified in the schedule of rates for depreciation laid down in the Income-tax Rules to the written down value of the asset, excepting in the case of ocean-going ships for which depreciation is calculated on straight-line method as a percentage of the cost.
THE FINANCE ACT, 1983
22.2 Under the first proviso to section 32(1), the whole of the actual cost of any machinery or plant is deducted in the computation of taxable profits in cases where the actual cost of such machinery or plant does not exceed Rs. 750. The Finance Act has amended this proviso and increased the monetary ceiling of Rs. 750 to Rs. 5,000.
THE FINANCE ACT, 1983
22.3 Under section 32(1)( iv) initial depreciation equal to 40 per cent of the actual cost of buildings used solely for the purpose of residence of low paid employees or for welfare activities for such employees is allowed in computing the taxable profits and gains of the accounting year in which such buildings are erected. The initial depreciation so allowed is, however, not deducted from the actual cost of the building in determining the written down value of the building for the purposes of computing the admissible depreciation allowance in respect of such building in subsequent years. The Finance Act has amended this clause to provide that the initial depreciation allowed in respect of any such building will be taken into account in determining its written down value.
THE FINANCE ACT, 1983
22.4 Under section 32(1)( v) initial depreciation at the rate of 25 per cent of the actual cost of erection of a building owned by an Indian company and used by such company as an approved hotel is allowed in computing the taxable profits of the hotel business of the accounting year in which such building is erected. The initial depreciation so allowed is also not taken into account in determining the written down value of the building for the purposes of computing the admissible depreciation allowance in respect of such building in subsequent years. The Finance Act has amended this clause to provide that the initial depreciation allowed in respect of such building will also be taken into account in determining its written down value.
THE FINANCE ACT, 1983
22.5 These amendments take effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years. It may be noted that the aforesaid amendments will apply in computing the written down value of such buildings for the assessment year 1984-85 even though the initial depreciation under the aforesaid provisions may have been allowed in the assessment year 1983-84 or any earlier assessment year.
[Section 10 of the Finance Act]
THE FINANCE ACT, 1983
Investment allowance for ship repair industry – Section 32A
23.1 Under section 32A a deduction on account of investment allowance is allowed in the computation of taxable profits at the rate of 25 per cent of the actual cost of the following:
1. New ships or new aircraft acquired by taxpayers engaged in the business of operation of ships or aircraft.
2. New machinery or plant installed for the purposes of business of generation or distribution of electricity or any other form of power.
3. New machinery or plant installed in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing.
4. New machinery or plant installed in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule.
THE FINANCE ACT, 1983
23.2 With a view to encouraging ship repair industry, the Finance Act has amended the provisions relating to investment allowance so as to make the allowance admissible in respect of new machinery and plant installed after March 31, 1983 but before April 1, 1988 for the purposes of the business of carrying on repairs to ocean-going vessels or other powered craft, if the business is carried on by an Indian company and such business is for the time being approved by the Central Government.
THE FINANCE ACT, 1983
23.3. The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 11(a) of the Finance Act]
THE FINANCE ACT, 1983
Investment allowance in respect of machinery and plant for pollution control and protection of environment – Section 32A(2C)
24.1 The Finance Act has inserted a new sub-section (2C) in section 32A to provide for investment allowance at the higher rate of 35 per cent (as against the normal rate of 25 per cent) of the actual cost of machinery or plant which would assist in the control of pollution or protection of environment and which has been notified in this behalf by the Central Government in the Official Gazette. This concession will be allowed only if the machinery or plant is installed by the assessee after May 31, 1983 in any industrial undertaking.
THE FINANCE ACT, 1983
24.2 The amendment takes effect from June 1, 1983. Conformably with the principle that the substantive law applicable as on April 1 of an assessment year is the law applicable to that assessment year, this provision will apply in relation to the assessment year 1984-85 and subsequent years.
[Section 11(b) of the Finance Act]
THE FINANCE ACT, 1983
Modification of provision relating to deduction in respect of payment to a scientific research association, etc., to be used for scientific research – Section 35(2A)
25.1 Under section 35(2A) a weighted deduction equal to one and one-third times the expenditure is allowed in the computation of profits and gains from business or profession, in respect of any contribution made by an assessee to an approved scientific research association, university, college or other institution or to a public sector company to be used for scientific research under approved programmes.
THE FINANCE ACT, 1983
25.2 The Finance Act has amended the aforesaid provision to provide that the weighted deduction will be available only if such contribution is made with a specific direction by the assessee that the sum paid shall not be used for acquisition of any land or building or construction of any building.
THE FINANCE ACT, 1983
25.3 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 12 of the Finance Act]
T HE FINANCE ACT, 1983
Withdrawal of export markets development allowance – Section 35B
26.1 Under the existing provisions of section 35B relating to export markets development allowance, a domestic company or a resident non-corporate assessee is entitled to a weighted deduction in the computation of the profits or gains from business in respect of expenditure (other than capital expenditure or personal expenses of the assessee) on certain specified activities related to export of goods, services or facilities which the assessee deals in or provides in the course of his business. The deduction is allowed in an amount equal to one and one-third times the aggregate of such expenditure incurred by the assessee during the previous year.
THE FINANCE ACT, 1983
26.2 The Finance Act has amended the section to provide that no deduction will be allowed under this provision in relation to expenditure incurred after February 28, 1983.
THE FINANCE ACT, 1983
26.3 The amendment comes into force from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years.
[Section 13 of the Finance Act]
THE FINANCE ACT, 1983
Withdrawal of weighted element of agricultural development allowance – Section 35C
27.1 Under section 35C, a company or a co-operative society which uses any product of agriculture, animal husbandry or dairy or poultry farming as raw materials or processes such product is eligible for a weighted deduction of the expenditure incurred, whether directly or through an approved association or body, in the provision of agricultural inputs and extension services to cultivators, growers or producers of such products. The weighted deduction is allowed on an amount equal to one and one-fifth times the amount of the qualifying expenditure.
THE FINANCE ACT, 1983
27.2 The Finance Act has amended section 35C with a view to withdrawing the weighted element in this deduction (which is 20 per cent of the qualifying expenditure) and restricting the deduction admissible only to 100 per cent of the amount of the qualifying expenditure.
THE FINANCE ACT, 1983
27.3 The amendment will take effect from April 1, 1984 and will, accordingly, apply in relation to assessment year 1984-85 and subsequent years.
[Section 14 of the Finance Act]
THE FINANCE ACT, 1983
Amendment of provision relating to rural development allowance – Section 35CC
28.1 Under section 35CC relating to rural development allowance, where an assessee being a company or a co-operative society incurs any expenditure on any programme of rural development, a deduction is allowed of the amount of such expenditure incurred during the previous year provided that such programme has been approved by the prescribed authority. Where any approved programme of rural development undertaken by a company or a co-operative society is executed or carried out by it through another person engaged by it to do the work in respect of the programme on its behalf, the expenditure incurred by the company or co-operative society on the execution of the programme through such other person also qualifies for deduction under this section as such expenditure has to be regarded as expenditure incurred by it.
THE FINANCE ACT, 1983
28.2 The Finance Act has inserted a new proviso to sub-section (1) of the said section to the effect that the prescribed authority shall not approve any programme of rural development unless such programme is a programme falling within any such class or category of programmes of rural development as may be specified by the Central Government in this behalf.
THE FINANCE ACT, 1983
28.3 The amendment takes effect from April 1, 1983 and, as such, the prescribed authority will be precluded from granting approval to any programme of rural development on or after April 1, 1983, unless the programme falls within the specified class or category of programmes. This provision, will, however, not apply in relation to programmes which have been approved by the prescribed authority before April 1, 1983.
[Section 15 of the Finance Act]
THE FINANCE ACT, 1983
Modification of provisions relating to expenditure by way of payment to associations and institutions for carrying out rural development programmes – Section 35CCA
29.1 Under section 35CCA(1)( a) sums paid by an assessee carrying on business or profession to any association or institution, which has as its object the undertaking of programmes of rural development, are allowed as deduction in computing the profits and gains from business or profession where such sums are to be used for carrying out a programme of rural development. The deduction is allowed only if the association or institution and also the programme of rural development for which the sums are paid have been approved by the prescribed authority.
THE FINANCE ACT, 1983
29.2 Under an amendment made by the Finance Act, the aforesaid deduction will not be allowed in respect of any sums paid to such associations or institutions unless the assessee furnishes a certificate from the association or institution to the effect that—
i. the programme of rural development had been approved by the prescribed authority before March 1, 1983; and
ii. where such payment is made after February 28, 1983, such programme involves work by way of construction of any building or other structure (whether for use as a dispensary, school, training or welfare centre, workshop or for any other purpose) or the laying of any road or the construction or boring of a well or tube-well or the installation of any plant or machinery, and such work has commenced before March 1, 1983.
THE FINANCE ACT, 1983
29.3 Section 35CCA(1)(b ) provides for a similar deduction in respect of sums paid to an approved association or institution, which has as its object the training of persons for implementing programmes of rural development. Under another amendment made to said section by the Finance Act, the deduction in respect of expenditure by way of payment of any sum to such associations or institutions will not be allowed unless the assessee furnishes a certificate from such association or institution to the effect that—
i. the prescribed authority had approved the association or institution before March 1, 1983; and
ii. the training of persons for implementing any programme of rural development had been started by the association or institution before March 1, 1983.
The certificate referred to in this and the preceding paragraph will not be issued by any association or institution unless it has obtained from the prescribed authority an authorisation in writing to issue certificates of such nature.
THE FINANCE ACT, 1983
29.4 Under another amendment made to section 35CCA by the Finance Act, payment of any sum to a rural development fund set up and notified by the Central Government in this behalf will qualify for deduction under the said section.
THE FINANCE ACT, 1983
29.5 These amendments take effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years.
[Section 16 of the Finance Act]
THE FINANCE ACT, 1983
Provision for curbing avoidable or ostentatious expenditure in business or profession – Section 37
30. Section 37 provides for deduction in the computation of taxable profits of any expenditure, other than expenditure of the nature described in sections 30 to 36 and section 80VV, or expenditure in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession carried on by the taxpayer. With a view to curbing certain categories of avoidable or ostentatious expenditure by assessees carrying on business or profession, the Finance Act has made certain amendments to section 37. The substance of these amendments is explained in paragraphs 31 to 34 hereunder.
JUDICIAL ANALYSIS
EXPLAINED IN – In CIT v. The Statesman Ltd. [1992] 198 ITR 582 (Cal.), the Court quoted paragraph 30, and observed:
“It is, therefore, evident that the provisions of sub-sections (3A) and (3B) of section 37 were initially introduced by the Finance Act, 1978, with an object to place a curb on ‘extravagant and socially wasteful expenditure… at the cost of the exchequer’. The provisions were subsequently withdrawn after two years and reintroduced by the Finance Act, 1983, which also lasted for two years, i.e., assessment years 1984-85 and 1985-86. The object of revival of the provisions was ‘with a view to curbing certain categories of avoidable or ostentatious expenditure by assessees carrying on business or profession’.” (p. 588)
THE FINANCE ACT, 1983
31.1 Scope of entertainment expenditure – For the removal of doubts regarding the scope of the expression “entertainment expenditure”, the Finance Act has inserted a new Explanation for the purpose of sub-section (2A) of section 37 and also sub-section (2B) of that section as that sub-section stood before April 1, 1977. The Explanation clarifies that “entertainment expenditure” includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom, usage or trade. However, expenditure incurred in providing food or beverages by an employer to his employees in office, factory or other place of their work will not be regarded as entertainment expenditure.
THE FINANCE ACT, 1983
31.2 This amendment takes effect retrospectively from April 1, 1976 and will, accordingly, apply in relation to the assessment year 1976-77 and subsequent years.
THE FINANCE ACT, 1983
32.1 Limits for deduction of entertainment expenditure – Under the existing provisions of section 37(2A), deduction in respect of expenditure on entertainment is subject to certain limits calculated with reference to the quantum of profits as under :
1. On the first Rs. 10 lakhs of the profits and gains of business or profession (as computed before making any deduction in respect of investment allowance, development rebate or development allowance or in respect of entertainment expenditure), at the rate of ½ per cent of the profits or Rs. 5,000, whichever is higher.
2. On the next Rs. 40 lakhs of the profits and gains as so computed at the rate of 1/4 per cent of such profits.
3. On the next Rs. 1,20,00,000 of such profits and gains, at the rate of 1/8 per cent of such profits.
4. On the balance of such profits and gains, nil.
The maximum deductible amount computed under the aforesaid table works out to Rs. 30,000 only.
THE FINANCE ACT, 1983
32.2 The Finance Act has modified the provision relating to expenditure qualifying for deduction. While the deduction in respect of the first two slabs of the above table remains unchanged, on profits in excess of Rs. 50 lakhs, deduction will be allowed at the rate of 1/8 per cent of such profits. It has, however, been provided that the maximum deduction shall in no case exceed Rs. 50,000 as against Rs. 30,000 available under the existing table of rates.
THE FINANCE ACT, 1983
32.3 This amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
JUDICIAL ANALYSIS
EXPLAINED IN – In CIT v. Patel Bros & Co. Ltd. [1995] 215 ITR 165 (SC), the Supreme Court quoted paragraphs 30, 31.1, 31.2 and 32.1, and observed:
“Learned counsel for the Revenue contended that Explanation 2 is clarificatory and, therefore, even without Explanation 2, the provision must be understood and construed in the same manner. It appears to us that insertion of Explanation 2 made retrospectively, but restricted in its application only with effect from April 1, 1976, is itself an indication that its application prior to April 1, 1976, is excluded. If Explanation 2 was merely clarificatory of the ordinary meaning, as contended by learned counsel for the Revenue, it was unnecessary to restrict its retrospective application in this manner only from April 1, 1976. The construction we have made of sub-section (2A) of section 37 as it existed during the relevant assessment period cannot, therefore, be affected by Explanation 2 to sub-section (2A) which was inapplicable during the relevant period.
In our opinion, the construction we have made of the provision as it existed during the relevant period flows not merely from the language of the provision but also matches with the object thereof. It means that the expenditure incurred by the assessees in providing ordinary meals to outstation customers according to established business practice, was a permissible deduction in spite of sub-section (2A) of section 37, to which the assessees were entitled in the computation of their total income for the purpose of payment of tax under the Income-tax Act, 1961, during the relevant period prior to April 1, 1976.” (p. 173)
THE FINANCE ACT, 1983
33.1 Partial disallowance of certain expenses – The Finance Act has inserted four new sub-sections (3A), (3B), (3C) and (3D) in section 37. Sub-section (3A) provides that where the aggregate expenditure incurred by any assessee on any one or more of the specified items of expenditure exceeds Rs. 1 lakh, twenty per cent of such excess shall not be allowed as deduction in computing the taxable profits.
THE FINANCE ACT, 1983
33.2 New Sub-section (3B) specifies the following items of expenditure for the purposes of this disallowance :
1. Advertisement, publicity and sales promotion.
2. Running and maintenance of aircraft and motor-cars.
3. Payments made to hotels.
The Explanation to the aforesaid sub-sections clarifies that—
a. expenditure incurred by the assessee under the specified heads will be reduced by so much of such expenditure as is not allowed under any other provision of the Income-tax Act and the disallowance under the new provision, will be made only with reference to the balance;
b. expenditure on advertisement, publicity and sales promotion shall not include remuneration to the employees of the assessee engaged in the said activities; hence, such remuneration will not be taken into account for the purposes of the disallowance under this provision;
c. expenditure on chartering aircraft or the hire charges for engaging cars plied for hire, expenditure on payment of conveyance allowance to employees or directors will be taken into account for the purposes of this disallowance.
THE FINANCE ACT, 1983
33.3 New sub-section (3C) provides that the provision in sub-section (3A) relating to disallowance of expenditure will not apply in relation to expenditure incurred wholly and exclusively by domestic companies and resident non-corporate taxpayers (a) on advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business; or (b) on running and maintenance of motor-cars in any branch office or agency maintained outside India for the promotion of the sale outside India of such goods, services or facilities.
THE FINANCE ACT, 1983
33.4 New sub-section (3D) provides that no disallowance under sub-section (3A) shall be made in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on the running and maintenance of aircraft. Similarly, expenditure incurred on maintenance and running of motor-cars for hire will not be taken into account for the purposes of this disallowance in the case of persons engaged in the business of running motor-cars on hire.
THE FINANCE ACT, 1983
33.5 These amendments take effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
THE FINANCE ACT, 1983
34.1 Expenditure on maintenance of guest houses – A new sub-section (5) has been inserted in section 37 by way of a clarificatory amendment to provide that for the purposes of the existing provisions contained in sub-section (4) of the said section relating to disallowance of expenditure on maintenance of guest houses, any accommodation maintained, hired or reserved or otherwise arranged by the assessee for providing lodging, or boarding and lodging, to any person (including any employee or, where the assessee is a company, also any director of, or the holders of any other office in, the company) on tour or visit to the place at which such accommodation is situated, will be regarded as accommodation in the nature of a guest house.
THE FINANCE ACT, 1983
34.2 This amendment takes effect retrospectively from April 1, 1979 and will, accordingly, apply in relation to the assessment year 1979-80 and subsequent years.
[Section 17 of the Finance Act]
THE FINANCE ACT, 1983
Disallowance of unpaid statutory liability – Section 43B
35.1 Under section 145 profits and gains of business or profession are computed in accordance with the method of accounting regularly employed by the assessee. Broadly stated, under the mercantile system of accounting, income and expenditure are accounted for on the basis of accrual and not on the basis of actual receipts or disbursements. For the purposes of computation of profits and gains of business or profession, section 43(2) defines the word “paid” to mean “actually paid or incurred” according to the method of accounting on the basis of which the profits or gains are computed.
THE FINANCE ACT, 1983
35.2 Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer’s contribution to provident fund, Employees’ State Insurance Scheme, etc., for long periods of time, extending sometimes to several years. For the purpose of their income-tax assessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand, they dispute the liability and do not discharge the same. For some reason or the other, undisputed liabilities also are not paid.
THE FINANCE ACT, 1983
35.3 To curb this practice, the Finance Act has inserted a new section 43B to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force or any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees shall irrespective of the previous year in which the liability to pay such sum was incurred, be allowed only in computing the income of that previous year in which such sum is actually paid by the assessee.
THE FINANCE ACT, 1983
35.4 The section also contains an Explanation for the removal of doubts. The Explanation provides that where a deduction in respect of any sum aforesaid is allowed in computing the income of any previous year, being a previous year relevant to the assessment year 1983-84 or any earlier assessment year, in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under section 43B in respect of such sum on the ground that the sum has been actually paid by him in that year. In other words, an assessee who has already been allowed deduction of a liability on account of tax or duty or in respect of any sum payable as contribution to any fund for the assessment year 1983-84 or any earlier year in which the liability to pay was incurred, cannot in respect of that liability, be allowed a deduction in the assessment year 1984-85 or any subsequent year on the ground that he has actually made a payment towards such liability in that year.
THE FINANCE ACT, 1983
35.5 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 18 of the Finance Act]
JUDICIAL ANALYSIS
EXPLAINED IN – Paragraphs 35.1 to 35.5 were quoted and explained in Fluid Air (India) Ltd. v. DCIT [1997] 63 ITD 182 (Mumbai), as follows:
“10. From a plain reading of the aforesaid Explanation of the CBDT Circular, it is clear that section 43B of the Act, 1961, was inserted by the Finance Act, 1983 with effect from 1-4-1984 to curb the practice resorted by many taxpayers-without discharging their statutory liabilities such as excise duty, contribution to Provident Fund, E.S.I. etc., etc. for long period but at the same time claiming such liabilities as deductions in their income-tax assessments on the ground that they maintained accounts on mercantile or accrual basis. At the same time, the liabilities were disputed and they did not discharge the liabilities. Section 43B of the Act was inserted to provide that deduction for any sum payable by the assessee by way of tax or duty under any law or any sum payable by the assessee as employer by way of contribution to any provident fund or superannuation fund or gratuity fund, etc., shall be allowed as a deduction in computing the income of the year in which such sum is actually paid by the assessee….”(pp. 189-190)
THE FINANCE ACT, 1983
Taxation of certain incomes of foreign companies – Sections 44D and 115A
36.1 Section 44D(a ) provides that in the case of a foreign company, the deductions admissible under sections 28 to 44C of the Act in computing the income by way of royalty or fees for technical services received from an Indian concern in pursuance of an agreement made with the Indian concern before April 1, 1976 shall not exceed 20 per cent of the gross amount of such income. Where such agreement is made after March 31, 1976, section 44D(b) provides that no deduction will be allowed in respect of any expenditure or allowance under any of the said sections in computing such income. In other words, the gross amount of income by way of royalties or fees for technical services received by foreign companies from an Indian concern under agreements made after March 31, 1976 is chargeable to tax. Under section 115A(1)(b) of the Income-tax Act, the gross amount of such income is chargeable to tax at the flat rate of forty per cent if the relevant agreement is approved by the Central Government. A lower rate of twenty per cent is, however, applicable in respect of lump sum royalties received for the transfer outside India of, or the importing of, information outside India in respect of any data, documentation, drawing, etc.
THE FINANCE ACT, 1983
36.2 The Finance Act has amended the aforesaid provisions of sections 44D and 115A so as to extend their application also in cases where such income by way of royalty or fees for technical services is received by a foreign company from Government.
THE FINANCE ACT, 1983
36.3 The Finance Act has also amended section 44D to provide for the taxation of the gross amount of income by way of interest received by foreign companies from Government or an Indian concern on moneys borrowed or debt incurred by the Government or the Indian concern in foreign currency. Under an amendment made to section 115A the gross amount of income by way of interest will be charged to tax at the rate of 25 per cent.
THE FINANCE ACT, 1983
36.4 The aforesaid amendments take effect from June 1, 1983 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Sections 19 and 35 of the Finance Act]
THE FINANCE ACT, 1983
Exemption in respect of “long-term capital gains” in cases where the net consideration received or accruing as a result of transfer is invested or deposited in specified financial assets – Section 54E
37.1 Under section 54E capital gains arising from the transfer of a “long-term capital asset” are exempted from income-tax if the net consideration received or accruing as a result of the transfer is invested or deposited in any specified financial asset within a period of six months from the date of the transfer. Where only a part of the consideration is so invested or deposited, the exemption from tax on capital gains is granted proportionately. Where the capital asset is compulsorily acquired by the Government and additional compensation is paid to the taxpayer in any subsequent year, capital gain attributable to the additional compensation received is also exempted from tax if the amount of the additional compensation is invested or deposited in any specified financial asset within a period of six months from the date on which such additional compensation is received.
THE FINANCE ACT, 1983
37.2 Similar treatment is given where additional consideration is received in a later year in respect of a transfer, the consideration for which was originally determined or approved by the Central Government or the Reserve Bank of India. Where the specified financial asset so acquired is transferred within a period of three years from the date of its acquisition, the amount of capital gains exempted on the basis of the cost of the new asset is charged to tax in the accounting year in which the financial asset is so transferred.
THE FINANCE ACT, 1983
37.3 In relation to cases where the capital asset is transferred after February 28, 1979 the only financial asset specified for the purposes of these provisions is the National Rural Development Bond.
THE FINANCE ACT, 1983
37.4 The Finance Act has made the following modifications in the aforesaid provisions :
1. The exemption under these provisions in relation to capital gains arising on transfer of a capital asset after February 28, 1983 will be available only in cases where the assessee invests or deposits the whole or part of the net consideration in the new asset by initially subscribing to the new asset.
2. In relation to capital gains arising on transfer of any capital asset after February 28, 1983 the assessee will have a wider choice than hitherto for investing the net consideration as the following financial assets have been specified for purposes of investment in such cases:
a. such Central Government securities as may be specified in this behalf by that Government by notification in the Official Gazette;
b. special series of units of the Unit Trust of India as may be so specified by the Central Government;
[By notification No. GSR 804(E), dated October 27, 1983, the Central Government have notified the special series of units issued under the Capital Gains Unit Scheme, 1983 of the Unit Trust of India for the purposes of sub-clause (ii) of clause (c) of Explanation I to sub-section (1) of section 54E of the Income-tax Act, 1961]
c. such National Rural Development Bonds as may be so specified by the Central Government;
[By notification No. GSR 504(E), dated June 21, 1983, the Central Government have notified the National Rural Development Bonds (Second Issue) for the purposes of sub-clause (iii) of clause (c) of Explanation I to sub-section (1) of section 54E of the Income-tax Act, 1961]; and
d. such debentures issued by the Housing and Urban Development Corporation Ltd. as may be so specified by the Central Government.
3. In cases where the net consideration received or accruing on transfer of a capital asset after February 28, 1983 is invested in any specified financial asset and the assessee takes any loan or advance on the security of such new asset, he will be deemed to have converted (otherwise than by transfer) such asset on the date on which such loan or advance is taken. Accordingly, in cases where such loan or advance is taken within a period of three years from the date of acquisition of the new asset, the amount of capital gain originally exempted on the basis of the cost of the new asset will be charged to tax in the accounting year in which such loan or advance is taken.
4. Capital gains attributable to any additional compensation or consideration received by a taxpayer after February 28, 1983 in respect of any compulsory acquisition or transfer would also be exempted if such additional compensation or consideration is invested in any of the assets referred to in 2 above.
THE FINANCE ACT, 1983
37.5 These amendments take effect from April 1, 1983 and will, accordingly, also apply in relation to the assessment year 1983-84 in cases where the capital asset is transferred after February 28, 1983 or where the additional compensation or consideration is received after that date.
[Section 20 of the Finance Act]
THE FINANCE ACT, 1983
Deduction in respect of long-term savings in specified modes – Section 80C
38.1 Under section 80C tax relief is allowed in respect of long-term savings effected by certain categories of taxpayers out of their income chargeable to tax. In the case of an individual, long-term savings through life insurance or deferred annuity policies (without cash option) on the life of the individual, his spouse or child; certain provident funds and super-annuation funds; Unit-linked Insurance Plan, 10-Year and 15-Year Cumulative Time Deposit Accounts and notified Government securities, 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 and notified Government securities qualify for tax relief. In the case of a taxpayer being an association of persons or a 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 (without cash option) 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, 10-Year Cumulative Time Deposit Accounts and notified Government securities, qualify for tax relief.
THE FINANCE ACT, 1983
38.2 The tax relief, in all cases, is allowed by deducting, in the computation of the taxable income of the taxpayer, the whole of the first Rs. 6,000 of the qualifying savings plus 50 per cent of the next Rs. 6,000 plus 40 per cent of the balance of such savings. Long-term savings qualify for tax relief only to the extent that such savings do not exceed the ceiling limits laid down in this behalf. In the generality of cases, the ceiling limit applicable is 30 per cent of the gross total income of the taxpayer or Rs. 40,000, whichever is less. A higher ceiling limit is laid down in the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes. The ceiling limit in their case is 40 per cent of the professional income of the author, playwright, artist, musician, actor, sportsman and athlete plus 30 per cent of the remaining part of the gross total income or Rs. 60,000, whichever is less.
THE FINANCE ACT, 1983
38.3 With a view to providing further incentive for effecting long-term savings, the Finance Act has made the following modifications in the relevant provisions:
1. The ceiling limit of the savings qualifying for the deduction in terms of percentage of gross total income has been deleted. The qualifying amount will, therefore, be subject only to a monetary ceiling, which will remain, as at present, at Rs. 40,000 in the generality of cases and Rs. 60,000 in the case of authors, playwrights, artists, musicians, actors, sportsmen and athletes. It is relevant to note that the aforesaid monetary ceiling of Rs. 60,000 which was hitherto laid down in rule 11A of the Income-tax Rules, has now been incorporated in section 80C(4)(i).
2. In the case of Hindu undivided families, savings effected through the Public Provident Fund and 10-Year and 15-Year Cumulative Time Deposit Accounts will also qualify for tax relief.
THE FINANCE ACT, 1983
38.4 These amendments take effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
THE FINANCE ACT, 1983
38.5 The Finance Minister in para 76 of his Budget Speech for 1983-84 had announced that he intended widening the available media for savings by including National Savings Certificates (VI and VII Issues). In pursuance of this announcement, a notification No. GSR 112(E) has been issued by the Central Government on February 28, 1983 under section 80C(2)(h) of the Income-tax Act specifying the National Savings Certificates (VI Issue) and the National Savings Certificates (VII Issue) as securities for the purposes of the said provision. The notification has come into force on April 2, 1983. Conformably with the principle that the law as on April 1 of the assessment year is the law applicable to that assessment year, sums paid as subscription to the said certificates would qualify for deduction under section 80C only from the assessment year 1984-85 and not from the assessment year 1983-84.
[Section 21 of the Finance Act]
THE FINANCE ACT, 1983
Modification of the provision relating to deduction in respect of donations to certain funds, charitable institutions, etc. – Section 80G
39.1 Sub-section (5) of section 80G provides that donations to any institution or fund referred to in clause (iv) of section (2) of the said section will be entitled to tax concession under that section, only if the institution or fund is established in India for a charitable purpose and it fulfils the conditions specified in the said sub-section (5). One of the conditions specified is that where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 or clauses (22), (22A), (23 ) and (23C) of section 10. Under new sub-section (4A), which has been inserted in section 11 by the Finance Act, profits and gains of business will not be entitled to tax exemption under section 11, except in the very limited category of cases specified in the new sub-section. By virtue of the condition laid down in clause (i) of sub-section (5) of section 80G that the income derived by a charitable institution or fund to which the donation is made should be exempt from tax under sections 11 and 12, donations to any charitable institution or fund deriving profits and gains of business would not have qualified for deduction under the said section. However, the Finance Act has inserted a proviso to clause (i) of sub-section (5) of section 80G to the effect that where an institution or fund derives any profits and gains of business, the condition in the aforesaid clause (i) that such income would not be liable to inclusion in the total income of the trust or institution under section 11 shall not apply in relation to such profits and gains if the following conditions are fulfilled:
a. the institution or fund maintains separate books of account in respect of such business;
b. the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and
c. the institution or fund issues to the person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business.
THE FINANCE ACT, 1983
39.2 The aforesaid conditions will not apply in cases where the profits and gains derived by trust or institution are entitled to exemption under clause (a) or, as the case may be, clause (b) of sub-section (4A), read with sub-section (1), of section 11.
THE FINANCE ACT, 1983
39.3 The aforesaid provision will take effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 39(c) of the Finance Act]
THE FINANCE ACT, 1983
Modification of provisions relating to deduction in respect of rents paid – Section 80GG
40.1 Under section 80GG an assessee, not in receipt of house rent allowance, is entitled to a deduction, in respect of house rent paid by him in excess of 10 per cent of his total income, subject to a ceiling of 15 per cent of the total income or Rs. 400 per month, whichever is less. This deduction is, however, not admissible in cases where the taxpayer, his spouse or minor child or the Hindu undivided family of which he is a member, owns any residential accommodation anywhere.
THE FINANCE ACT, 1983
40.2 The Finance Act has amended the provision to provide that the deduction in respect of rent paid will be denied only where the taxpayer, his spouse or minor child or the Hindu undivided family of which he is a member, owns any residential accommodation at the place where the taxpayer ordinarily resides or performs duties of his office or employment or carries on his business or profession. Deduction under this section will also be denied, in cases where the taxpayer owns any residential accommodation at any other place and the value of such accommodation is determined under clause (i) or clause (ii) of sub-section (2) of section 23 on the concessional basis laid down in respect of a self-occupied house property.
THE FINANCE ACT, 1983
40.3 This amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 22 of the Finance Act]
THE FINANCE ACT, 1983
Modification of provision relating to deduction in respect of certain donations for rural development – Section 80GGA
41.1 Under section 80GGA(2)( b) assessees, other than those carrying on business or profession, are entitled to a deduction of any sums paid during the previous year to approved institutions and associations which have as their object the undertaking of any programme of rural development or the training of persons for implementing such programmes.
THE FINANCE ACT, 1983
41.2 Under an amendment made by the Finance Act, the deduction in respect of sums paid to such associations or institutions will be allowed only if the taxpayer produces a certificate from such association or institution on the lines of the certificate referred to in sub-section (2) or, as the case may be, sub-section (2A), of section 35CCA in relation to sums qualifying for deduction under that section [kindly see paragraphs 29.1 to 29.5].
THE FINANCE ACT, 1983
41.3 As stated in paragraph 29.4 of this circular, assessees deriving profits and gains from business or profession will be entitled to a deduction under section 35CCA(1)(c) in respect of contributions made to a rural development fund set up and notified by the Central Government in this behalf. Correspondingly, a provision has been made in section 80GGA(2)(d) for deduction in respect of sums paid by assessees who do not have any profits and gains from business or profession to any rural development fund that may be set up and notified by the Central Government under section 35CCA(1)(c).
THE FINANCE ACT, 1983
41.4 These amendments take effect from April 1, 1983. It may, therefore, be noted that the certificate referred to in paragraph 41.2 above will have to be furnished by the taxpayers for claiming a deduction under section 80GGA(2)(b) even for the assessment year 1983-84.
[Section 23 of the Finance Act]
THE FINANCE ACT, 1983
Tax incentives for export – Section 80HHC
42.1 With a view to encouraging larger exports of certain goods, the Finance Act, 1982 had inserted section 89A with effect from June 1, 1982 for providing tax relief to Indian companies and non-corporate taxpayers resident in India whose export turnover for a year exceeds the export turnover for the immediately preceding year by more than 10 per cent thereof.
THE FINANCE ACT, 1983
42.2 The Finance Act, 1983 has omitted the aforesaid provision with effect from April 1, 1983. Simultaneously, a new section 80HHC has been inserted with effect from the same date for providing a deduction with reference to the export turnover. The broad features of the new section are as follows:
1. The tax concession will be available to Indian companies and non-corporate taxpayers resident in India who have exported out of India any qualifying goods or merchandise during the relevant accounting year.
2. The tax concession consists of deductions in the computation of taxable profits, calculated as under:
a. a deduction of an amount equal to one per cent of the export turnover of the qualifying goods or merchandise during the accounting year; plus
b. a deduction of an amount equal to five per cent of the amount by which the export turnover of the qualifying goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding previous year.
3. The tax concession at ( b) above will be available only if the assessee has exported out of India any qualifying goods or merchandise during the previous year immediately preceding the relevant previous year for which the deduction is claimed. In other words, if an assessee newly enters the export trade during a particular year, he will be entitled for that year only to the concession contained at (a) and not the concession at (b) above.
4. The tax concession will be available in relation to the export of all goods or merchandise other than (a) agricultural primary commodities (not being produce of plantations); (b) mineral oil; (c) minerals and ores; and (d) such other goods or merchandise as the Central Government may by notification in the Official Gazette specify in this behalf.
5. To qualify for the tax concession, the sale proceeds of the goods or merchandise exported out of India must be receivable by the assessee in convertible foreign exchange.
THE FINANCE ACT, 1983
42.3 Clause (a ) of the Explanation to the new section defines the term “convertible foreign exchange” as foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 and any rules made thereunder. The definition of “convertible foreign exchange” is the same as contained in section 80-O. The connotation of this expression has been explained in paragraph 42.4 of this circular.
THE FINANCE ACT, 1983
42.4 Government have issued a press note on 21-6-1983 clarifying that receipt of sale proceeds in non-convertible rupees from bilateral account countries (e.g., Russian Roubles) will be treated on par with the sale proceeds received in any other convertible foreign exchange for the purposes of section 80HHC.
THE FINANCE ACT, 1983
42.5 Clause (b ) of the Explanation defines “export turnover” to mean the sale proceeds of any goods or merchandise exported out of India, but it does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962.
THE FINANCE ACT, 1983
42.6 As section 89A had been inserted with effect from June 1, 1982, it would have applied for the assessment year 1983-84 and subsequent years. However, the effect of the omission of that section from April 1, 1983 is that it will not apply even for the assessment year 1983-84. In other words, it has been removed from the statute before it became truly operative and its place has been taken by new section 80HHC which comes into force from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years.
[Sections 24 and 33 of the Finance Act]
JUDICIAL ANALYSIS
EXPLAINED IN – In Mrs. Sudha Sharma v. ITO [1993] 44 ITD 351 (Delhi – Trib) it was held that the main purpose behind incorporating section 80HHC is to encourage exports outside India to earn the foreign exchange for the country and for that purpose the incentive is given to the exporters from income-tax. Circular No. 372, dated 8-12-1983, issued by the Board explaining the scope and effect of this provision supports this view.
EXPLAINED IN – In CIT v. Indian Products Ltd. [1994] 207 ITR 647 (Cal.), the Court explained para 42.2 with the following observations:
“In our view, a deduction under both clause (a) and clause (b) of sub-section (1) is permissible in respect of the export turnover of the qualifying goods or merchandise other than those specifically excluded by clause (b) of sub-section (2). Under clause (a), the deduction shall be equal to one per cent. of the export turnover of the qualifying goods or merchandise during the relevant previous year and under clause (b) a deduction of an amount equal to five per cent. of the amount by which the export turnover of the qualifying goods or merchandise during the previous year exceeds the export turnover of such qualifying goods or merchandise during the immediately preceding previous year. In other words for the purposes of clause (b ) one has to compare the aggregate export turnover of all qualifying goods or merchandise during the relevant previous year with the aggregate export turnover of all qualifying goods or merchandise during the immediately preceding previous year. No individual classification of the qualifying goods or merchandise is contemplated either in clause (a) or clause (b). The interpretation that we are taking as aforesaid is incidentally the same as was taken by the Central Board of Direct Taxes in the explanatory notes forming part of Circular No. 372 issued in explaining the different provisions of the Finance Act, 1983. Paragraph 42.2 of the said circular explains the expression “such goods or merchandise” to mean qualifying goods or merchandise.” (pp. 656, 657)
THE FINANCE ACT, 1983
Deduction in respect of profits and gains from certain industrial undertakings, etc. – Section 80-I
43.1 Under section 80-I, a deduction is allowed of 20 per cent (25 per cent in the case of corporate taxpayers) of the profits from a new industrial undertaking or a ship or the business of a hotel included in the gross total income.
THE FINANCE ACT, 1983
43.2 The Finance Act has extended the “tax holiday” concession under section 80-I to profits and gains derived by Indian companies from the business of repairs to ocean-going vessels or other powered craft. Under the new provision, a deduction will be allowed in an amount equal to 20 per cent of such profits and gains. The deduction will be allowed in the initial year, that is, the year in which company commences work by way of such repairs and each of the four succeeding years. This deduction will be allowed subject to fulfilment of the following conditions specified in the newly inserted sub-section (4A):
1. The business is not formed by the splitting up, or the reconstruction of, a business already in existence.
2. It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
3. It is carried on by an Indian company and the work by way of repairs to ocean-going vessels or other powered craft has been commenced by such company after March 31, 1983 but before April 1, 1988.
4. It is for the time being approved for the purposes of this tax concessing by the Central Government.
THE FINANCE ACT, 1983
43.3 It may be noted that the condition at (2) above is similar to the condition in clause (ii) of sub-section (2) of section 80-I applicable in the case of industrial undertakings; but, unlike the limited relaxation provided under Explanation 1 and Explanation 2 in relation to clause (ii) of sub-section (2), no such relaxation has been allowed in relation to the aforesaid condition contained in new sub-section (4A).
THE FINANCE ACT, 1983
43.4 It may also be noted that the provisions of sub-sections (6), (8) and (9) of section 80-I would apply in relation to the “tax holiday” concession in respect of profits from business of repairs to ocean-going vessels or other powered craft as they apply in relation to the tax concession in relation to the other businesses referred to in the said sub-sections.
THE FINANCE ACT, 1983
43.5 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 25 of the Finance Act]
THE FINANCE ACT, 1983
Modification of provisions relating to deduction in respect of profits and gains from business of livestock breeding or poultry or dairy farming – Section 80JJ
44.1 Under section 80JJ an assessee deriving income from the business of livestock breeding or poultry or dairy farming is entitled to a deduction, in the computation of his total income, of an amount equal to one-fifth of the aggregate of the income derived from these sources or Rs. 15,000, whichever is higher. Where the aggregate of such income does not exceed Rs. 15,000, the whole of such income is exempt from tax. In computing the deduction under this section in a case where the profit derived from the business of poultry farming exceeds Rs. 75,000, the excess is ignored. In other words, the deduction in respect of profits and gains from the business of poultry farming is restricted to Rs. 15,000 (i.e., one-fifth of Rs. 75,000).
THE FINANCE ACT, 1983
44.2 The Finance Act has amended the aforesaid provision and restricted the maximum deduction admissible in respect of profits and gains from business of livestock breeding or poultry or dairy farming to 15 per cent of the profit derived from these sources. In the case of profits derived from the business of poultry farming the excess over Rs. 1 lakh (as against Rs. 75,000 under the existing provisions) will be ignored for the purpose of calculating the deduction. Hence, the maximum deduction in respect of profits from the business of poultry farming will be restricted, as at present, to Rs. 15,000, that is, 15 per cent of Rs. 1 lakh.
THE FINANCE ACT, 1983
44.3 The position may be illustrated as under :
(Rs. in thousands)
|
Profits forming part of gross total income from livestock breeding and/or dairy farming
|
Poultry farming
|
Total
|
Deduction admissible under section80JJ
|
|
1
|
2
|
3
|
4
|
|
15
|
—
|
15
|
15
|
|
—
|
15
|
15
|
15
|
|
15
|
15
|
30
|
15
|
|
100
|
—
|
100
|
15
|
|
—
|
100
|
100
|
15
|
|
100
|
100
|
200
|
30
|
|
—
|
200
|
200
|
15
|
|
200
|
200
|
400
|
45
|
THE FINANCE ACT, 1983
44.4 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 26 of the Finance Act]
THE FINANCE ACT, 1983
Deduction in respect of profits and gains from business of growing mushrooms – Section 80JJA
45. Section 80JJA relating to deduction in respect of profits and gains from business of growing mushrooms has been omitted by the Finance Act with effect from April 1, 1984. The deduction will, therefore, not be available for the assessment year 1984-85 and subsequent years.
[Section 27 of the Finance Act]
THE FINANCE ACT, 1983
Deduction in respect of income from specified financial assets – Section 80L
46.1 Under section 80L, income derived by a taxpayer, being an individual, a Hindu undivided family, or an association of persons or a 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, from investment in specified categories of financial assets is exempt up to an aggregate amount of Rs. 4,000 which is deducted from the gross total income. Under an amendment made by the Finance Act, 1982, interest on Government securities and interest on bank deposits for a period of one year or more qualify for a further deduction of up to Rs. 2,000. In addition, under a separate provision contained in the Unit Trust of India Act, 1963, a further deduction of Rs. 3,000 is allowed in respect of income received on units.
THE FINANCE ACT, 1983
46.2 The financial assets referred to above are:
(i) Government securities; (ii) notified debentures of any co-operative society, institution or authority; (iii) deposits under notified schemes of the Central Government; (iv) shares in Indian companies; (v) units in the Unit Trust of India; (vi) deposits with banks including co-operative banks, land mortgage banks and land development banks; (vii ) deposits with approved financial corporations engaged in providing long-term finance for industrial development in India or with an approved public company registered in India with the main object of providing long-term finance for construction or purchase of houses in India for residential purposes; (viii) deposits with any authority constituted in India by or under any law enacted either for satisfying the need for housing accommodation or for planning, development or improvement of cities, towns and villages, or for both; (ix) deposits with a co-operative society by a member thereof; and (x) shares in any co-operative society.
THE FINANCE ACT, 1983
46.3 The Finance Act has enlarged the area of qualifying investments to include deposits with any such bank being a bank established by or under any law made by Parliament as may be approved by the Central Government in this behalf.
THE FINANCE ACT, 1983
46.4 The existing separate exemption of Rs. 2,000 in respect of interest on any Government security or a bank deposit for a period of one year or more has been removed. Instead, this separate limit has been merged with the general monetary limit (which was Rs. 4,000 hitherto) and the ceiling limit of the exemption has been raised to Rs. 7,000. Accordingly, the maximum deduction available under this provision to a taxpayer in respect of income from specified financial assets will be Rs. 7,000 plus an additional exemption up to Rs. 3,000 separately allowed under the Unit Trust of India Act in relation to dividends on units of the Unit Trust of India.
THE FINANCE ACT, 1983
46.5 These amendments take effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 28 of the Finance Act]
THE FINANCE ACT, 1983
Omission of provision for deduction in the case of an Indian company in respect of royalties, etc., received from any concern in India – Section 80MM
47. Section 80MM relating to deduction in the case of an Indian company in respect of royalties, etc., received from any concern in India for provision of technical know-how, etc., has been omitted by the Finance Act with effect from April 1, 1984. The deduction will, therefore, not be available for the assessment year 1984-85 and subsequent years.
[Section 29 of the Finance Act]
THE FINANCE ACT, 1983
Modification of provision relating to deduction in respect of income of co-operative societies – Section 80P
THE FINANCE ACT, 1983
48.2 The Finance Act has extended the aforesaid tax concession to primary co-operative societies which are engaged in the supply of oil seeds, fruits and vegetable. Accordingly, profits derived by a primary co-operative society from the business of supplying oil seeds, fruits or vegetables raised or grown by its members to a federal co-operative society engaged in the business of supplying oil seeds, fruits or vegetables or to Government or a local authority or to a Government company or statutory corporation, which is engaged in supplying oil seeds, fruits or vegetables to the public, will be exempt from income-tax.
THE FINANCE ACT, 1983
48.3 This amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 30 of the Finance Act]
THE FINANCE ACT, 1983
Modification of provision relating to deduction in respect of remuneration from certain foreign sources in the case of professors, teachers etc. – Section 80R
49.1 Under section 80R, a deduction of 50 per cent of the remuneration received by an Indian citizen for any service rendered by him during his stay outside India in his capacity as a professor, teacher or research worker is allowed in computing the total income of that person if the services as a professor, teacher or research worker are rendered in any university or educational institution established outside India or in any other association or body established outside India and notified in this behalf by the Central Government.
THE FINANCE ACT, 1983
49.2 The Finance Act has amended the aforesaid provision and deleted the requirement of notification of associations or bodies established outside India for the purposes of the tax concession. Accordingly, the deduction, in respect of remuneration from foreign sources in the case of professors, teachers, etc., will now be available where the services as a professor, teacher or research worker are rendered in any university or other educational institution as also in any other association or body established outside India without any requirement that such association or body should be notified by the Central Government for the purposes of the tax concession.
THE FINANCE ACT, 1983
49.3 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 31 of the Finance Act]
THE FINANCE ACT, 1983
Provision for levy of a minimum tax on companies making profits – Section 80VVA
50.1 Under the existing provisions of the Income-tax Act, certain tax concessions are allowed in the computation of taxable profits. Various concessions are also allowed under Chapter VIA in computing the total income.
THE FINANCE ACT, 1983
50.2 With a view to securing that the aggregate deduction in respect of tax concessions admissible under the Income-tax Act does not result in reducing the total income of companies to nil or a negligible part of the income before the grant of these tax concessions, the Finance Act has inserted a new Chapter VIB, containing section 80VVA, for placing a restriction on certain deductions in the case of companies. The new section provides that where, in case of a company, the aggregate amount of deduction admissible under certain specified provisions of the Income-tax Act exceeds 70 per cent of the amount of total income as computed before making any such deduction, that is, the pre-incentive total income, the amount to be deducted under these provisions will be restricted to 70 per cent of the total income as computed before making such deduction.
THE FINANCE ACT, 1983
50.3 The following provisions have been specified for the purposes of placing the aforesaid restriction :
(i) deduction under section 35(1)(iii) in respect of donations made to approved universities, colleges or other institutions to be used for research in social sciences or statistical research related to the class of business carried on by the taxpayer ;
(ii) deduction under section 35(2)(ia) in respect of capital expenditure incurred by the taxpayer on scientific research related to the business carried on by the taxpayer ;
(iii) weighted deduction under section 35 (2A) in respect of contributions made to approved scientific research associations, universities, colleges or other institutions or to a public sector company to be used for scientific research under an approved programme, to the extent that the amount deductible exceeds the sum paid by the taxpayer ;
(iv) weighted deduction under section 35(2B) in respect of expenditure incurred by a taxpayer on in-house scientific research under approved programmes, to the extent that the amount deductible exceeds the expenditure incurred by the taxpayer ;
(v) deduction under section 35C in respect of agricultural development allowance ;
(vi) deduction under section 35CC relating to rural development allowance ;
(vii) deduction under section 35CCA in respect of payments to associations, institutions and funds for rural development, etc. ;
(viii) deduction under section 35CCB in respect of payments to associations and institutions for carrying out programmes of conservation of natural resources ;
(ix) deduction under section 33(2)(ii) in respect of development rebate brought forward from earlier years ;
(x) deduction under section 33A(2)(ii) in respect of development allowance brought forward from earlier years ;
(xi) deduction under section 33A(1) or section 33A(1) read with section 33A(2)(i) in respect of development allowance for the relevant previous year ;
(xii) deduction under section 33A(2)(ii) in respect of investment allowance brought forward from earlier years ;
(xiii) deduction under section 32A(1) read with section 32A(3)(i) in respect of investment allowance for the relevant previous year ;
(xiv) deduction under section 80G in respect of donations made to certain funds, charitable institutions, etc. ;
(xv) deduction under section 80GGA(2)(b) in respect of donations made to approved associations, institutions or funds for rural development, etc. ;
(xvi) deduction under section 80GGA(2)(c) in respect of donations made to approved associations or institutions for carrying out approved programmes of conservation of natural resources ;
(xvii) deduction under section 80HH in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas ;
(xviii) deduction under section 80HHA in respect of profits and gains from newly established small-scale industrial undertakings in any rural area ;
(xix) deduction under section 80HHB in respect of profits and gains derived from the business of execution of projects outside India ;
(xx) deduction under section 80HHC in relation to export turnover ;
(xxi) deduction under section 80-I in respect of profits and gains from new industrial undertakings, etc. ;
(xxii) deduction under section 80J in respect of profits and gains from new industrial undertakings, etc. ;
(xxiii) deduction under section 80JJ in respect of profits and gains of business of livestock breeding or poultry or dairy farming ;
(xxiv) deduction under section 80K in respect of dividends attributable to profits and gains from new industrial undertakings or ships or hotel business ;
(xxv) deduction under section 80M in respect of inter-corporate dividends ;
(xxvi) deduction under section 80N in respect of dividends received from certain foreign companies ;
(xxvii) deduction under section 80-O in respect of royalties, etc., received from certain foreign enterprises ; and
(xxviii) deduction under section 80QQ in respect of profits and gains from the business of publication of books.
THE FINANCE ACT, 1983
50.4 It has also been provided that for the purposes of restricting the aggregate amount of deduction to 70 per cent of the income as computed before making any deduction under any of these provisions, the aforesaid deductions will be allowed in the order in which these provisions appear in the preceding paragraph. Thus, deduction will first be allowed under section 35(1)(iii). If no deduction is allowable under the said provision or the deduction under section 35(1)(iii) exceeds 70 per cent of the pre-incentive total income, the deduction to be allowed under section 35(1)(iii) will be restricted to 70 per cent of such income and none of the other deductions will be allowed. If the deduction to be allowed under section 35(1)(iii) is less than 70 per cent of the pre-incentive total income, the deduction under section 35(1)(iii) will be allowed in full and next the deduction under section 35(2)(ia) will be allowed, to the extent that the aggregate of the deduction under section 35(1)(iii) and the deduction under section 35(2)(ia) does not exceed 70 per cent of the pre-incentive total income. If the aggregate of the deductions to be allowed under section 35(1)(iii) and 35(2)(ia) does not exceed 70 per cent of the pre-incentive total income the deduction under the aforesaid two sections will be allowed in full and next the weighted element in the deduction under section 35(2A) will be allowed to the extent that the aggregate of the deduction under the aforesaid provisions does not exceed 70 per cent of the pre-incentive total income, and so on.
THE FINANCE ACT, 1983
50.5 Sub-section (4) of the new section 80VVA provides that, to the extent to which full deduction cannot be allowed in an assessment year in respect of the tax concessions specified in any of the provisions enumerated in sub-section (2) of the said section, by virtue only of the restriction under the provisions of sub-section (1) of section 80VVA, and not by virtue of anything contained in any other section of the Act, the amount of deduction which could not be so allowed will be added to the amount, if any, to be allowed to the company under the relevant provision for the next succeeding assessment year and be deemed to be part of the deduction admissible to the company under the said provision for such assessment year. If no such deduction is admissible to the company for such succeeding year, the amount so remaining unallowed shall be deemed to be the deduction admissible to the assessee for that year, and so on for succeeding years.
THE FINANCE ACT, 1983
50.6 It is relevant to note that as the deduction remaining unallowed by virtue of sub-section (1) of section 80VVA is deemed to be the deduction admissible to the company under the relevant provision for the next succeeding year and so on, this deeming provision gives a fresh and unlimited lease of life to the amount remaining unallowed by virtue of the provisions of section 80VVA(I). Hence, the unabsorbed deduction which may otherwise not be carried forward at all or beyond a specified period by virtue of the restriction under the other provisions of the Income-tax Act, will be allowed to be carried forward indefinitely by virtue of the provisions contained in section 80VVA(4). For instance, where unabsorbed investment allowance for the assessment year 1976-77 is disallowed in the assessment year 1984-85 by virtue only of the operation of section 80VVA(1) the amount so disallowed will be deemed under section 80VVA(4) to be the investment allowance for the assessment year 1985-86. Hence, even though under section 32A(3)(ii) of the Act the amount so disallowed cannot be carried forward beyond the assessment year1985-86, the amount disallowed under section 80VVA(1) will nonetheless get a fresh lease of life by being treated as the investment allowance for the assessment year 1985-86. As such it will be permissible to deduct the amount remaining unallowed even after the assessment year 1985-86.
THE FINANCE ACT, 1983
50.7 The operation of section 80VVA may be illustrated as under :
|
Pre-incentive total income of company ‘A’ for assessment year 1984-85
|
Rs.
10,00,000
|
Deductions admissible without application of the provisions of section 80VVA :
|
Rs.
|
||
|
–
|
Under section 35(1)(iii)
|
1,00,000
|
|
–
|
Under section 32A(3)(i)
|
8,00,000
|
|
–
|
Under section 80-I
|
2,00,000
|
|
–
|
Under section 80M
|
1,00,000
|
|
Total
|
12,00,000
|
section 80VVA as under :
|
–
|
Under section 35(1)(iii)
|
1,00,000
|
|
|
–
|
Under section 32A(3)(i)
|
6,00,000
|
7,00,000
|
|
Total income
|
3,00,000
|
The unallowed deduction that will be carried forward to assessment year 1985-86 will be:
|
Rs.
|
||
|
–
|
Under section 32A(3)(i)
|
2,00,000
|
|
–
|
Under section 80-I
|
1,00,000
|
|
Total
|
3,00,000
|
The balance Rs. 1,00,000 deduction under section 80-I and Rs. 1,00,000 deduction under section 80M will not be carried forward because these amounts are not being disallowed by virtue only of the restriction contained in section 80VVA(l), but even without the application of these provisions, these deductions would have been inadmissible by virtue of the provisions contained in section 80A(2) which restrict the aggregate deduction under Chapter VIA to the amount of the gross total income. As the gross total income in this case after the deductions under section 35(1)(iii) and section 32A(3)(i) would be Rs. 1 lakh only, it would be sufficient to absorb only Rs. 1 lakh out of the deduction of Rs. 2 lakhs under section 80-I. Hence, the remaining deduction of Rs. 1 lakh under section 80-I and the deduction of Rs. 1 lakh under section 80M are not admissible by virtue of the aforesaid provision in section 80A(2) and not by virtue only of the restriction under section 80VVA(1).
THE FINANCE ACT, 1983
50.8 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 32 of the Finance Act]
THE FINANCE ACT, 1983
Modification of Explanation to incorporate definition of the expression ‘provision of technical know-how’- Section 109
51.1 In the Explanation to section 109 the expression ‘provision of technical know-how’ has been defined as having the meaning assigned to it in sub-section (2) of section 80MM. Consequent upon the omission of section 80MM, the definition of the expression ‘provision of technical know-how’ contained in section 80MM(2) has been incorporated in the new Explanation to clause (ib) of section 109.
THE FINANCE ACT, 1983
51.2 This amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 34 of the Finance Act]
THE FINANCE ACT, 1983
Special provisions relating to taxation of income from certain specified assets in the case of non-resident Indian citizens and foreign nationals of Indian origin – Sections 115C to 115-I
52.1, With a view to encouraging the flow of foreign exchange remittances into India and investment in India by ‘non-resident Indians’, the Finance Act has inserted a new Chapter XII-A containing section 115C to section 115-I making special provisions relating to certain incomes of ‘non-resident Indians’.
THE FINANCE ACT, 1983
52.2 The expression ‘non-resident Indian’ has been defined to mean an individual, being a citizen of India or a person of Indian origin, who is not a resident. A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India. The new Chapter contains special provisions for the taxation of the following categories of income derived by non-resident Indians :
(a) investment income ; and
(b) long-term capital gains.
THE FINANCE ACT, 1983
52.3 The expression ‘investment income’ means any income derived from a ‘foreign exchange asset’, that is to say, any ‘specified asset’ which the assessee has acquired or purchased with, or subscribed to, in ‘convertible foreign exchange’. The expression ‘long-term capital gains’ has been defined as income chargeable under the head ‘Capital gains’ relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset. In other words, only capital gains arising from the transfer of a‘foreign exchange asset’ which has been held by the non-resident Indian for more than thirty-six months will be regarded as‘long-term capital gains’ for the purposes of the new Chapter XII-A.
THE FINANCE ACT, 1983
52.4 ‘Convertible foreign exchange’ means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973, and any rules made thereunder. The definition of ‘convertible foreign exchange’ is the same as contained in sections 80N and 80-O. Kindly see paragraphs 42.3 and 42.4 of the circular. The expression ‘specified assets’ means any of the following assets :
(i) shares in an Indian company ;
(ii) debentures issued by an Indian company other than a private company ;
(iii) deposits with an Indian company other than a private company ;
(iv) securities of the Central Government ; and
(v) any other asset which the Central Government may by notification in the Official Gazette specify in this behalf.
THE FINANCE ACT, 1983
52.5 In computing the ‘investment income’ of a non-resident Indian, no deduction will be allowed in respect of any expenditure or allowance under any provision of the Income-tax Act. Further, where the gross total income of a non-resident Indian consists only of ‘investment income’ or ‘long-term capital gains’ or both, no deduction will be allowed to him under Chapter VIA of the Act. Hence, such an assessee will not be entitled to claim deduction under section 80C, 80L or 80T. However, if the gross total income includes other income, besides ‘investment income’ and ‘long-term capital gains’, the gross total income will be reduced by the amount of investment income and long-term capital gains and the assessee will be entitled to deductions under Chapter VIA as if the gross total as so reduced were his gross total income.
THE FINANCE ACT, 1983
52.6 Where the total income of a non-resident Indian consists only of investment income or long-term capital gains or both, the whole of such income will be charged to income-tax at the flat rate of 20 per cent plus surcharge at the rate of 12.5 per cent of such income-tax. However, if the total income of a non-resident Indian includes other income, besides investment income and long-term capital gains, the investment income and long-term capital gains will be treated as a separate block and the gross amount of such income will be charged to income-tax at the rate of 20 per cent plus surcharge thereon at the rate of 12.5 per cent. The remaining income will be treated as a separate block and charged to income-tax at the rates laid down in the annual Finance Acts as if such remaining income were the total income of the assessee.
THE FINANCE ACT, 1983
52.7 Long-term capital gains will, however, not be charged to tax in cases where the entire net consideration received or accruing as a result of the transfer is invested or deposited by the non-resident Indian within a period of six months after the date of the transfer in any ‘specified asset’ or in a Non-Resident (External) Account referred to in section 10(4A) or in any saving certificate notified by the Central Government for the purposes of section 10(4B). In cases where the amount so invested or deposited in the specified assets, including the account and securities referred to above, is less than the net consideration, the exemption from tax in respect of the capital gains will be allowed in the same proportion as the aggregate amount so invested or deposited bears to the net consideration. In cases where the new asset so acquired is transferred or converted (otherwise than by transfer) into money, by the non-resident Indian within a period of three years from the date of its acquisition, the capital gains arising from the transfer of the original asset exempted from tax on the basis of the amount of net consideration invested or deposited as aforesaid, will be deemed to be income chargeable under the head ‘Capital gains’ relating to capital assets other than short-term capital assets of the year in which the new asset is transferred or converted (otherwise than by transfer) into money.
THE FINANCE ACT, 1983
52.8 In cases where the total income of a non-resident Indian for an assessment year consists only of ‘investment income’ or ‘long-term capital gains’ or both, and the tax deductible at source from such income under Chapter XVII-B has been deducted, he will not be required to file the return of his income under section 139(1) of the Income-tax Act.
THE FINANCE ACT, 1983
52.9 A non-resident Indian may elect not to be governed by the provisions of the new Chapter for any assessment year. For this purpose, he will have to furnish to the Income-tax Officer his return of income for that assessment year under section 139, together with a declaration in writing to the effect that the provisions of the said Chapter shall not apply to him for that assessment year. In cases where such a declaration is furnished by a non-resident Indian, his total income (including investment income and long-term capital gains) for that assessment year will be charged to tax under the other provisions of the Income-tax Act.
THE FINANCE ACT, 1983
52.10 Where a person who is a non-resident Indian in any previous year, becomes assessable as resident in India in a subsequent year, the special provisions of Chapter XII-A will continue to apply in relation to the investment income derived from the assets specified in items (ii) to (v) of paragraph 52.4 above, if he furnishes a declaration in writing to this effect along with his return of income for the assessment year for which he is so assessable. Once a declaration is furnished, the special provisions of Chapter XII-A will continue to apply to him in relation to the investment income from such assets for that and subsequent years until the transfer or conversion (otherwise than by transfer) into money of such assets.
THE FINANCE ACT, 1983
52.11 The new provisions take effect from June 1, 1983 and will, accordingly, apply for the assessment year 1984-85 and subsequent years.
[Section 36 of the Finance Act]
THE FINANCE ACT, 1983
Enlarging the scope of tax credit certificate scheme for shifting industrial undertaking from urban area – Section 280ZA
53.1 Under section 280ZA, where a company owning an industrial undertaking situated in an urban area shifts with the prior approval of the Board to another area, it is granted a tax credit certificate. The tax credit certificate is granted with reference to the amount of tax payable by the company on the capital gain arising from the transfer of capital assets, being buildings or lands or any rights in buildings or lands, used for the purposes of the undertaking in the urban area. For the purposes of computing the amount of tax credit certificate, expenditure incurred by the company in acquiring lands or constructing buildings for the purposes of the business in the area to which the undertaking is shifted and for shifting its machinery or plant and other effects and transferring its establishment to such area is taken into account. Further, where a capital asset, being building or land, or any right in building or land, acquired or, as the case may be, constructed in the area to which the undertaking is shifted, is transferred by the company within a period of five years from the date of acquisition or, as the case may be, the date of completion of construction, an amount equal to one-half of the amount for which the tax credit certificate has been granted to the company is deemed to be tax due from the company on the 30th day following the date of transfer. This provision, however, does not apply in cases where the capital asset is transferred to the Government, a local authority, a statutory corporation or a Government company as defined in section 617 of the Companies Act.
THE FINANCE ACT, 1983
53.2 The Finance Act has amended section 280ZA to provide that the capital gain arising from the transfer of machinery and plant would also be taken into account for the purpose of granting tax credit certificate under the said section. Further, expenditure incurred for purchasing new machinery or plant for the undertaking in the area to which the undertaking is shifted will also qualify for purposes of computing the amount of tax credit certificate. The transfer of such new machinery or plant within five years of its purchase, would attract the aforesaid provision whereunder one-half of the amount for which the tax credit certificate has been granted to the company is deemed to be tax due from the company.
THE FINANCE ACT, 1983
53.3 The amendments take effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 38 of the Finance Act]
Revival of wealth-tax on companies
54.1 Section 40 of the Finance Act has revived, in a limited way, the levy of wealth-tax on companies, which was suspended by the Finance Act, 1960.
The Finance Act, 1983
54.2 Section 40 of the Finance Act, 1983 provides that wealth-tax at the rate of 2 per cent will be chargeable from the assessment year 1984-85 in respect of the net wealth on the corresponding valuation date of every company, other than a ýÿcompany in which the public are substantially interestedýÿ. For the purposes of this provision, the expression ýÿcompany in which the public are substantially interestedýÿ will have the meaning assigned to it in section 2(18) of the Income-tax Act. For the purposes of determining the net wealth of the company, the value of only the following assets will be taken into account, namely :
(i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals ;
(ii) precious or semi-precious stones whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel ;
(iii) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone and whether or not worked or sewn into any wearing apparel ;
(iv) utensils made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals ;
(v) land other than agricultural land ;
(vi) building or land appurtenant thereto, other than building or part thereof used by the assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees whose income exclusive of the value of all benefits or amenities not provided for by way of monetary payment chargeable under the head ýÿSalariesýÿ does not exceed Rs. 18,000, or as hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly for the welfare of such employees and the land appurtenant thereto ;
(vii) motor-cars ; and
(viii) any other asset which is acquired or represented by a debt secured on any one or more of the assets referred to in (i) to (vii) above.
The Finance Act, 1983
54.3 To illustrate, if a company has obtained a loan on the security of gold owned by it and has acquired, with the amount of the loan, shares in any other company, the value of such shares would be liable to wealth-tax in the assessment of the company.
The Finance Act, 1983
54.4 For the purposes of these provisions, the net wealth of a company will be the amount by which the aggregate value of all the assets referred to above, wherever located, belonging to the company on the valuation date, is in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which have been incurred in relation to, the said assets. However, where any debt secured on any asset belonging to the company is incurred for, or enures to, the benefit of any other person, or is not represented by any asset belonging to the company, the value of such debt will not be taken into account in computing the net wealth of the company. Subject to the provisions of section 7(3) of the Wealth-tax Act, the value of the assets referred to above shall be estimated to be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date. In cases falling under section 7(3), the estimate of the price would be made by the Valuation Officer.
The Finance Act, 1983
54.5 For the purposes of the levy of wealth-tax in pursuance of the new provisions, certain provisions of the Wealth-tax Act shall not have any effect or application. These are section 5 relating to exemptions in respect of certain assets ; section 7(2)(a) relating to global valuation of assets on the basis of the balance sheet ; section 45(d) relating to exemption in respect of certain companies ; and Part II of Schedule I to the Wealth-tax Act relating to rates of wealth-tax in the case of companies. The remaining provisions of that Act shall be construed so as to be in conformity with the provisions of section 40 of the Finance Act.
The Finance Act, 1983
54.6 The levy of wealth-tax under the new section shall not apply in relation to any such institution, association or body (whether incorporated or not and whether Indian or non-Indian) which the Central Government may, having regard to the nature and object of such institution, association or body, specify by notification in the Official Gazette. Every such notification shall be laid, as soon as may be, after it is issued, before each House of Parliament.
The Finance Act, 1983
54.7 Subject to the provisions referred to in paragraph 54.5 above, section 40 of the Finance Act shall be construed as one with the Wealth-tax Act.
The Finance Act, 1983
54.8 Although section 40 of the Finance Act takes effect from April 1, 1983, it expressly provides that the levy of wealth-tax in relation to the net wealth of companies shall apply from the assessment year 1984-85 and subsequent years.
[Section 40 of the Finance Act]
Exemption from wealth-tax of fees due to assessees carrying on certain professions and maintaining books on cash system of accounting – Section 5(1)(xa)
55.1 Under section 5(1)(xa) the amount of any fee due to an assessee in respect of services rendered by him as a legal practitioner within the meaning of the Advocates Act, 1961 is excluded in computing his net wealth. The Finance Act has amended this provision and extended the scope of the exemption to provide that apart from fees due to persons carrying on legal profession, fees due to persons carrying on medical, engineering or architectural profession or the profession of accountancy, or such other profession as is notified by the Central Government in this behalf, will not be included in computing the net wealth, if such persons regularly maintain books of account on the cash system of accounting.
The Finance Act, 1983
55.2 This amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 41(a) of the Finance Act]
Exemption from wealth-tax of foreign exchange assets – New section 5(1)(xvic) and (xvica)
56.1 With a view to encouraging the flow of foreign exchange remittances into India and investment in India by ýÿnon-resident Indiansýÿ, the Finance Act has inserted a new clause (xvic) in section 5(1) to provide exemption from wealth-tax in respect of the value of ýÿforeign exchange assetsýÿ held by them. The Finance Act has also inserted another new clause (xvica) in section 5(1) to provide that in the case of an individual, being a citizen of India or a ýÿperson of Indian originýÿ who is resident in India, during the year ending on the valuation date, any ýÿforeign exchange assetýÿ (other than shares in an Indian company) shall be exempt from wealth -tax and it shall not be included in his net wealth on the valuation date if such asset was not includible by virtue of the provisions of section 5(1)(xvic) in computing his net wealth on any earlier valuation date.
The Finance Act, 1983
56.2 The expressions ýÿnon-resident Indianýÿ and ýÿforeign exchange assetýÿand ýÿperson of Indian originýÿ have the same meaning as in new section 115C inserted in the Income-tax Act by section 36 of the Finance Act. [Kindly see paragraphs 52.2 and 52.3 of this circular].
The Finance Act, 1983
56.3 These amendments take effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years. It may be noted that under clause (xvic) as inserted in section 5(1) by the Finance Act, 1982 with effect from April 1, 1983, exemption under this clause was limited only to notified savings certificates of the Central Government. The substituted clause (xvic) has a wider scope as it applies to ýÿforeign exchange assetsýÿ as defined in section 115C of the Income-tax Act.
Modification of provision relating to exemption of Capital Investment Bonds – Section 5(1)(xvid)
57.1 Under section 5(1)(xvid), the value of such Capital Investment Bonds as are notified by the Central Government are exempt from wealth-tax. The Finance Act provides that this exemption will be available only in the case of individuals and Hindu undivided families. [Kindly see paragraph 14.1 of the circular.]
The Finance Act, 1983
57.2 The amendment takes effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. As the Finance Act, 1982 had inserted clause (xvid) in section 5(1) with effect from April 1, 1983, the newly substituted clause which has been brought into force from the said date, has the effect of superseding the original provision.
[Section 41(c) of the Finance Act]
Exemption from wealth-tax of medals, trophies and awards in kind – New section 5(1)(xviiia)
58.1 Under section 5(1)(xviii), any property received by an assessee from Government, in pursuance of any gallantry or merit award instituted or approved by the Central Government, is exempt from wealth-tax.
The Finance Act, 1983
58.2 The Finance Act has inserted a new section 5(1)(xviiia) to provide exemption from wealth-tax in respect of the value of any medal, trophy or award in kind received by an assessee for any attainment, work or contribution in any field, if such medal, trophy or award is received from Government or from a University established by law or an institution affiliated to such University or from any such institution, association or body as is approved for the purposes of this provision by the Central Government. Any approval for the purposes of this provision may be given by the Central Government so as to have effect from any earlier date, not being a date earlier than April 1, 1983.
The Finance Act, 1983
58.3 The amendment takes effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years.
[Section 41(d) of the Finance Act]
Exemption from gift-tax in respect of gifts of foreign exchange assets – Section 5(1)(iid)
59.1 The Finance Act has amended section 5(1)(iid) to provide exemption from gift-tax in respect of gifts of ýÿforeign exchange assetsýÿ made by ýÿnon-resident Indiansýÿ to their relatives in India. It may be noted that under clause (iid), as inserted in section 5(1) by the Finance Act, 1982 with effect from April 1, 1983, exemption under this clause was limited only to notified savings certificates of the Central Government. The substituted clause (iid) has a wider scope as it applies to gifts of ýÿforeign exchange assetsýÿ as defined in section 115C of the Income-tax Act. The terms ýÿforeign exchange assetýÿ and ýÿnon-resident Indianýÿ have the same meaning as in new section 115C of the Income-tax Act inserted by section 36 of the Finance Act. [Kindly see paragraphs 52.2 and 52.3 of the circular]
The Finance Act, 1983
59.2 The amendment takes effect from April 1, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years.
[Section 42(a) of the Finance Act]
Modification of provision relating to exemption from gift-tax in respect of gifts of Capital Investment Bonds – Section 5(1)(iiic)
60.1 Under section 5(1)(iiic), gifts of Capital Investment Bonds up to a maximum of Rs. 10 lakhs in one or more previous years are exempt from gift-tax in the hands of the original subscriber. The Finance Act has provided that this exemption will be available only in the case of individuals and Hindu undivided families.
The Finance Act, 1983
60.2 The amendment takes effect from April 1, 1983 and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years.
[Section 42(b) of the Finance Act]
Rate of tax in respect of chargeable interest accruing or arising after March 31, 1983 reduced
61.1 Section 4 provides for the levy of a tax at the rate of 7 per cent on the gross amount of interest received by scheduled banks,including specified financial institutions on loans and advances made in India.
The Finance Act, 1983
61.2 The Finance Act has reduced the rate of tax in respect of chargeable interest accruing or arising after March 31, 1983 to three and a half per cent.
The Finance Act, 1983
61.3 The amendment takes effect from April 1, 1983. However, as interest accruing or arising after March 31, 1983 would be chargeable to interest-tax only for the assessment year 1984-85, the amendment would apply from that assessment year. However, the amended provision would be of relevance for the purposes of advance payment of interest-tax by scheduled banks and specified financial institutions during the financial year 1983-84.
[Section 43 of the Finance Act]
7. Amendments to Compulsory Deposit Scheme (Income-tax Payers) Act
Extension of the compulsory deposit scheme in the case of income-tax payers for another two years
62.1 Under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, individuals, who are citizens of India, Hindu undivided families and trustees of discretionary trusts are required to make compulsory deposits for the assessment years 1975-76 to 1983-84 (both inclusive) if their current income exceeds Rs. 15,000. In view of the continuing need to raise the level of savings in the economy, the compulsory deposit scheme in the case of income-tax payers has been continued for another two years, i.e., for the assessment years 1984-85 and 1985-86. The rates of deposit, however, remain unchanged.
The Finance Act, 1983
62.2 Under the existing provisions, any compulsory deposit made or recovered from a depositor in any financial year is repayable in five equal instalments commencing from the expiry of two years from the end of the financial year in which the deposit was made or recovered. The Income-tax Officer is, however, empowered to permit earlier repayment of the deposit or any instalment thereof together with interest due thereon in cases of extreme hardship.
The Finance Act, 1983
62.3 Hitherto, individuals who were over 70 years of age as on the 1st day of the financial year immediately preceding that assessment year, were exempted from the requirement of making any compulsory deposit in relation to that assessment year. The Finance Act has amended the relevant provisions and reduced the aforesaid age limit to 65 years. Where an individual has reached the age of 65 years before April 1, 1983 the balance standing to his credit in the compulsory deposit account will be repayable to him on June 1, 1983. In other case, the amount standing to the credit of an individual in the compulsory deposit account will be repayable to him on the 1st day of the financial year immediately succeeding the financial year in which he attained 65 years of age.
The Finance Act, 1983
62.4 The Finance Act has also amended sections 4 and 6 to secure that investment income as defined in new section 115C inserted in the Income-tax Act by the Finance Act will not be taken into account for the purposes of determining the current income and correct income of depositors. In the result non-resident Indians, as defined in new section 115C(e) of the Income-tax Act, will not be required to make any compulsory deposit with reference to their investment income.
The Finance Act, 1983
62.5 The amendment relating to the reduction in the age to 65 years takes effect from June 1, 1983 and, as such, persons who had attained the age of 65 years on April 1, 1983 will not be absolved of the obligation to make a compulsory deposit for the assessment year 1983-84. The amendment relating to non-resident Indian takes effect from June 1, 1983 and will, accordingly, also not apply from the assessment year 1983-84, but will apply from the assessment year 1984-85. The remaining amendments relating to extension of the scheme for making compulsory deposits by two years take effect from April 1, 1983, thus making it obligatory for persons to make deposits during the financial year 1983-84 in relation to the assessment year 1984-85.
[Section 59 of the Finance Act]
