Finance (No. 2) Act, 1967 - Circular No. 5-P, Dated 9-10-1967
Circular No. 5-P was issued by the Central Board of Direct Taxes on 9 October 1967. Its subject is Finance (No. 2) Act, 1967 - Circular No. 5-P, Dated 9-10-1967.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
FINANCE (NO. 2) ACT, 1967 - CIRCULAR NO. 5-P, DATED 9-10-1967
Amendments at a glance
SECTION/SCHEDULE
ParticularsFinance Act
2 and 1st Sch.
Rate structure 7, 8b-11, 22-23, 25-33, 35-362(5)
Rebate for exports 8a46
Voluntary disclosure 100-101Income-tax Act
2(1A), 32(1)(iii)
Provisions relating to amalgamation of companies 55-57[Expln. (2)], 35(5),
35A(6), 36(1)(ix)
(3rd prov.), 41(2),
43(1)(Expln. 7),
43(6) (Expln. 2A),
47 (vi)/(vii), 49(2)
2(37 A), 193(Expln.)
Definition of �rates in force� 1210(27)
Exemption from tax of income from business of livestock breeding, poultry, etc., to continue beyond assessment year 1967-68, for an indefinite period 4010(29)
Income of marketing authorities 7223(2), prov.
Computation of income attributable to house property owned and occupied by the assessee for his residence 7132(1)(v), 33(1)
Tax concessions to hotel industry for promoting(b)(B)(ii), 33(6)
tourism 41(prov.), 43(1),
80B(7), 80-I,
84(3)/80J(6)
33(I)(b)(B)(iii),
Expenditure on scientific research 4235(2)(ia)
33(2), 33A(2),
Provisions ancillary and consequential to the new provisions36(I)(viii), 104(4)
for simplification of tax calculations 91(Expln.), 109(i)(c)
& (d)/(iv), 197(3),
236 [Expln. (2)]
33B, 72(1) (prov.),
Rehabilitation allowance 4380J(4) (prov.)/
84(2) (1st prov.)
43A
Special provision to consequential changes in the rate of exchange of currency 61-6671(2)/(3), 72(1),
Short-term capital gains in the case of non-corporateProv. (3), 74(1),
assessees 87-88(a)(i), 114
Chap. VIA
Deductions in computation of total income and order of priority in allowing deductions under the new Chapter in respect of the same head of income 73-75, 90(2.238)80C/80A
Increase in the limit of maximum amount of personal savings in LIP, provident funds, etc., qualifying for tax relief 3880G/88
Tax relief in respect of donations to the Prime Minister�s Drought Relief Fund 67, 7780H, 80B(1)/(9)
Tax concession to new industrial undertakings mainly employing displaced persons or repatriates 4780J/84
Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business 44, 7880K/85
Deduction in respect of dividends attributable to profits and gains from new industrial undertakings or ships or hotel business 45-46, 7980L
Exemption from tax in respect of dividend income received from an Indian company, where the total dividend income of the assessee during the year does not exceed Rs. 500 3980M/85A
Rebate on inter-corporate dividends, i.e., dividends received by any company from a domestic company 24, 8280N/85B
Rebate on dividends received by an Indian company from a foreign company on shares in it allotted to the Indian company in consideration of supply of technical know-how or technical services 8380-O/85C
Rebate on royalty, commission, fees, etc., received by an Indian company from a foreign company in consideration of supply to the foreign company of technical know-how or technical services 8480P/81
Exemption of certain incomes of co-operative societies 8080Q/82
Exemption of dividends received by a member of a co-operative society from the society 8180R
Tax relief in respect of remuneration received from foreign sources by resident individuals of Indian citizenship for serving in foreign universities as professors, etc. 68-6980S/112, 112A(c)
Income by way of compensation for termination or modification of the terms of managing agency, etc., in the case of non-corporate assessees 8580T/114
Long-term capital gains in the case of non-corporate assessees 8987A/80F
Tax relief in the case of foreigners resident in India on expenditure incurred by them for the full-time education of their dependent children abroad 76121 (2), 123
Provisions for facilitating distribution and allocation124(1)/(2),
of work amongst Income-tax Officers on a functional125 (1)/(2),
basis to expedite assessments and improve collections127, 128
of revenue 48-50138(1)(a)
Disclosure of information regarding assessees to certain authorities without the requirement of making individual applications for such information 59196
Provision to enable certain Government corporations to receive their income without deduction of tax at source 60194A
Interest other than �Interest on securities� 13-14, 17-19, 34195
Interest which is wholly exempt from tax 20-21197(I)(a)
Certificate for deduction at lower rate 16206A
Person, paying interest to residents without deduction of tax, to furnish prescribed return 15280B(I)(b)(vii),
Annuity deposit 37280X(I)(c)(d)
Wealth-tax Act
2(h)
Provision for taking powers for the Central Government to declare any statutory corporation as a �company� for purposes of wealth-tax 94-958, 8A, 8B, 10,
Provisions to facilitate allocation and distribution11, 11A, 11B
of work amongst the tax authorities on a functional basis 52, 92GIFT-TAX ACT
7, 7A, 7B, 9, 10,
Provisions to facilitate allocation and distribution11, 11A, 11B
of work amongst the tax authorities on a functional basis 52, 9245(da)
Exemption of gifts represented by the transfer of assets by a closely-held company to any Indian company in a scheme of amalgamation 58, 93SURTAX ACT
3(1)(2) (prov.), 18
Provisions to facilitate allocation and distribution of work amongst the tax authorities on a functional basis 53-54, 92, 96Rule I (v)/(vii) of
Computation of chargeable profits 971st Sch.
MISCELLANEOUS AMENDMENTS
30
Deposit Insurance Corporation Act 9832(1)(c)
Unit Trust of India Act 99Rate Structure
FINANCE (NO. 2) ACT, 1967
Rate of income-tax for the assessment year 1967-68
7. Under the Finance (No. 2) Act, 1967, the rates of income-tax in respect of the assessment year 1967-68 in the case of all categories of assessees (corporate as well as non-corporate) are the same as under the Finance Act, 1966, subject to two modifications. The main modification pertains to the rebates of income-tax available to assessees (other than foreign companies declaring their dividends outside India) in relation to exports. The other modification, which is purely of a technical nature and does not involve any substantive change, relates to the provisions for the levy of additional income-tax on domestic companies of certain categories with reference to their distributions of equity dividends in excess of 10 per cent of their paid-up equity capital. These modifications are explained hereunder.
FINANCE (NO. 2) ACT, 1967
8. Rebates of income-tax in relation to exports - Under the Finance Act, 1966, the rebates of income-tax in relation to exports are :
(i) a rebate of one-tenth of the income-tax attributable to the profits derived by the assessee from the export of any goods or merchandise outside India; and in addition,
(ii) in the case of an assessee who manufactures specified commodities [i.e., commodities listed in the First Schedule to the Industries (Development and Regulation) Act, 1951, subject to certain exclusions], a rebate of tax, calculated at the average rate of tax applicable to the total income of the assessee on an amount equal to 2 per cent of the sale proceeds of such commodities exported by him directly or sold by him to any other person in India and exported by such person.
The Finance (No. 2) Act, 1967 provides for the grant of the above-mentioned rebates of income-tax, in the case at (i) above, with reference to the profits attributable to the export of the goods or merchandise made before the date of devaluation of the rupee,i.e., before 6-6-1966, and in the case at (ii) above on 2 per cent of the sale proceeds of the specified commodities exported by the manufacturer, or sold by him to an exporter in India, before the said date. Thus, no rebate of income-tax will be available in relation to exports, or sales, to an exporter in India, made after 5-6-1966. This provision has been made in consequence of the reduction in the par value of the rupee with effect from 6-6-1966.
The Board have framed rules for the determination of profits from the export of goods or merchandise out of India for the purpose of the grant of the rebate of tax referred to in item (i) hereinabove. These rules, named as the Income-tax (Determination of Export Profits) (No. 2) Rules, 1967, have been notified in the Gazette of India, Extraordinary, dated 19-9-1967.
FINANCE (NO. 2) ACT, 1967
8a. Levy of additional income-tax in the case of certain domestic companies with reference to excess distribution of dividends on their equity capital - The Finance (No. 2) Act, 1967 continues the levy of additional income-tax, provided for under the Finance Act, 1966, in the case of domestic companies of certain categories with reference to their distributions of equity dividends in excess of 10 per cent of their paid-up equity capital as on the 1st day of the relevant previous year. The rate at which such additional income-tax is chargeable is 7.5 per cent as under the Finance Act, 1966.
Under the scheme of the levy of this tax in the Finance Act, 1966, it was chargeable on so much of the total income of the company as does not exceed �the relevant amount of distributions of dividends� by the company. The term �relevant amount of distributions of dividends� had been defined in the Finance Act, 1966 to mean, in substance, the aggregate of�
(a) that portion of the amount of equity dividends distributed by the company during the previous years relevant to the assessment years 1964-65 and 1965-66 with reference to which it was chargeable to tax at 7.5 per cent thereof by reduction of the rebate of tax otherwise admissible to the company on its total income, in accordance with the provisions of the Finance Acts, 1964 and 1965, but could not be so charged because of the insufficiency of the amount of the said rebate ; and
(b) the amount by which the dividends declared or distributed by the company during the relevant previous year on its equity capital exceeds 10 per cent of its paid-up equity capital as on the 1st day of the said previous year.
FINANCE (NO. 2) ACT, 1967
9. Under the Finance Act, 1966, where the total income of the company (as reduced by the amount of any �long-term� capital gains, i.e., capital gains relating to assets other than short-term capital assets included therein) was less than the �relevant amount of distributions of dividends� by the company, the additional income-tax at 7.5 per cent could be calculated only on the amount of such total income. In such a case, the company did not bear the above-mentioned tax in relation to the balance of the �relevant amount of distributions of dividends� by it. In view of this position, the definition in the Finance (No. 2) Act, 1967 of the term �relevant amount of distributions of dividends� by a company comprises (a) the above-mentioned balance of the �relevant amount of distribution of dividends� in respect of which the additional income-tax at 7.5 per cent could not be charged under the provisions of the Finance Act, 1966, and (b) the amount by which the equity dividends declared or distributed by the company during the relevant previous year exceed 10 per cent of its paid-up equity capital as on the 1st day of the previous year. In substance, the basis of computing the �relevant amount of distributions of dividends� by a company in the Finance (No. 2) Act, 1967 is the same as under the Finance Act, 1966. There is only a technical difference in the phraseology used in describing the quantity at (a) above in the definition of the term �relevant amount of distributions of dividends� in the Finance Act, 1966 and in the Finance (No. 2) Act, 1967. This is due to the position that whereas the relevant part of the definition in the Finance Act, 1966 had, necessarily, to refer to the scheme followed in the Finance Acts, 1964 and 1965 of charging tax with reference to distributions of equity dividends by reducing the rebate of tax otherwise due to the company, the relevant part of the definition in the Finance (No. 2) Act, 1967 has to refer to the scheme of charging such tax under the Finance Act, 1966.
FINANCE (NO. 2) ACT, 1967
10. It may be mentioned that, under the Finance (No. 2) Act, 1967, the rate schedule of income-tax in the case of non-corporate assessees provides for the levy of tax on income under the head �Salaries� at the same rate as any other income included in the total income of the assessee (excepting capital gains which are chargeable to tax, as before, in accordance with the special provisions in the matter contained in section 114. For the assessment year 1966-67 and earlier years, income under the head �Salaries� was, under a specific provision made in the relevant Finance Act, chargeable to tax at the rate prescribed by the Finance Act of the preceding year. Such provision was made to secure that in a case where the total income of the assessee consisted only of income under the head �Salaries�. It might not be necessary, because of any increase or decrease in the rates of tax brought about by the Finance Act of the relevant assessment year, to raise an additional demand or to grant a refund to the assessee with reference to the tax deducted at source therefrom under the Finance Act of the preceding year. This necessitated two sets of tax calculations in the case of an assessee whose total income consisted of income under the head �Salaries� as well as income under other heads, and resulted in complications in determining the final tax liability. The necessity for dual calculations in this manner has been avoided under the provisions of the Finance (No. 2) Act, 1967 inasmuch as the rates of income-tax prescribed by it for the assessment year 1967-68 are the same as under the Finance Act, 1966.
FINANCE (NO. 2) ACT, 1967
Rates for deduction of tax at source and for computation of advance tax in respect of incomes assessable for the succeeding assessment year 1968-69
11. The principle followed in the Finance (No. 2) Act, 1967 in prescribing the rates of tax and in making new provisions in the taxation laws is that the measures which have the effect of bringing about a change in the tax liability, or which provide a tax incentive or disincentive in any sphere, should apply, prospectively to current incomes due for assessment in the succeeding assessment year, and not retrospectively to incomes earned in the past, except where there are special circumstances justifying the retrospective operation of particular provisions. Accordingly, the new provisions made by the Finance (No. 2) Act, 1967 in the rate structure of tax apply to incomes which fall due for assessment in the succeeding assessment year 1968-69.
FINANCE (NO. 2) ACT, 1967
12. The Income-tax Act provides for deduction of tax at source from incomes of certain categories. The deduction is to be made at the rate or rates in force. The Income-tax Act also provides for the computation of �advance tax�, and the charge or calculation of income-tax, in special cases, at the rate or rates in force. The annual Finance Acts up to and inclusive of the Finance Act, 1966, prescribed the �rates in force� for deduction of tax at sources, only in respect of incomes other than �salaries�. For the purpose of deduction of tax at source from �salaries� and computation of �advance tax� as also for charging or calculating income-tax in special cases under the relevant provisions of the Income-tax Act, the �rate or rates in force� were taken to be the rates of tax for regular assessment as prescribed in the annual Finance Act. The Finance (No.2) Act, 1967 has made a change in this scheme; it has prescribed two sets of �rates in force�, one for the deduction of tax at source from incomes other than �salaries�, and the other for deduction of income-tax from �salaries� ; computing �advance tax�; and for calculating or charging income-tax under certain provisions of the Income-tax Act, viz., section 132(5), first proviso (calculating income-tax on undisclosed incomes represented by seized assets in certain cases) ; sub-section (4) of section 172 (levy of tax on a provisional basis on the income of non-residents from carriage of cargo or passengers by sea from Indian ports); sub-section (2) of section 174 (assessment of persons leaving India) ; section 175 (assessment of persons likely to transfer property to avoid tax) ; and sub-section (2) of section 176 (assessment of profits of a discontinued business). For this purpose, the Finance (No. 2) Act, 1967 has introduced a new definition of �rate or rates in force� or �rates in force�, in relation to an assessment year or financial year, in new clause (37A) of section 2 and, consequentially, it has deleted the Explanation to section 193, which defined the expression �rates in force� for the purpose of deduction of tax at source under sections 193, 194, 195 and 197. The new definition of �rate or rates in force� or �rates in force� contemplates that the annual Finance Act will prescribe these rates separately for (a) deduction of tax at source from income other than �salaries�, and (b) for all other purposes, such as deduction of tax at source from �salaries�, computation of �advance tax� and calculation or charging of income-tax in special cases, as stated above.
FINANCE (NO. 2) ACT, 1967
New provisions relating to deduction of tax at source from income other than �salaries�
13. Income receivable by resident persons - The Finance (No. 2) Act, 1967 has introduced a new section 194A under which, any person, excepting an individual or a Hindu undivided family, who credits or pays any interest (other than �interest on securities�) to any person resident in India after 30-9-1967, in an amount exceeding Rs. 400 at a time will be required, subject to certain exceptions, to deduct tax at source therefrom at the rates in force, i.e., at the rates prescribed in the annual Finance Act. The rates prescribed for this purpose in the Finance (No. 2) Act, 1967 are 10 per cent, where such interest income is payable to resident individuals, Hindu undivided families, firms and other non-corporate entities, and 20 per cent where it is payable to a resident company.
FINANCE (NO. 2) ACT, 1967
14. Where the interest income is, in the first instance, credited to the account of the payee by the payer and is paid subsequently, tax is required to be deducted at source at the time of the credit; where it is not so credited, tax is required to be deducted at source at the time of its payment. Accordingly, where such interest income has been credited to the account of the payee on or before 30-9-1967, the payer will not be liable to deduct tax at source therefrom at the time of its payment although the payment is made after that date. Tax will be required to be deducted at source under section 194A if interest is credited to the account of the payee or paid, without being credited to the account of the payee, at any time after 30-9-1967.
FINANCE (NO. 2) ACT, 1967
15. The interest income referred to above will not be subject to any deduction of tax at source, where the person entitled to receive the income (excepting a company or a registered firm) furnishes to the payer an affidavit or, alternatively, a statement in writing (signed in the presence of and attested by a gazetted officer of the Central or a State Government or any other specified officer) declaring that his estimated total income liable to tax for the assessment year next following the financial year in which the interest income is credited or paid will be less than the minimum taxable amount. The specified officer referred to above is a tehsildar or a mamlatdar of a taluka or tehsil or any other officer performing functions similar to those of a tehsildar or mamlatdar. All that the gazetted officer or the specified officer has to certify in his attestation in the statement in writing is that the person who has signed the statement is known to him. Persons who credit or pay the interest income without deducting tax at source therefrom by virtue of the affidavits or statements in writing referred to above are required under the new section 206A introduced by the Finance (No. 2) Act, 1967 to furnish return (in the prescribed form and verified in the prescribed manner) to the Income-tax Officer concerned within 30 days from the end of the relevant financial year, showing, inter alia, the names and addresses of such persons and the particulars of the interest income credited or paid.
FINANCE (NO. 2) ACT, 1967
16. It is also open to any person (excepting a company) who has no taxable income or whose total income justifies deduction of tax at an average rate lower than 10 per cent (at which tax rate is to be deducted at source from interest income) to obtain, from the Income-tax Officer concerned, a certificate under section 197 authorising the payer of the interest income to credit or pay such income without deduction of tax at source or, as the case may be, to deduct tax therefrom at a lower rate as specified in the certificate. Section 197 has been amended by the Finance (No. 2) Act, 1967 to achieve this purpose.
FINANCE (NO. 2) ACT, 1967
17. Any person falling under any one of the following categories is entitled to receive the interest income without deduction of tax at source under section 194A :
1. A banking company to which the Banking Regulation Act, 1949 applies or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank).
2. Any financial corporation established by or under a Central, State or Provincial Act, e.g., the Industrial Finance Corporation and the State Financial Corporations.
3. The Life Insurance Corporation of India.
4. The Unit Trust of India.
5. Any company or a co-operative society carrying on the business of insurance.
6. Any other institution or association or body which the Central Government may, for reasons to be recorded in writing, notify in this behalf, in the Official Gazette.
FINANCE (NO. 2) ACT, 1967
18. The person from whose interest income-tax has been deducted at source under section 194A will, on production before the Income-tax Officer of the certificate of such deduction from the payer, be given credit for the tax deducted at the time of the assessment of his total income for the relevant assessment year [section 199 as amended by the Finance (No. 2) Act, 1967]. If the tax deducted is in excess of the tax due on the total income of the person concerned, the excess will be refundable to him.
FINANCE (NO. 2) ACT, 1967
19. Persons responsible for deducting tax at source from interest income under section 194A are subject to the same obligations under the Income-tax Act in regard to the payment of the tax deducted to the credit of the Central Government within the time and in the manner specified in the Income-tax Rules, accounting for it to the Income-tax Officer and furnishing a certificate of deduction at source to the recipient of the income, and the same liabilities for failure to deduct the tax or to pay the tax deducted to the credit of the Central Government as are cast upon them by the law in regard to deduction of tax at source from salaries, interest on securities, dividends, etc.
The Finance (No. 2) Act, 1967 has made consequential amendments to the relevant provisions of the Income-tax Act for this purpose. In pursuance of these provisions, the Income-tax Rules have been amended by the Board by a notification dated 6-9-1967, published in the Gazette of India, Extraordinary, dated 7-9-1967. The amended rules specify the period within which the tax deducted at source from interest income is to be paid to the Central Government, the manner in which it is to be paid, the form in which the certificate of deduction of tax at source under section 203 has to be furnished by the payer of the interest to the payee, etc.
FINANCE (NO. 2) ACT, 1967
20. Tax not to be deducted from interest which is wholly exempt from tax - Under the scheme of the Income-tax Act, deduction of tax at source is only a method of collecting tax on income which is chargeable to tax under the Act. Accordingly, no tax is to be deducted from interest income which under section 10 is not to be included in the total income of the recipient and is, thus, wholly exempt from tax. Such interest income is interest on deposits in Post Office Savings Banks, including cumulative time deposits, and interest credited to the individual accounts of employees participating in a provident fund to which the Provident Funds Act, 1925 applies or a provident fund which is recognised for the purposes of the Income-tax Act, insofar as the interest credited by such a provident fund is exempt from tax under section 10.
FINANCE (NO. 2) ACT, 1967
21. In regard to the tax deductible at source during the current financial year from income by way of �interest on securities� and from dividends receivable by persons resident in India, including domestic companies, the rates prescribed by the Finance (No. 2) Act, 1967 are the same as under the Finance Act, 1966, namely, 22 per cent.
FINANCE (NO. 2) ACT, 1967
22. Incomes receivable by non-resident persons and companies which are not domestic companies - The rates for deduction of tax at source, under the Finance (No. 2) Act, 1967 from the incomes of non-resident non-corporate persons during the current financial year, are the same as under the Finance Act, 1966.
FINANCE (NO. 2) ACT, 1967
23. In respect of dividends receivable by foreign companies (i.e., companies other than domestic companies) from any domestic company, the rates for deduction of tax, under the Finance (No. 2) Act, 1967 are slightly lower than under the Finance Act, 1966, as shown below :
Rate of tax deductible at source
Under the Finance(No. 2) Act, 1967
Under the Finance Act, 1966
1. Dividends received by a foreign company from a closely-held Indian company mainly engaged in any of the specified priority industries.
14%
15%
2. Dividends received by a foreign company from any domestic company, other than a closely-held Indian company referred to in (1) above.
24.5%
25%
FINANCE (NO. 2) ACT, 1967
24. The above-mentioned rates of 14 per cent and 24.5 per cent have been specified in consequence of the provision in new section 80M introduced by the Finance (No. 2) Act, 1967 with effect from 1-4-1968 in replacement of section 85A under which companies are entitled to a partial rebate of income-tax on dividends received by them from any domestic company. Under the new section 80M, which is designed to simplify calculation of tax in the case of companies whose total income includes inter-corporate dividends, such companies will be entitled to a straight deduction, in the computation of their total income, of a specified percentage of such dividends. Foreign companies are entitled, under this section, to deduct 80 per cent of the dividends received by them from a closely-held Indian company engaged in any of the specified priority industries, leaving 20 per cent of such dividends to bear tax at the rate of 70 per cent currently applicable to the total income of a foreign company. This results in an incidence of tax of 14 per cent on the whole of such dividends (70 per cent of 20 per cent). In respect of dividends received from any other domestic company, a foreign company is entitled, under the new section 80M, to deduct 65 per cent thereof in the computation of its total income. This leaves the balance of the dividends of 35 per cent to bear tax at 70 per cent, which results in an incidence of tax of 24.5 per cent (70 per cent of 35 per cent) on the whole of such dividends. The rates at which tax is to be deducted at source from inter-corporate dividends receivable by foreign companies have been determined on the above-mentioned basis.
FINANCE (NO. 2) ACT, 1967
25. The rates specified in the Finance (No. 2) Act, 1967 in the case of foreign companies for deduction of tax at source from incomes, other than dividends from domestic companies, are the same as under the Finance Act, 1966.
Source: the Income Tax Department’s own published text — its page for this instrument.