Circular No. 461

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

FINANCE ACT, 1986 - CIRCULAR NO. 461, DATED 9-7-1986

Finance Act, 1986
Amendments at a glance

SECTION/SCHEDULE
PARTICULARS

Finance Act

2/Ist Schedule
Rate structure 4-9

Income-tax Act

10(3)
Receipts of casual and non-recurring nature - Enhancement of exemption limit 10

10(13A)
Raising ceiling of exemption available in respect of house rent allowance 11

16
Modification of provisions relating to standard deduction in the case of salaried taxpayer 12

23
Exemption of income from one self-occupied house property 13

24
Restriction on deduction from income from house property 14

32A(2),Clause
Modification of definition of �small scale industrial

(2) pf Exln/
undertaking� 15

80 HHA

32A,
Modification of provisions relating to investment

allowance 16

32AB
Substitution of provisions relating to investment allowance by an investment deposit account scheme 17

43
Modification in definition of �actual cost� for the purposes of depreciation, investment allowance, etc. 18

50/55
Liberalisation of provisions permitting taxpayers to substitute actual cost of asset by its fair market value as on 1-4-1974 for purposes of computing capital gains 20

54/155
Modification of provisions relating to exemption of capital gains arising on transfer of a residential house 21

54EURO ISSUE
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 22

74(1)(a),
proviso Limit for carry forward of long-term capital loss 24

74A
Modification of provisions relating to carry forward of losses from maintenance of horse races 32

80GG
Modification relating to limit of deduction in respect of rent paid 33

80K
Withdrawal of deduction in respect of dividends attributable to profits and gains from new industrial undertakings, etc. 25

80L(1)(ii)/
Interest or debentures issued by public sector com-

193(vib)
pany as an item qualifying for deduction 36

80S
Discontinuation of deduction in respect of compensation for termination of managing agency, etc., in the case of assessees other than companies 26

80T, Sch. XII
Modification of provisions relating to deduction in respect of long-term capital gains in the case of non-corporate taxpayers 23

80TT
Withdrawal of deduction in respect of winnings from lottery 27

115A
Uniform rate of tax on royalty and fees for technical services in the case of foreign companies 34

115BB
Provision for a flat rate of tax on winnings from lotteries, crossword puzzles, races, including horse races, etc. 31

133B/272AA
Extension of power of survey 35

194B
Modification of provisions relating to deduction of tax at source from winnings from lotteries or crossword puzzles 28

194BB
Winnings from horse races in respect of which TDS has to be deducted raised to Rs. 5,000 29

204
Modification of definition of the expression �person responsible for paying� for the purpose of deduction of tax at source from long-term capital gains in the case of a non-resident Indian 30

269U to
New provisions for purchase by Central Government

269UO/276B
of immovable properties in certain cases of transfer 37

269RR/276AA
Discontinuance of provisions relating to acquisition of immovable property 38

Wealth-tax Act

5(1)(xvie)/(3)
Exemption of debentures issued by public sector companies 39

5(1)(xxxiii)
Enlarging scope of exemption in respect of assets brought into India by persons of Indian origin 40

Gift-tax act

3, 18, 19A,
Levy of a flat rate of tax on taxable gifts 41

Schedule

5, sub-secs. (1),
Withdrawal of exemption in respect of gifts of

(1A)/(3)
National Defence Gold Bonds, 1980 ; certain gifts for charitable purpose ; gifts to spouse ; gifts of policies of insurance and annuities to dependents ; bona fide gifts for purpose of business or profession and gifts to any other person up to Rs. 500 42

5(2)
Raising basic exemption limit 43

6A/18
Withdrawal of provision relating to aggregation of gifts made during a certain period 44

Companies (Profits) Surtax Act

4
Discontinuance of levy of surtax in relation to the assessment year 1988-89 and subsequent years. 45

Rate Structure
Finance Act, 1986
Rates of income-tax in respect of incomes liable to tax for the assessment year 1986-87
4.1 In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 1986-87, the rates of income-tax (including surcharge thereon) have been specified in Part I of the First Schedule to the Finance Act. These rates are the same as those laid down in Part III of the First Schedule to the Finance Act, 1985, for the purposes of computation of �advance tax�, deduction of tax at source from �Salaries� and retirement annuities payable to partners of registered firms engaged in specified professions and computation of tax payable in certain cases during the financial year 1985-86.
Finance Act, 1986
4.2 The Finance Act, 1985 had allowed companies required to pay advance tax during the financial year 1985-86 to make a deposit with the Industrial Development Bank of India in lieu of the surcharge payable by them. The Finance Act, 1986 has accordingly made a provision that where a company has made a deposit during the financial year 1985-86 with the Industrial Development Bank of India under the Companies Deposits (Surcharge on Income-tax) Scheme, 1985, framed by the Central Government under section 2(7) of the Finance Act, 1985, and where the amount of the deposit so made is equal to or exceeds the amount of surcharge on income-tax payable by it, the surcharge payable by it shall be nil. Where the amount of deposit so made falls short of the amount of surcharge, the surcharge payable by the company shall be reduced by the amount of the deposit so made.
Finance Act, 1986
Rates for deduction of tax at source during the financial year 1986-87 from income other than �Salaries� and retirement annuities
5. The rates for deduction of income-tax at source during the financial year 1986-87 from incomes, other than �salaries� and retirement annuities payable to partners of registered firms engaged in certain professions, have been specified 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 income of non-residents (including non-resident Indians) other than salary income. There are certain changes in these rates as compared to the rates in force during the financial year 1985-86. In Part II of the Finance Act, 1985, the rates for deduction of tax at source in the case of non-corporate assessees on income by way of winnings from lotteries and crossword puzzles was 25 per cent and that on income by way of winnings from horse races was 30 per cent. The rates for deduction in the aforesaid cases has been raised to 40 per cent. In the case of a company which is not a domestic company, the rates for deduction of tax during the financial year 1985-86 in respect of the income by way of royalty payable by the Government or an Indian concern under an approved agreement (other than royalty in respect of copyright in any book) made after 31st March, 1976, are 20 per cent on lump sum royalty payment and 40 per cent on the balance. The rate of deduction of tax on income by way of fees for technical services payable by the Government or an Indian concern under an approved agreement made after 31st March, 1976, is 40 per cent. The rate for deduction during the financial year 1986-87 in all the aforesaid cases will be 30 per cent.
Finance Act, 1986
Rates for deduction of tax at source from �Salaries�, computation of �advance tax� and charging of income-tax in special cases during the financial year 1986-87
6. The rates for deduction of tax at source from �Salaries� in the case of individuals during the financial year 1986-87 and also for computation of �advance tax� payable during the year in the case of all categories of taxpayers have been specified in Part III of the First Schedule to the Finance Act. These rates are also applicable for deduction of tax at source during the financial year 1986-87 from retirement annuities payable to partners of registered firms engaged in certain professions (such as, chartered accountants, solicitors, lawyers, etc.), and for charging income-tax during the financial year 1986-87 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during the financial year 1986-87, assessment of persons who are likely to transfer property to avoid tax, where an order has to be passed in a case of search and seizure for calculating the amount of tax on the estimated undisclosed income, etc.
Finance Act, 1986
Rates of tax applicable to individuals, Hindu undivided families, unregistered firms, etc., co-operative societies, registered firms and local authorities
7. In the case of individuals, Hindu undivided families, unregistered firms, etc., the rates of income-tax have been specified in Paragraph A of Part III of the First Schedule to the Finance Act. In the case of co-operative societies, registered firms and local authorities, the rates of income-tax have respectively been specified in Paragraph B, Paragraph C and Paragraph D of Part III of the First Schedule to the Finance Act. These rates are the same as those specified in the corresponding Paragraphs of Part I of the First Schedule.
Finance Act, 1986
Rates of tax applicable to companies
8.1 In the case of companies, the rates of income-tax have been specified in Paragraph E of Part III of the First Schedule to the Finance Act. These rates are the same as specified in the corresponding Paragraph I of Part I of the First Schedule.
Finance Act, 1986
8.2 Abolition of surcharge - Surcharge on income-tax for purposes of the Union in the case of companies was hitherto levied at the rate of 5 per cent of the income-tax. The levy of surcharge for the purposes of the Union has been abolished in the case of companies.
Finance Act, 1986
Partially integrated taxation of non-agricultural income with income derived from agriculture
9. As in the past, the Finance Act provides that in the case of individuals, Hindu undivided families, unregistered firms, other associations of persons, etc., the net agricultural income will be taken into account for computation of �advance tax� and charging of income-tax. These provisions are broadly on the same lines as those in earlier years.
[Section 2 and the First Schedule to the Finance Act]
Amendments to Income-tax Act

FINANCE ACT, 1986

Receipts of casual and non-recurring nature - Enhancement of exemption limit

10. Under the existing provisions of section 10(3) of the Income-tax Act, any receipts which are of a casual and non-recurring nature, subject to certain exceptions, to the extent such receipts do not exceed Rs. 1,000 in the aggregate, are not included in computing the total income of an assessee. The Finance Act has raised this exemption limit to Rs. 5,000 which will be applicable to the assessment year 1987-88 and subsequent years.

[Section 3(a) of the Finance Act]

FINANCE ACT, 1986

Raising the exemption available in respect of house rent allowance

11. Under section 10(13A), any special allowance granted by an employer to his employee to meet expenditure actually incurred on payment of rent for residential accommodation is exempt to such extent, not exceeding Rs. 400 per month, as may be prescribed by rules, having regard to the area or place in which such accommodation is situated. With a view to removing the disparity to the extent possible in the matter of liability to income-tax as between an employee getting house rent allowance and another provided with rent-free accommodation by the employer, the Finance Act has omitted the above ceiling of Rs. 400 per month. Consequently rule 2A of the Income-tax Rules, 1962, is being amended by a notification which is expected to be issued shortly. Under the proposed amendment, clause (d) of rule 2A and clause (iii) of the Explanation to the said rule will be omitted. Further, clause (c) of rule 2A will provide the limit of one-half of the amount of salary in the case of an assessee who is in receipt of house rent allowance in respect of a residential accommodation occupied by him which is situated at Bombay, Calcutta, Delhi or Madras and the limit of two-fifths of the amount of salary in respect of the accommodation situated at other places. This amendment will apply in relation to the assessment year 1987-88 and subsequent years.

[Section 3(b) of the Finance Act]

FINANCE ACT, 1986

Modification of provisions relating to standard deduction in the case of salaried taxpayers

12. At present, the salaried taxpayers are entitled to a standard deduction of 25 per cent of their salary or Rs. 6,000 whichever is less. The Finance Act has increased the limit of this deduction to 30 per cent of the salary or Rs.10,000, whichever is less. This enhanced limit will be applicable from the assessment year 1987-88.

[Section 4 of the Finance Act]

FINANCE ACT, 1986

Exemption of income from one self-occupied house property

13.1 Under the existing provisions of section 23(2) of the Income-tax Act, the annual value of a self-occupied property is first determined in the same manner as if the property had been let and it is reduced by one-half of such amount or Rs. 3,600, whichever is less. Where the sum so arrived at exceeds 10 per cent of the total income of the owner of the property, computed without including the income from such property and without making any deduction under Chapter VI-A of the Income-tax Act, the excess is disregarded. Where the assessee is owner of more than one such house used for the purposes of his own residence, the above concessional treatment applies only in respect of one residential house, which the assessee may specify in this behalf. In respect of residential houses other than the one whose annual value is reduced as above, the annual value is determined as if such houses had been let. Further, where the owner has only one residential house and it cannot be occupied by him due to his employment, business or profession being, carried on at some other place, and the owner resides in a building which does not belong to him at the other place; the annual value in such case is taken as nil provided certain conditions are satisfied.

FINANCE ACT, 1986

13.2 The Finance Act has amended section 23, modifying the method of determining the annual value of a self-occupied house property. The annual value, accordingly, will be determined as under:

FINANCE ACT, 1986

13.3 House property consisting of a house or a part of the house in the occupation of the owner for residence from which no other benefit is being derived by him.

Annual value

(a) If the property is not let during any part of the previous year.

Nil

(b) If the property is let in parts during the previous year.

The annual value of the entire property will be first determined as if it is let. Out of the above, the annual value of the self-occupied portion will be de ducted for the full year. Further, for the let out portion, the proportionate annual value for the period during which that part was self-occupied is to be excluded. The balance will be the tax able annual value.

(c) If the property is let during any part of the previous year.

The annual value will be determined as if the property had been let. Out of the above, the proportionate value for the period for which it is self-occupied will be excluded and the balance will be the taxable annual value.

FINANCE ACT, 1986

13.4 Where more than one house property is in the occupation of the owner for his residence in respect of which the assessee may specify one of such properties, the annual value shall be determined in the same manner as discussed at (a), (b) and (c) of para 13.3. In respect of the remaining properties, the annual value will be determined as if such house or houses had been let.

FINANCE ACT, 1986

13.5 As a consequential amendment, section 23(2A) has been omitted.

FINANCE ACT, 1986

13.6 Section 23(3) which has been substituted provides that where a house property consists of one residential house only and it cannot be actually occupied by the owner owing to his employment business or profession being carried on at any other place compelling him to reside at that place in a building not belonging to him, its annual value shall be taken to be nil, provided the house is not actually let and no other benefit therefrom is derived by the owner.

FINANCE ACT, 1986

13.7 The above amendments to section 23 shall apply in relation to the assessment year 1987-88 and subsequent years.

[Section 5 of the Finance Act]

FINANCE ACT, 1986

Restriction on deduction from income from house property

14.1 By an amendment of section 24 of the Income-tax Act, it has been provided that where the self-occupied house property is acquired with the help of borrowed funds, a deduction in respect of interest payable up to a maximum of Rs. 5,000 per annum on such borrowed funds will be allowed.

FINANCE ACT, 1986

14.2 This provision will be applicable from the assessment year 1987-88 onwards.

[Section 6 of the Finance Act]

FINANCE ACT, 1986

Modification of the definition of �small-scale industrial undertaking�

15.1 Section 32A(2)(b)(ii) of the Income-tax Act provides that investment allowance is admissible in respect of any machinery or plant installed in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing, including an article or thing specified in the Eleventh Schedule to the Income-tax Act. An assessee which does not fall under the category of small-scale industrial undertaking is denied the benefit of investment allowance if it is engaged in the manufacture or production of an article or thing listed in the Eleventh Schedule. Further, under section 80HHA of the Income-tax Act, an assessee is entitled to a deduction in the computation of his taxable income of an amount equal to 20 per cent of the profits and gains derived from a small-scale industrial undertaking set up in a rural area for ten initial assessment years. Under section 80-I of the Income-tax Act, an assessee owning a small-scale industrial undertaking is entitled to a deduction in the computation of his taxable income of an amount equal to 20 per cent of the profits and gains (25 per cent in the case of a company) derived from a small-scale industrial undertaking which may be engaged in the manufacture or production of any article or thing, including an article or thing of low priority specified in the Eleventh Schedule to the Income-tax Act for eight initial assessment years (10 years in the case of a co-operative society).

FINANCE ACT, 1986

15.2 For the purposes of the above-mentioned tax concessions, a �small scale industrial undertaking� has been defined as an industrial undertaking in which the aggregate value of the machinery and plant installed, as on the last day of the previous year, does not exceed Rs. 20 lakhs. With a view to promoting the growth of the small scale sector, the limit of investment in a small scale industrial undertaking was increased from Rs. 20 lakhs to Rs. 35 lakhs by the Department of Industrial Development, vide their Notification dated 18th March, 1985. In view of the increase in the aforesaid qualifying monetary limit, the Finance Act has amended sections 32A and 80HHA of the Income-tax Act to provide that an industrial undertaking will be regarded as a small scale industrial undertaking if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed therein, as on the last day of any previous year ending after the 17th March, 1985, does not exceed Rs. 35 lakhs. In view ofExplanation 3 to section 80-I(2), the amended definition will automatically apply for the purposes of that section also.

FINANCE ACT, 1986

15.3 This amendment will have retrospective effect and will apply in relation to the assessment year 1985-86 and subsequent years.

[Sections 7(a)(ii) and 18 of the Finance Act]

FINANCE ACT, 1986

Other amendments to section 32A of the Income-tax Act

16.1 As one of the measures of corporate tax reform announced in the Long Term Fiscal Policy, the scheme of investment allowance has been replaced by the scheme of investment deposit account. Under the existing provisions of clause (c) of sub-section (2) of section 32A of the Income-tax Act, in the case of approved Indian companies any new machinery or plant installed for the purposes of business of repairs to ocean-going vessels or other powered craft, is entitled to investment allowance. As per section 32A(8), the Central Government may by notification in the Official Gazette, direct that the deduction allowable under section 32A of the Act shall not be allowed in respect of any ship or aircraft acquired or any machinery or plant installed after such date, not being earlier than three years from the date of such notification, as may be specified.

FINANCE ACT, 1986

16.2 Since the scheme of investment allowance is being replaced by the new scheme of investment deposit account, there has to be a consequential change in the modality of allowing deduction for encouraging investment in new plant and machinery. In order to facilitate to switch over from the old scheme, in section 32A(2)(c), for the date 1st April, 1988, the date 1st April, 1987 has been substituted by the Finance Act. Similarly, section 32A(8) has been amended to secure that the requirement of three years after which the notification for withdrawing the investment allowance shall be effective, is not necessary. The notification in this regard has been made.

FINANCE ACT, 1986

16.3 By inserting a new sub-section (8B) in section 32A, it has been provided that no deduction by way of investment allowance shall be allowed in the case of an assessee who has claimed deduction allowable under the new section 32AB (relating to the new scheme of investment deposit account). However, the benefit of set off of the unabsorbed investment allowance for an earlier year will not be denied. This amendment will apply in relation to the assessment year 1987-88 and subsequent years.

[Section 7(a)(i),(b) and (c) of the Finance Act]

FINANCE ACT, 1986

Substitution of the provisions relating to investment allowance by an investment deposit account scheme

17.1 The 1985-86 Budget had initiated a process of reform of the corporation tax. It had been announced that the scope for further reform would be examined along with two alternative lines as under :

(i) A further reduction in the rate of tax by 5 per cent for the next year and withdrawal of surcharge and surtax in the third year along with withdrawal of the investment allowance in the phased manner ; or

(ii) retention of the investment allowance with no further cut in rates.

FINANCE ACT, 1986

17.2 An open debate was invited on the relative merits of these alternatives before taking any decision. On a consideration of the related issues, the surcharge on the companies has been abolished with immediate effect and it has not been postponed to the third year as envisaged earlier as per para 5.12 of the LTFP. Keeping in view the interest of revenue, the surtax has been discontinued with effect from the assessment year 1988-89. The scheme of investment allowance has been replaced by a new scheme of investment deposit account.

FINANCE ACT, 1986

17.3 One of the reasons for our having a high capital output ratio in the industry is that the tax concessions have so far favoured investment in assets per se rather than output generated from those assets. By the new scheme relating to investment deposit account along with the proposed high depreciation rates announced by the F.M., the retained earnings and internal resources generation of the companies would improve. As mentioned in paras 5.12 to 5.18 of the LTFP, the investment allowance had tended to favour the large and more established enterprises, partly because such concerns could set off investment allowance against profits of old established units without waiting for profits from fresh investments. The new scheme of investment deposit account will be neutral as between small and large companies and will also insulate the timing of investment decisions from tax considerations. This measure should help to reduce the premium on spending which taxation of business profit inevitably creates, and thus curb the conspicuous extravagance in the corporate sector. The new scheme should also help to neutralise the bias in favour of borrowing and needless capacity creation

The new scheme differs from the existing provisions of investment allowance as under :

1. The existing provisions of the investment allowance apply to only those assessees�

(i) who purchase a ship or aircraft, which is first put to use in the business of the assessee ; or

(ii) who instal new machinery or plant in an industrial undertaking for the purposes only of business of construction, manufacture or production of any article or thing not specified in the Eleventh Schedule to the Income-tax Act.

In the case of small-scale industrial undertaking, this benefit is not denied even if such an undertaking produces a non-priority item listed in the Eleventh Schedule, like alcoholic spirits, tobacco preparations, cosmetics, etc.

The new scheme is applicable to all existing types of assessees as also to the professionals and the leasing companies which have not leased out machinery to those industrial undertakings other than a small-scale industrial undertaking engaged in the manufacture or production of articles or things listed in the Eleventh Schedule to the Income-tax Act. In other words, the deduction is admissible to all the assessees who carry on �eligible business or profession�, which as per section 32AB(2) means business or profession other than the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule (in case it is not a small-scale industrial undertaking) and the business of leasing or hiring of machinery or plant to an industrial undertaking other than a small-scale industrial undertaking engaged in the business of low priority items as specified in the list in the Eleventh Schedule. It may be clarified that the business of construction is an eligible business for the purposes of this provision.

2. In order to encourage a more productive use of capital leading to a low cost economy, the benefits under the new investment deposit scheme shall be available only if there are profits in the eligible business or profession whereas the benefit of investment allowance is available even if there is no such profit, because the deduction is linked merely to the cost of the plant and machinery.

3. The acquisition of a ship or an aircraft or installation of plant and machinery, as the case may be, during the previous year is a condition precedent for availing of the benefit of the existing investment allowance, whereas the deduction under the new provisions can be availed of even before the ship or aircraft is acquired or the plant or machinery has been installed by making a deposit with the designated Development Bank.

4. The investment allowance is allowed at 25 per cent of the actual cost of the plant, machinery, ship or aircraft to the assessee. As against this, under the new scheme, the entire cost of the ship or aircraft or plant or machinery will qualify for deduction, if the same is up to 20 per cent of the profits of the eligible business or profession.

5. Under the new provisions, the deduction is not admissible unless the accounts of the business or profession of the assessee, other than a company or a co-operative society have been audited by an accountant and the assessee furnishes along with the return of his income, the report of such audit in the prescribed form, duly signed and verified by such an accountant. No such audit is required as a condition for availing of the benefit of the existing investment allowance.

6. Subject to the fulfilment of the required conditions, the benefit of investment allowance continues to be available if the sale or transfer of a ship or an aircraft or plant or machinery is made as per a scheme of amalgamation. Such deduction is not provided in the new scheme, because in the Indian context amalgamations usually arise infrequently and that too only to take care of losing concerns or as a device for tax planning.

FINANCE ACT, 1986

17.4 The other salient features of the scheme of the investment deposit account are as under :

Under section 32AB(1), it has been provided that deposits with the Development Bank or the purchase of a new ship, new aircraft, new machinery or plant should be out of income chargeable to tax under the head �Profits and gains of business or profession�. However, for arriving at the book profit, a uniform system of accounting is yet to be enforced even in the organised sector. Hence, the term �profit of eligible business or profession� has been defined as per section 32AB(3) in order to ensure uniformity in determining the profits qualifying for deduction, as also to reduce uncertainty about the interpretation of this term. In terms of section 32AB(3)(a), it has been provided that the profits of eligible business or profession for the purposes of deduction under these provisions will mean, in a case where separate accounts in respect of such business or profession are maintained, an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provision of section 32(1) of the Income-tax Act from the amount of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956, as increased by an amount equal to the depreciation, if any, debited in the audited profit and loss account. This implies that the profit has to be computed, taking into account only the depreciation for the current year, as admissible under the Income-tax Act. Further, Part II of the Sixth Schedule to the Companies Act lays down the requirements as to profits and loss account. These requirements, as per the provisions of section 32AB(3) of the Income-tax Act, will be applicable in the cases of corporate as well as non-corporate assessees.

FINANCE ACT, 1986

17.5 The requirements as per Part II of the Sixth Schedule to the Companies Act, include the following :

1. The profit and loss account shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account and shall disclose every material feature, including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of exceptional nature.

2. The profit and loss account shall set out the various items relating to the income and expenditure under the most convenient heads; and in particular shall disclose the turnover, giving the amount of sales in respect of each class of goods dealt with by the company and indicating the quantities of such sales for each class separately.

3. The commission, brokerage and discount on sales paid will be indicated.

4. In the case of manufacturing concern, the value of the raw material consumed, giving item-wise break-up and indicating the quantities thereof are to be indicated. The important basic raw material consumed, giving item-wise break-up and indicating the quantities thereof are to be indicated. The important basic raw materials should be shown as separate items as far as possible. The intermediates or components procured from other manufacturers may, if their list is too large to be included in the break-up, be grouped under suitable headings, without mentioning the quantities, provided all those items which in value individually account for 10 per cent or more of the total value of raw material consumed, shall be shown as separate and distinct items with quantities thereof in the break-up.

5. The quantity and other particulars of green tea produced and processed by such companies separately should be disclosed together with the opening and closing stock thereof. If such tea is purchased from outside source, the value also of the tea purchased will be disclosed in addition to the quantity and other particulars.

6. The opening and closing stock of goods produced or purchased may be given, disclosing the break-up in respect of each class of goods and indicating the quantities thereof.

7. In the case of all concerns having work-in-progress, the amounts for which such works have been completed at the commencement and at the end of accounting year should be given.

8. The amount provided for depreciation, renewals or diminution in the value of fixed assets should also be given. If such provision is not made by means of depreciation charge, the method adopted for such provision may be disclosed. If no provision is made for depreciation, this fact may be stated. The quantum of arrears of depreciation computed should be disclosed by way of a note.

9. The amount of interest on debentures and other fixed loans, the charge for income-tax and other Indian taxation on profits, etc., should be disclosed.

10. The expenditure incurred on consumption of stores and spare parts, power and fuel, rent, repairs, salaries, wages and bonus, contribution to provident fund, etc., may be shown separately for each item.

FINANCE ACT, 1986

17.6 The definitions as per part III of the Sixth Schedule to the Companies Act are as under :

1. The term provision means any amount written off or retained by way of providing for depreciation, renewals or diminution in value of asset or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy.

2. The expression �reserve� shall not include any amount written off or retained by way of providing for depreciation, renewal or diminution in value of the assets or retained by way of providing for any known liability.

3. The expression �capital reserve� shall not include any amount regarded as free for distribution through the profit and loss account.

4. The expression �revenue reserve� shall mean any reserve other than the capital reserve.

5. (a) The expression �liability� shall include all liabilities in respect of expenditure contracted for and all disputed or contingent liabilities.

(b) In a case where in respect of eligible business or profession, no separate accounts are maintained or available, the profits of the eligible business or profession shall be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation under section 32(1), the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipts of the business or profession carried on by the assessee. For example, if the gross receipts of business are Rs. 100 which includes gross receipts of eligible business at Rs. 40 then, the case, the total profit is Rs. 10, the profits of eligible business qualifying for deduction will be Rs. 4.

(c) To avail of the deduction under this provision, the deposit has to be made in a Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of income whichever is earlier.

(d) The Development Bank in the case of an assessee carrying on the business of growing and manufacturing tea in India means the National Bank for Agriculture and Rural Development. In the case of other assessees, Development Bank means the Industrial Development Bank of India and includes such bank or institution as may be specified in the scheme in this behalf.

(e) The purpose of withdrawal from the Development Bank may be the purchase of any new ship, new aircraft, new machinery or plant or the repayment of �term loans� (as per scheme) utilised for such purchases.

(f) No deduction shall be allowed in respect of any amount utilised for the purchase of (i) any machinery or plant to be installed in any office premises or residential accommodation including any accommodation in the nature of a guest-house; (ii) any office appliances (not being computer); (iii) any road transport vehicle; and (iv) any machinery or plant the whole of the actual cost of which is allowed as a deduction whether by way of depreciation or otherwise in computing the income from business or profession of any one previous year. Computer, for this purpose, is not a plant or a machinery. Hence in respect of any amount utilised for the purchase of a computer installed even in office premises, deduction will be admissible.

(g) The term �computer� does not include calculation machines and calculating devices.

(h) For getting the benefit under this provision, the deposit in the Development Bank or the purchase of any new ship, plant, etc., should be out of income from the eligible business or profession. There is an underlying reason for this pre-condition. As mentioned in the Long Term Fiscal Policy (Para. 5.14) since the benefit of investment allowance is related to the cost of plant and machinery irrespective of how it is financed, such a benefit had created a distortion in the profitability of companies depending on the extent to which they were able to find the resources internally or through borrowings to acquire the new ship, plant, etc. That being so, under the Investment Deposit Scheme, deduction will be admissible only if the deposit is made or the ship, plant, etc., is acquired out of income chargeable to tax under the head �Profits and gains of business or profession�.

FINANCE ACT, 1986

17.7 As provided in section 32AB(10), no deduction shall be allowed under section 32AB(1) in the case of an assessee carrying on business of growing and manufacturing tea in India who has claimed the deduction under section 32AB relating to the tea development account. However, any excess deposit made by such an assessee under section 33AB(2) may not be treated as a bar to deposit further amount under section 32AB for the assessment year 1987-88, so long as the overall ceiling of 20 per cent of eligible profits is not exceeded. As this problem is limited to only one year, no enabling provision in law is considered necessary for this purpose.

FINANCE ACT, 1986

17.8 Consequential amendments have been made in section 80VVA and in the Eleventh Schedule to the Income-tax Act.

FINANCE ACT, 1986

17.9 The new section will apply in relation to the assessment year 1987-88 and subsequent years.

FINANCE ACT, 1986

17.10 A notification relating to the Investment Deposit Account Scheme, 1986, is being published separately in the Gazette. The Scheme shall provide that a depositor may utilise the amount deposited under the Scheme for the purposes of purchase of new ship or new aircraft or new machinery or plant for the purposes of his business or profession, or for the purpose of purchase of new computers or for repayment of principal amount of term loans contracted after 31st March, 1986 and taken for a period of 3 years or more from certain financial institutions or from scheduled banks or from other specified institutions. The Scheme shall also lay down the manner of deposit as well as the manner of withdrawals by the depositors.

[Sections 8, 39(b)(i) and (d) of the Finance Act]

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