Finance Act, 1963
Interest for delay in filing returns
12. Under section 139, the interest to be paid by an assessee for delay in the filing of the return was to be calculated with reference to the tax determined on regular assessment, and no adjustments were subsequently admissible in respect of such interest. Section 8 of the Finance Act, 1963 introduces two modifications in respect of this position. In the first place, if the assessment is modified as a result of appeal, reference, review or rectification, and the amount of tax payable by the assessee is reduced provision has been made for reduction the amount of interest pro rata, and for refunding the excess interest paid, if any. Secondly, the Income-tax Officer has been given power in certain circumstances to reduce or waive the interest. The circumstances in which this power of reduction or waiver can be exercised will be prescribed by rules to be made for this purpose.
It is to be noted that this provision enables a modification of the amount of interest only in the assessee��s favour, and not in the other direction. If the assessment is enhanced as a result of appeal, revision or rectification, the amount of interest payable is not to be enhanced and no additional interest is to be demanded.
Self-assessment
13. Tax is now payable by the following methods :
(a) by deduction at source from certain types of receipts, e.g., salaries, interest on securities, dividends and interest received by non-residents ;
(b) by way of advance tax in the year preceding the assessment year (i.e., more or less concurrently with the earning of the income), on incomes other than salary exceeding particular amounts;
(c) against demands raised on provisional assessments, based on the assessee��s return, in cases where some delay is anticipated in completing the assessment; and
(d) against demands raised on regular assessment.
In order to ensure early collections, a new section 141A has been inserted in the Act with the object of encouraging assessees to pay the full amount of tax payable in accordance with the return of income (after giving credit for any tax already paid through deduction at source or by way of advance tax) on or before 31st December of the assessment year. With this object in view, the section provides both��
(a) an incentive, in the form of a discount for payment of tax on or before that date, and
(b) a deterrent, by levying an additional amount, in the nature of interest, in cases where payment is delayed beyond that date.
Finance Act, 1963
14. If an assessee files a return on or before 31st December of the relevant assessment year and a provisional or regular assessment is also completed before that date, he will become entitled, if he pays by the said date the full amount of tax payable on such (provisional or regular) assessment, to a discount equal to 1 per cent of the amount so paid. If an assessee has filed a return before that date, but no provisional or regular assessment is made before that date, it is open to him to pay voluntarily before 1st January of the relevant assessment year, the full amount of tax payable in accordance with his return (after taking credit for deductions at source and advance tax paid). If he does so, he will become entitled to a deduction of 1 per cent of the amount so paid, out of the tax with which he is chargeable.
Finance Act, 1963
15. In a case where no provisional or regular assessment has been made before 1st January of the assessment year, and the assessee has also not paid tax voluntarily before that date in accordance with a return made by him, he will become liable to pay interest at 2 per cent per annum from 1st January to the date specified below:
(a) if he files a return, whether before or after 1st January, the date on which the provisional assessment, if any, is made; if no provisional assessment is made, the date on which a regular assessment under section 143 or 144 is made;
(b) if he does not file a return at all, the date on which a regular assessment is made under section 144.
Finance Act, 1963
16. In cases falling under (a), the interest will be calculated on the tax payable in accordance with the return of income, after giving credit for the tax deducted at source and advance tax paid. In cases falling under (b), the interest will be calculated on the tax determined as payable on the completion of the regular assessment after giving credit for tax deducted at source and advance tax paid.
Finance Act, 1963
17. The different circumstances in which interest is payable by the assessee either under section 139 or section 141A, or a discount is admissible under section 141A, will be readily apparent from the tabular statement in the Annexure. In addition, penalty may also become exigible under section 271(1)(a) in appropriate circumstances.
Finance Act, 1963
18. Where the return of income is filed by an assessee before 1st January of the relevant assessment year and a provisional or regular assessment is made before that date, the Income-tax Officer will calculate the amount of the discount which will be allowable to the assessee in the event of the tax being paid before 1st January. Two challans will be issued to the assessee, one for the net amount of tax payable after deducting the discount and the other for the balance representing the amount of the discount. If the payment is made against the former challan for the net amount of the tax due before 1st January of the relevant assessment year, no payment need be made against the challan for the balance amount which represents the discount. Under this procedure it will not be necessary for the assessee to make a claim for a refund on account of the discount allowable to him.
Disallowance of remuneration, etc., exceeding Rs. 5,000 per mensem
19. Section 6 of the Finance Act, 1963 introduces a new sub-clause (iii) in section 40(c), providing for the disallowance of any expenditure incurred by a company for providing any remuneration or benefit or amenity to its employees in excess of an amount calculated at the rate of Rs. 5,000 per month for each employee for any period after 28-2-1963. Such disallowance is to be made only in cases where the employee concerned is an Indian citizen. In calculating the total expenditure in respect of a particular employee, certain extraordinary items are to be excluded, namely, gratuities the transferred balance of an employee in a newly recognised provident fund, and any compensation or other payments falling within section 17(3). It has to be noted that section 40(c)(iii) relates to disallowance in the assessment of the company, and what is important is, therefore, the expenditure incurred by the company and not necessarily the quantum of assessable income to which it gives rise in the hands of the employee.
Advance tax
20. Revision of demands on the basis of subsequent assessments - Two important amendments have been made relating to advance tax. Under the proviso to section 210(3), as in force till 31-3-1963, it was obligatory on the Income-tax Officer to issue an amended notice of demand for advance tax whenever an assessment of the assessee himself or of a registered firm of which he is a partner, was completed for a previous year later than that on the basis of which the original demand was issued and it was found that such later assessment would lead to a smaller liability to advance tax. Section 12 of the Finance Act, 1963 amends this sub-section by omitting the aforesaid proviso. the effect of this amendment is that a revised demand need be issued only when the original demand falls short of the demand based on the last completed assessment.
Finance Act, 1963
21. The second important modification made is that the Income-tax Officer is empowered to raise a revised demand not only when a regular assessment for a subsequent year is completed but even when he makes a provisional assessment for any subsequent assessment year.
In this connection, it may be mentioned that the amendments under reference do not make any change in the existing provision in regard to the issue of the first demand notice for advance tax under section 209. The first demand for advance tax will be based, as before, on the latest completed regular assessment of the assessee. If, for instance, the regular assessment for 1960-61 and a provisional assessment for 1961-62 have been completed before 31-3-1963, the demand for advance tax payable for the financial year 1963-64 will be based on the regular assessment for 1960-61 irrespective of whether the provisional assessment for the assessment year 1961-62 was on a higher or lower income than the regular assessment. Having issued such a demand the Income-tax Officer cannot also issue an amended notice on the basis of the provisional assessment for 1961-62; he can, of course, revise the demand in accordance with the provisional assessment for either the assessment year 1962-63 or 1963-64, if one happens to be made after issue of the original demand before 15-2-1964 and discloses a liability which is higher than the existing liability.
22. Interest for under-payment of advance tax - In view of the fact that assessees may now pay tax before the 1st January of the assessment year under section 141A, suitable modifications have been made in the calculation of interest on advance tax under section 215. Where any such payment is made, either in pursuance of a provisional assessment or on the assessee��s own volition, interest under section 215 will hereafter be calculated up to the date of such payment on the amount by which the advance tax paid falls short of 75 per cent of the tax determined on regular assessment (as adjusted); after that date, the interest will be payable on the amount by which the total tax paid falls short of 75 per cent of the tax on regular assessment (as adjusted).
Revision of interest for delayed payment of tax
23. Section 220(2) provides for the charging of simple interest at 4 per cent per annum in cases of delayed payment of tax. As the Act originally stood, there was no provision for the reduction of this interest in case the relevant demand was reduced. Section 14 of the Finance Act, 1963 introduces a new proviso to this sub-section, the effect whereof is that, whenever the demand is reduced on appeal, revision, reference or rectification, the interest will also be reduced accordingly and excess interest paid, if any, will be refunded.
Proceedings under section 23A of the 1922 Act
24. Section 297(2)(e) provides that, in relation to 1961-62 and earlier assessment years, section 23A of the 1922 Act, as in force for the relevant year, will apply and not the provisions of sections 104 to 109 of the 1961 Act. However, when action has once been taken under section 23A of 1922 Act, it is desirable that any subsequent proceeding for imposition of penalty or recovery of tax should be continued under the 1961 Act. Provision to this effect has been made by section 19 of the Finance Act, 1963 which amends section 297(2)(e).
Finance Act, 1963
25. Amendments made by sections 5, 7, 10, 15, 16, 17 and 18 of the Finance Act, 1963 are comparatively minor and do not need any explanation.