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FINANCE ACT 1965

Ministry of Law and Justice

Act nº 10 of 1965


  • Schedules
  • Act nº 10 of 1965

Preamble

THE FINANCE ACT, 1965

[Act No. 10 of 1965]

[ 11th May 1965]

PREAMBLE

A Bill to give effect to the financial proposals of the Central Government for the financial year 1965 66

Be it enacted by Parliament in the Sixteenth Year of the Republic of India as follows :

Section 1. Short Title and Commencement

(1) This Act may be called the Finance Act, 1965.

(2) Save as otherwise provided in this Act, sections 3 to 67 and 69 to 74 shall be deemed to have come into force on the 1st day of April, 1965, and section 68 shall be deemed to have come into force on the 1st day of March, 1965.

Section 2. Income Tax

(1) Subject to the provisions of sub sections (2), (3), (4) and (5), for the assessment year commencing on the 1st day of April, 1965, income tax shall be charged at the rates specified in Part I of the First Schedule and, in the cases to which Paragraphs A, B, C and D of that Part apply, shall be increased by a surcharge for purposes of the Union calculated in either case in the manner provided therein.

(2) In making any assessment for the assessment year commencing on the 1st day of April, 1965, where the total income of an assessee, not being a company, includes any income chargeable under the head "Salaries", the income tax payable by the assessee on that part of his total income which consists of such inclusion shall be an amount bearing to the total amount of income tax and super tax payable according to the rates applicable under the operation of the Finance Act, 1964 (5 of 1964), on his total income the same proportion as the amount of such inclusion bears to his total income.

(3) In making any assessment for the assessment year commencing on the 1st day of April, 1965, where the total income of a company, other than the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), includes any profits and gains from life insurance business, the income tax payable by it shall be the aggregate of the income tax calculated

(i) on the amount of profits and gains from life insurance business so included, at the rate applicable to the Life Insurance Corporation of India in accordance with Paragraph E of Part I of the First Schedule; and

(ii) on the remaining part of its total income, at the rate applicable to the company on its total income.

(4) In cases to which Chapter XII of the Income tax Act, 1961 (43 of 1961), (hereinafter referred to as the Income tax Act) applies, the tax chargeable shall be determined as provided in that Chapter, and with reference to the rates imposed by sub section (1) or the rates as specified in that Chapter, as the case may be.

(5)(a) In respect of any assessment for the assessment year commencing on the 1st day of April, 1965

(i) an assessee being an Indian company or any other company which has made the prescribed arrangements for the declaration and payment of dividends within India or an assessee (other than a company) whose total income includes any profits and gains derived from the export of any goods or merchandise out of India, shall be entitled to a deduction, from the amount of income tax with which he is chargeable, of an amount equal to the income tax calculated at one tenth of the average rate of income tax on the amount of such profits and gains included in the total income;

(ii) where an assessee of the type referred to in sub clause (i) engaged in the manufacture of any articles in an industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), has during the previous year exported such articles out of India, he shall be entitled, in addition to the deduction of income tax referred to in sub clause (i), to a further deduction, from the amount of income tax with which he is chargeable for the assessment year, of an amount equal to the income tax calculated at the average rate of income tax on an amount equal to two per cent. of the sale proceeds receivable by him in respect of such export;

(iii) where an assessee of the type referred to in sub clause (i) engaged in the manufacture of any articles in an industry specified in the said First Schedule has, during the previous year, sold such articles to any other person in India who himself has exported them out of India and evidence is produced before the Income tax Officer of such articles having been so exported, the assessee shall be entitled to a deduction, from the amount of income tax with which he is chargeable for the assessment year, of an amount equal to the income tax calculated at the average rate of income tax on a sum equal to two per cent. of the sale proceeds receivable by him in respect of such articles from the exporter.

(b) The total of the deductions under this sub section shall in no case exceed the amount of income tax otherwise payable by the assessee.

(c) Nothing contained in sub clause (ii) and sub clause (iii) of clause (a) shall apply,

(i) in relation to

(1) fuels,

(2) fertilisers,

1. photographic raw film and paper,

2. textiles (including those dyed, printed or otherwise processed) made wholly or in part of jute, including jute twine and rope,

3. newsprint,

(6) pulp wood pulp, mechanical, chemical, including dissolving pulp,

4. sugar,

5. vegetable oils and vanaspathi,

6. cement and gypsum products,

7. arms and ammunition, and

(11) cigarettes,

respectively specified in items 2, 18, 20, 23(2), 24(2), 24(5), 25, 28, 35, 37 and 38 of the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951); or

(ii) in relation to textiles specified in items 23(1), 23(3), 23(4) and 23(5) of that Schedule where such textiles have been exported before the 1st day of March, 1964.

(d) The amount of any profits and gains derived from the export of any goods or merchandise out of India in respect of which deduction of income tax is admissible under sub clause (i) of clause (a) shall be computed in accordance with the rules made by the Central Board Taxes in this behalf.

(6) In cases in which tax has to be deducted under sections 193 to 195 of the Income tax Act at the rates in force, the deduction shall be made at the rates specified in Part II of the First Schedule.

(7) For the purposes of this section, and of the rates of income tax imposed thereby, and of section 3

(i) the expressions "assessment year", "average rate of income tax", "non resident", "partner", and "total income" have, unless the context otherwise requires, the meanings respectively assigned to them under clauses (9), (10), (30), (23) and (45) of section 2 of the Income tax Act;

(ii) the expression "earned income" means any income of an assessee who is an individual, Hindu undivided family, unregistered firm or other association of persons or body of individuals, whether incorporated or not, not being a company, a local authority, a registered firm or a firm assessed under clause (b) of section 183 of the said Act

(a) which is chargeable under the head "Salaries"; or

(b) which is chargeable under the head "Profits and gains of business or profession" where the business or profession is carried on by the assessee or, in the case of a firm, where the assessee is a partner actively engaged in the conduct of the business or profession; or

(c) which is chargeable under the head "Income from other sources" if it is immediately derived from personal exertion or represents a pension or superannuation or other allowance given to the assessee in respect of the past services of any deceased person, or which is chargeable under that head under clause (ia) of sub section (2) of section 56 of the Income tax Act; and

includes any such income which, though it is the income of another person, is included in the assessees income under the provisions of the Income tax Act, but does not include any such income on which income tax is not payable under clause (iii) or clause (v) of section 86 of that Act or which is exempted from tax under a notification issued under section 60 of the Indian Income tax Act, 1922 (11 of 1922), as continued in force by clause (l) of sub section (2) of section 297 of the Income tax Act;

(iii) the expression "unearned income" means income which is not "earned income".

Section 3. Annuity Deposit

(1) Save as otherwise provided in Chapter XXIIA of the Income tax Act, annuity deposit for the assessment year commencing on the 1st day of April, 1965, shall be made by every person to whom the provisions of that Chapter apply at the rates specified in the Second Schedule.

(2) For the purposes of this section and the Second Schedule, the expressions "adjusted total income", "annuity deposit" and "depositor" have the meanings respectively assigned to them under clauses (1), (5) and (6) of section 280B of the Income tax Act.

Section 4. Amendment of 2

In section 2 of the Income tax Act,

(i) in clause (7), for the words "income tax or super tax", the words "any tax" shall be substituted;

(ii) clause (11) shall be omitted;

(iii) in clause (18),

(i) in sub clause (b)(i), for the words and brackets "held by, the Government or a corporation established by a Central, State or Provincial Act or the public (not being a director, or a company to which this clause does not apply)", the following shall be substituted, namely :

"held by

(a) the Government, or

(b) a corporation established by a Central, State or Provincial Act, or

(c) any company to which this clause applies or any subsidiary company of such company where such subsidiary company fulfils the conditions laid down in clause (b) of section 108 (hereinafter in this clause referred to as the subsidiary company), or

(d) the public (not being a director, or a company to which this clause does not apply)";

(ii) in clause (i) of Explanation 1, after the word "applies", the words "or the subsidiary company of such company" shall be inserted;

(iv) in clause (22), after sub clause (i), the following sub clause shall be inserted, namely :

"(ia) a distribution made in accordance with sub clause (c) or sub clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964;";

(v) in clause (30), the figures ",113" shall be omitted;

(vi) for clause (43), the following clauses shall be substituted, namely :

(43) "tax" in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income tax chargeable under the provisions of this Act, and in relation to any other assessment year income tax and super tax chargeable under the provisions of this Act prior to the aforesaid date :

(43A) "tax credit certificate" means a tax credit certificate granted to any person in accordance with the provisions of Chapter XXIIB and any scheme made thereunder;;

(vii) clause (46) shall be omitted.

Section 5. Amendment of 8

In section 8 of the Income tax Act,

(i) for the words "For the purposes of inclusion in the total income of an assessee, any dividend", the words, brackets and letter "For the purposes of inclusion in the total income of an assessee,

(a) any dividend" shall be substituted;

(ii) the following clause shall be inserted at the end, namely :

"(b) any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.".

Section 6. Amendment of 10

In section 10 of the Income tax Act,

(i) after clause (4), the following clause shall be inserted, namely :

"(4A) in the case of a non resident, any income from interest on moneys standing to his credit in a non resident account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1947 (7 of 1947), and any rules made thereunder;";

(ii) in sub clause (vii)(a) of clause (6),

(a) after the words "such person continues", the words, figure and letters "with the approval of the Central Government obtained before the 1st day of October of the relevant assessment year" shall be inserted;

(b) for the words "twenty four months", the words "sixty months" shall be substituted;

(iii) for clause (13), the following clause shall be substituted and shall be deemed always to have been substituted namely :

"(13) any payment from an approved superannuation fund made

(i) on the death of a beneficiary; or

(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement; or

(iii) by way of refund of contributions on the death of a beneficiary;

(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon;";

(iv) after clause (27), the following clause shall be inserted, namely :

"(28) in the case of any person granted a tax credit certificate, any amount adjusted or paid to him in respect of such certificate under the provisions of Chapter XXIIB and any scheme made thereunder.".

Section 7. Amendment of 18

In section 18 of the Income tax Act, in clause (i) of sub section (1), after the word "Government", the words, figures and letters "not being interest payable under section 280D in respect of any annuity deposit made under Chapter XXIIA" shall be inserted.

Section 8. Amendment of 33

In section 33 of the Income tax Act,

(i) in sub section (1), for clause (iii), the following clause shall be substituted, namely :

"(iii) in the case of machinery or plant installed after the 31st day of March, 1961

(a) where the machinery or plant is installed after the 31st day of March, 1963, and before the 1st day of April, 1966, for the purposes of business of mining coal, thirty five per cent. of the actual cost of the machinery or plant to the assessee,

(b) where the machinery or plant is installed before the 1st day of April, 1965, for the purposes of any other business, twenty per cent.,

(c) where the machinery or plant is installed after the 31st day of March, 1965

(A) for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, twenty five per cent. of the actual cost of the machinery or plant to the assessee, and

(B) for the purposes of any other business,

(a) twenty per cent. of the actual cost of the machinery or plant to the assessee, where it is installed before the 1st day of April, 1967; and

(b) fifteen per cent. of such cost, in any other case,";

(ii) in sub section (2), for the words, brackets, figures and letter "any allowance under sub section (1) or sub section (1A)", wherever they occur, the words, brackets, figures and letters "any allowance under sub section (1) or sub section (1A) of this section or sub section (1) of section 33A" shall be substituted;

(iii) after sub section (5), the following sub section shall be inserted, namely :

"(6) Notwithstanding anything contained in the foregoing provisions of this section, no deduction by way of development rebate shall be allowed in respect of any machinery or plant installed after the 31st day of March, 1965, in any office premises or any residential accommodation, including any accommodation in the nature of a guest house.".

Section 9. Insertion of New 33A

After section 33 of the Income tax Act, the following section shall be inserted, namely :

33A. Development allowance. (1) In respect of planting of tea bushes on any land in India owned by an assessee who carries on business of growing and manufacturing tea in India a sum by way of development allowance equivalent to

(i) where tea bushes have been planted on any land not planted at any time with tea bushes or on any land which had been previously abandoned, forty per cent. of the actual cost of planting; and

(ii) where tea bushes are planted in replacement of tea bushes that have died or have become permanently useless on any land already planted, twenty per cent. of the actual cost of planting,

shall, subject to the provisions of this section, be allowed as a deduction in respect of the third succeeding previous year next following the previous year in which the land is prepared for planting or replanting, as the case may be :

Provided that no deduction under clause (i) shall be allowed unless the plainting has commenced after the 31st day of March, 1965, and no deduction shall be allowed under clause (ii) unless the planting has commenced after the 31st day of March, 1965, and been completed before the 1st day of April, 1970.

(2) Where the total income of the assessee assessable for the assessment year relevant to the third succeeding previous year next following the previous year in which the land has been prepared [the total income for this purpose being computed after making the allowance under sub section (1) or sub section (1A) or clause (ii) of sub section (2) of section 33 but without making any allowance under sub section (1) of this section] is nil or is less than the full amount of the development allowance calculated at the rates specified in sub section (1)

(i) the sum to be allowed by way of development allowance for that assessment year under sub section (1) shall be only such amount as is sufficient to reduce the said total income to nil; and

(ii) the amount of the development allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so however, that no portion of the development allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year in which the deduction was first allowable.

Explanation : Where for any assessment year development allowance is 'to be allowed in accordance with the provisions of sub section (2) in respect of more than one previous year, and the total income of the assessee assessable for that assessment year [the total income for this purpose being computed after making the allowance under sub section (1A) or clause (ii) of sub section (2) of section 33 but without making any allowance under sub section (1) of this section] is less than the amount of the development allowance due to be made in respect of that assessment year, the following procedure shall be followed, namely :

(i) the allowance under clause (ii) of sub section (2) of this section shall be made before any allowance under clause (i) of that sub section is made; and

(ii) where an allowance has to be made under clause (ii) of sub section (2) of this section in respect of amounts carried forward from more than one assessment year, the amount carried forward from an earlier assessment year shall be allowed before any amount carried forward from a later assessment year.

(3) The deduction under sub section (1) shall be allowed only if the following conditions are fulfilled, namely :

(i) the particulars prescribed in this behalf have been furnished by the assessee;

(ii) an amount equal to seventy five per cent. of the development allowance to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than

(a) for distribution by way of dividends or profits; or

(b) for remittance outside India as profits or for the creation of any asset outside India; and

(iii) such other conditions as may be prescribed.

(4) If any such land is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which the deduction under sub section (1) was allowed, any allowance under this section shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub section (5A) of section 155 shall apply accordingly :

Provided that this sub section shall not apply

(i) where the land is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); or

(ii) where the sale or transfer of the land is made in connection with the amalgamation or succession referred to in sub section (5) or sub section (6).

(5) Where in a scheme of amalgamation, a company (hereinafter in this sub section referred to as the predecessor) sells or otherwise transfers to the company formed in pursuance of the predecessors amalgamation with that company (hereinafter in this sub section referred to as the successor) any land in respect of which development allowance has been allowed to the predecessor under sub section (1),

(a) the successor shall continue to fulfil the conditions mentioned in sub section (3) in respect of the reserve created by the predecessor and in respect of the period within which such land shall not be sold or otherwise transferred and in default of any of these conditions, the provisions of sub section (5A) of section 155 shall apply to the successor as they would have applied to the predecessor had it committed the default;

(b) the balance of development allowance, if any, still outstanding to the predecessor in respect of such land shall be allowed to the successor in accordance with the provisions of sub section (2), so however, that the total period for which the balance of development allowance shall be carried forward in the assessments of the predecessor and the successor shall not exceed the period of eight years specified in sub section (2) and the successor shall be treated as the assessee in respect of such land for the purposes of this section.

Explanation : For the purposes of this sub section, "amalgamation" shall have the meaning assigned to it in the Explanation to sub section (3) of section 33.

(6) Where a firm is succeeded to by a company in the business carried on by it as a result of which the firm sells or otherwise transfers to the company any land on which development allowance has been allowed, the provisions of clauses (a) and (b) of sub section (5) shall, so far as may be, apply to the firm and the company.

Explanation : The provisions of this sub section shall apply if the conditions laid down in the Explanation to sub section (4) of section 33 are fulfilled.

(7) For the purposes of this section, "actual cost of planting" means the aggregate of

(i) the cost of preparing the land;

(ii) the cost of seeds, cutting and nurseries;

(iii) the cost of planting and replanting; and

(iv) the cost of upkeep thereof for the previous year in which the land has been prepared and the three successive previous years next following such previous year,

reduced by that portion of the cost, if any, as has been met directly or indirectly by any other person or authority :

Provided that where such cost exceeds twelve thousand five hundred rupees per hectare in respect of land situate in a hilly area or exceeds ten thousand rupees per hectare in any other area, then the excess shall be ignored.

(8) The Board may, having regard to the elevation and topography, by general or special order, declare any areas to be hilly areas for the purposes of this section and such order shall not be questioned before any court of law or any other authority..

Section 10. Amendment of 34

In section 34 of the Income tax Act, in the Explanation to clause (i) of sub section (2), for the words, brackets and figures "is transferred by a company to a subsidiary company, then, if the conditions of clause (iv) of section 47 are satisfied", the following shall be substituted, namely :

"is transferred by a holding company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied".

Section 11. Amendment of 36

In section 36 of the Income tax Act, in sub section (1), after clause (viii), the following clause shall be inserted, namely :

"(ix) any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees :

Provided that where such expenditure or any part thereof is of a capital nature, one fifth of such expenditure shall be deducted for the previous year in which it was incurred; and the balance thereof shall be deducted in equal instalments for each of the four immediately succeeding previous years :

Provided further that the provisions of sub section (2) of section 32 and of sub section (2) of section 72 shall apply in relation to deductions allowable under this clause as they apply in relation to deductions allowable in respect of depreciation :

Provided further that the provisions of clauses (ii), (iii), (iv) and (v) of sub section (2) of section 35, of sub section (3) of section 41 and of Explanation 1 to clause (1) of section 43 shall, so far as may be, apply in relation to an asset representing expenditure of a capital nature for the purposes of promoting family planning as they apply in relation to an asset representing expenditure of a capital nature on scientific research.".

Section 12. Amendment of 37

In section 37 of the Income tax Act, in clause (i) sub section (2), after the word and figures "section 33", the words, figures and letter "or section 33A" shall be inserted.

Section 13. Amendment of 40

In section 40 of the Income tax Act, in sub clause (iii) of clause (c),

(a) in the proviso

(i) after the words, brackets and figure "in sub clause (i)", the words, brackets and figures "or any payment of tax referred to in sub clause (vii)" shall be inserted;

(ii) after the words, brackets and figures "clause (iv) or clause (v)", the words, brackets and figures "or any expenditure referred to in clause (ix)" shall be inserted;

(b) after the proviso, the following proviso shall be inserted, namely :

Provided further that nothing in this sub clause shall apply to any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite to an employee whose income chargeable under the head "Salaries" is seven thousand five hundred rupees or less..

Section 14. Amendment of 43

In section 43 of the Income tax Act,

(a) for Explanation 6 to clause (r), the following Explanation shall be substituted, namely :

"Explanation 6 : When any capital asset is transferred by a holding company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied, the actual cost of the transferred capital asset to the transferee company shall be taken to be the same as it would have been if the transferor company had continued to hold the capital asset for the purposes of its business.";

(b) for Explanation 2 to clause (6), the following Explanation shall be substituted, namely :

"Explanation 2 : When any capital asset is transferred by a holding company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied, the written down value of the transferred capital asset to the transferee company shall be taken to be the same as it would have been if the transferor company had continued to hold the capital asset for the purposes of its business.".