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BUSINESS PROFITS TAX ACT, 1947
21 of 1947
11th April, 1947
STATEMENT OF OBJECTS AND REASONS "The object of this Bill isto impose a special income-tax on the profits exceeding one lakh of rupees of business, professions and vocations...."-Gazette of India, 1947, Pt. V, p. 211 "Clause 2 and Schedule II. – We consider that the flat figure of one lakh of rupees by way of abatement cotained in the Bill is not suitable for all classes of business ownership, and we accordingly introduce as sub-cl. (1) of Cl.2 a definition of abatement, fixing diferig criteria f abatement i respect of companies, firms, Hindu undivided families and others, together with a second schedule laying down the basis on which the capital of a company will be computed, where the abatement is expressed as a percentage of capital." - page 279. An Act to impose a special tax on a certain class of income. WHEREAS it is expedient to impose a special tax on income arising from business; It is hereby enacted as follows:- (a) For Statement of Objects and Reasons, see Gazette of India, 1947, Pt. V, p. 211 and for the Select Committee Report, see p. 279. This Act and all the rules and orders made there under which are in force immediately before the commencement of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, are extended to. and shall be in force in, all the merged States. For the definition of the expression "merged States", see S. 2(1) of that Act. This Act and all rules and orders made there under shall operate as if they had been extended to, and brought into force in, all the merged States on the Ist day of April. 1949 - SetS. 3 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (67 of 1949), For the interpretation of laws as extended to the merged Slates, for the removal of difficulties in giving effect to the provisions of any Act, etc., extended to the merged States and for repeal of corresponding laws in force in any of the merged States and savings in consequence of such repeal, see sections 4, 6 and Section 7, respectively, of Act 67 of 1949.
SECTION 01: SHORT TITLE, EXTENT AND COMMENCEMENT
(1) This Act may be called The Business Profits Tax Act, 1947.
(2) It extends to the whole of1[India except2[the territories which, immediately before the 1st November, 1956, were comprised in Part B States].]
(3) It shall come into force on such date3as the Central Government may, by notification in the official Gazette, appoint.
SECTION 02: INTERPRETATION
In this Act, unless there is anything repugnant in subject, or context,-
(1) "abatement" means, in respect of any chargeable accounting period,4[ending on or before the 31st day of March, 1947] a sum which bears to a sum equal to-
(a) in the case of a company, not being a company deemed for the purposes of Section 9to be a firm, six per cent of the capital of the company on the first day of the said period computed in accordance with Schedule II, or one lakh of rupees, whichever is greater, or
(b) in the case of a firm having -
(i) not more than two working partners, one lakh of rupees, or
(ii) three working partners, one and a half lakhs of rupees, or
(iii) four or more working partners, two lakhs of rupees, or
(c) in the case of a Hindu undivided family, two lakhs of rupees, or
(d) in any other case, one lakh of rupees, - the same proportion as the said period bears to the period of one year 2[and, in respect of any chargeable accounting period beginning after the 31st day of March, 1947, such sum as may be fixed by the annual Finance Act];
(2) "accounting period" in relation to any business means any period which is or has been determined as the previous year for that business for the purposes of the Indian Income-tax Act, 1922;
6[(2A) * * * * * *]
(3) "business" includes any trade, commerce or manufacture, or any adventure in the nature of trade, commerce or manufacture, or any profession or vocation the profits of which are chargeable according to the provisions of section 10 of the Indian Income-tax Act, 1922: Provided that where the functions of a company or of a society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property, the holding of the investments or property shall be deemed for the purpose of this definition to be a business carried on by such company or society : Provided further that all business to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act;
(4) "chargeable accounting period" means-
(a) any accounting period falling wholly within the terms beginning on the first day of April 1946, and ending on the 31st day of March,7[1949];
(b) where any accounting period falls partly within and partly without the said term, such part of that accounting period as falls within the said term:8[Provided that where an accounting period falls partly before, and partly after, the end of March, 1947, so much of that accounting period as falls before and so much of that accounting period as falls after, the end of March, 1947, shall be deemed each lo be a separate chargeable accounting period];
(5) "company" means a company as defined in the Indian Companies Act, 1913,9[or a company formed and registered under a law in force in any of the10[merged territories] or formed in pursuance of an Act of Parliament12[of the United Kingdom] or of Royal Charter or Letters Patent or of an Act of the Legislature of a British possession or of a law of a12[*] State, and includes any foreign association, whether incorporated or not, which the Central Board of Revenue may, by general or special order, declare to be a company for the purposes of this Act;
(6) "control of a company" means control, direct or indirect, of more than one-half of the voting power attached to the total issued paid-up share capital of the company, or control vested by its Memorandum and Articles of Association otherwise than by reference to such voting power: Provided that the voting power attached to shares held by a nominee or trustee for any person shall be deemed for the purpose of this definition to be held by that person;
(7) "deficiency of profits" means-
(i) where profits have been made in any chargeable accounting period, the amount by which such profits fall short of the abatement in Respect of that period;
(ii) where a loss has been made in any chargeable accounting period, the amount of the loss added to the abatement in respect of that period;
(8) "director" includes any person occupying the position of a director by whatever name called and also includes any person who-
(i) is a manager of the company or concerned in the management of the business; and
(ii) is remunerated out of the funds of the business, and
(iii) is the beneficial owner of not less than twenty per cent of the ordinary share capital of the company;
13[(8A) "director's remuneration" includes all remuneration payable by company to a director thereof in respect of any services rendered to or employment with the company in any capacity whatever;]
(9) "dividend" has the same meaning as in section 2 of the Indian Income-tax Act, 1922;
(10) "firm", "partner" and "partnership" have the same meanings, respectively, as inthe Indian Partnership Act, 1932.
(11) "fixed rate" in relation to dividends on share capital, other than ordinary snare capital, includes a rate fluctuating in accordance with the maximum rate of income-tax;
(12) "loss" means a loss computed in the same manner as for the purposes of this Act, profits are to be computed.
14[(12A)* * * * *].
(13) "ordinary share capital", in relation to a company, means all the issued share capital (by whatever name called) of the company, other than capital the holders whereof have a right to a dividend at a fixed rate but have no other right to share in the profits of the company;
(14) "person" includes a Hindu undivided family;
(15) "prescribed" means prescribed by rules made under this Act;
(16) "profits" means profits as determined in accordance with Schedule 1;
(17) "taxable profits" means the amount by which the profits during a chargeable accounting period exceed the abatement in respect of that period;
15[(17A) "taxable territories" shall have the meaning assigned to that expression by clause (14A) of section 2 of the Indian Income-tax Act, 1922.]
(18) "working partner" of a firm means a partner thereof who is required by the terms of the contract of partnership to devote substantially the whole of his time to the business of the firm.
SECTION 03: TAX AUTHORITIES
(1) Every Commissioner of Income-lax, Appellate Assistant Commissioner of Income-tax, Inspecting Assistant Commissioner of Income-tax and Income-tax Officer shall have the like powers under this Act and in relation to the same area and cases as he exercises under the Indian Income-tax Act, 1922,
(2) All officers and persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Central Board of Revenue: Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of the Appellate Assistant Commissioner of Income-tax in the exercise of his appellate functions.
SECTION 04: CHARGE OF TAX
- Subject to the provisions of this Act, there shall, in respect of any business to which this Act applies, be charged, levied and paid on the amount of the taxable profits during any chargeable accounting period, a tax (in this Act referred to as "business profit tax")16[which shall, in respect of any chargeable accounting period ending on or before the 31st day of March 1947, be equal to sixteen and two-thirds per cent. Of the taxable profits, and in respect of any chargeable accounting period beginning after that date, be equal to such percentage of the taxable profits as may be fixed by the annual Finance Act:] Provided that-
(a) any profits which are, under the provisions of sub-section (3) of section 4 of the Indian Income-tax Act. 1922, exempt from income-tax,
(b) all profits from any business of life insurance,
(c) any sum paid to a business by or through the Central Government by way of bonus or subsidy,- shall be totally exempt from business profits tax under this Act.17[Provided further that where the profits include any profits from an industrial undertaking which are exempt from income-tax under section 15C of the Indian Income-tax Act, 1922, the business profits tax otherwise payable on the whole of the taxable profits shall be reduced by an amount which bears to that business profits tax the same proportion as the amount of such inclusion bears to the whole profits.]
SECTION 05: APPLICATION OF ACT
- This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of sub-clause (i) or sub-clause (ii) of clause (b) of sub-section (1) of section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section: Provided that this Act shall not apply to any business the whole of the profits of which accrue or arise without18[the taxable territories] where such business is carried on by or on behalf of a person who is resident but not ordinarily resident in18[the taxable territories], unless the business is controlled in India:18[Provided further that where the profits of a part only of a business carried on by a person who is not resident in18[the taxable territories] or not ordinarily so resident accrue or arise in18 [the taxable territories] or are deemed under the Indian Income-tax Act, 1922, so to accrue or arise, then, except where the business being the business of a person who is resident, but not ordinarily resident, in18[the taxable territories] is controlled in India, this Act shall apply only to such part of the business, and such part shall for all the purposes of this Act be deemed to be a separate business.] Provided further that this Act shall net apply to any income, profits or gains of business accruing or arising within20[any part of India to which this Act does not extend] unless such income, profits or gains are received or deemed under the provisions of the aforesaid Act to be received in or .are brought into18 [the taxable territories] in any chargeable accounting period, or are assessable under section 42of that Act.
SECTION 06: RELIEF ON OCCURRENCE OF DEFICIENCY OF PROFITS
- Where a deficiency of profits occurs in any chargeable accounting period in any business, the taxable profits of the business shall be deemed to be reduced and relief shall be granted in accordance with the following provisions:-
(a) the aggregate amount of the taxable profits for the previous chargeable accounting periods shall be deemed to be reduced by the amount of the deficiency of profits and the amount of business profits tax payable in respect thereof shall be deemed to be reduced accordingly and the relief necessary to give effect to the reduction shall be given by repayment or otherwise;
(b) where the amount of the deficiency of profits exceeds the aggregate amount of the taxable profits for the previous chargeable accounting period or where there is no previous chargeable accounting period, the balance of the deficiency of profits or the whole of the deficiency, as the case may be, shall be applied in reducing any taxable profits for the next subsequent chargeable accounting period, and if and so far as, it exceeds the amount of those profits, any taxable profits for the next subsequent chargeable accounting period and so on.
SECTION 07: CHANGE IN PERSONS CARRYING ON BUSINESS
- As from the date of any change in the persons carrying on a business, the business shall be deemed for all the purposes of this Act to have been discontinued and a new business to have been commenced:
Provided that where a change takes place in the persons carrying on a business and where, except for such change, relief would be allowable under section 6, the Central Board of Revenue may, if it thinks fit, allow such relief under that section as it considers just, having regard to the extent to which the persons directly or indirectly interested in the business before the change remain interested therein after the change.
SECTION 08: INTER CONNECTED COMPANIES
(1) Where any interest, annuity or other annual payment or any royalty or rent is payable by one company to another company, and one of those companies is a subsidiary of the other or both are subsidiaries of a third company, and the recipient company is resident outside21[the taxable territories], no allowance shall be made in respect of such payment the computing the profits or losses of the paying company.
(2) Where-
(a) a company (hereinafter referred to as "the principal"] is resident in21[the taxable territories] and is not a subsidiary of any other company resident in21[the taxable territories]; and
(b) during the whole or any part of any chargeable accounting period of the principal, another company resident or carrying on business within 2[the taxable territories] (hereinafter referred to as "the subsidiary") is a subsidiary of the principal, the capital or profits or losses of the subsidiary for such chargeable accounting period or part thereof shall be treated for the purposes of this Act as if they were the capital of, or, as the case may be, profits or losses arising from the business of the principal: Provided that the profits of the subsidiary so treated shall not be exempted from business profits tax in the hands of the principal by reason of any exemption applicable to the principal under the proviso to section 4-,
(3) Where the chargeable accounting periods of the principal and subsidiary are not conterminous, such division and apportionment of the profits or losses of the subsidiary for any chargeable accounting period shall be made as will allocate, the due proportion thereof to the relative chargeable accounting period or periods of the principal; and such division and apportionment shall be by reference to the proportion that the number of days of the chargeable accounting periods of the subsidiary falling within the relative chargeable accounting period or periods of the principal bears to the total number of days in the chargeable accounting period of the subsidiary.
(4) For the purposes of this section a company shall be deemed to be a subsidiary of another company if and so long as not less than four-fifths of its ordinary share capital is beneficially owned by that other company, whether directly or through another company or other companies, or partly directly and partly through another company or other companies.
(5) The business profits tax payable by virtue of this section by the principal shall, for the purposes of section 10-, be allocated by the Income-tax Officer to the respective companies concerned in such proportion as in his opinion in just: Provided that the principal shall have the same rights of appeal against an order of allocation made under this sub-section as it has under this Act against the amount of its business profits tax assessment.
SECTION 09: AGGREGATION OF PROFITS IN CERTAIN CASES
- Where an individual for a Hindu undivided family] is entitled to profits arising from more than one business, of which at least one is carried on by a firm in which he23[or it] is a partner lor by a company which for the purposes of this section is deemed to be a firm in which he or it is interested], the Income tax Officer may with the prior sanction of the Inspecting Assistant Commissioner of Income-tax, aggregate the shares of such individual25[or Hindu undivided family] in the profits or losses of all of such businesses and treat the sum of such aggregation as the profits of a business carried on by such individual25[or Hindu undivided family] and assess him23[or it] accordingly: Provided that if the accounting periods of such business are not conterminous, the Income- tax Officer shall determine in respect of such individual25[or Hindu undivided family] his26[or its] chargeable accounting period and shall make such divisions, apportionment and aggregation of the shares of such individual25[or Hindu undivided family] in the profits or losses of the several businesses as may be necessary to determine for such chargeable accounting period the total profits and gains of such individual25[or Hindu undivided family] there from: Provided further that for the purposes of this section, a company, which is neither one in which the public are substantially interested, as defined in the Explanation to sub-section (1) of section 23A of the Indian Income-tax Act, 1922, nor a subsidiary company as defined in sub-section (4) of section 8-of this Act, shall be deemed to be a firm in which the persons having an interest in the company are partners, or in the case of a sole-share-holder, a business carried on by that sole-shareholder, and the profits of such company shall be computed accordingly: Provided further that any profits or losses so aggregated for assessment upon and an individual22[or a Hindu undivided family] shall be excluded from the profits or losses of the respective businesses for the purposes of this Act; and no assessment under this Act shall be made in respect of any such business save in the names of the other partners therein27[land such individual or Hindu undivided family shall not be treated as a working partner in relation to such business for the purposes of sub-clause (b) of clause (1) of section 2-]
SECTION 10: ALLOWANCE OF BUSINESS PROFITS TAX IN COMPUTING INCOME FOR INCOME--TAX PURPOSES
- The amount of the business profits tax payable by any person for any chargeable accounting period shall, in computing total income for the purposes of the relevant income-tax or super-tax assessment, be allowed as a deduction: Provided that where, under the provisions of this Act relating to deficiencies of profits relief is given by way of repayment from business profits tax chargeable for any chargeable accounting period previous to that in which the deficiency occurs, the amount of the deduction allowed shall not be altered, but the amount repayable shall be taken into account in computing the profits and gains of the business for the purposes of income-tax as if it were a profit of the business accruing in the previous year (as determined for that business for the purposes of the Indian Income-tax Act, 1922) in which the deficiency of profits occurs.
SECTION 11: ISSUE OF NOTICE FOR ASSESSMENT
- (1) The Income-tax Officer may, for the purposes of this Act, require any person whom he believes to be engaged in any business to which this Act applies, or to have been so engaged during any chargeable accounting period, or to be otherwise liable to pay business profits tax, to furnish within such period, not being less than forty-five days from the date of the service of the notice, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) with respect to any chargeable accounting period specified in the notice, the profits28[and taxable profits] of the business or the amount of deficiency, if any, available for relief under section 6-: Provided that the Income-tax Officer may, in his discretion, extend the date for the delivery of the return.
(2) The Income-tax Officer may serve on any person, upon whom a notice has been served under sub-section (1), a notice requiring him on a date to be therein specified to produce, or cause to be produced, such accounts or documents as the Income-tax officer may require, and may from time to time serve further notices in like manner requiring the production of such further accounts or documents or other evidence as he may require.
SECTION 12: ASSESSMENTS
(1) The Income-tax Officer shall, by an order in writing after considering such evidence, if any, as he has required under section 11-, assess to the best of his judgment the profits liable to business profits tax and the amount of business profits tax payable on the basis of such assessment, or if there is a deficiency of profits, the amount of that deficiency and the amount of business profits tax, if any repayable, and shall furnish a copy of such order to the person on whom the assessment has been made.
(2) Business profits tax payable in respect of any chargeable accounting period shall be payable by the persons carrying on, or treated as carrying on, the business in that period.
(3) Where two or more persons were carrying on the business jointly in the chargeable accounting period, the assessment shall be made upon them jointly and, in the case of a partnership, may be made in the partnership name.
(4) Where by virtue of the foregoing provisions an assessment could, but for his death, have been made on any person either solely or jointly with any other person or persons, the assessment may be made on his legal representative either solely or jointly with that other person or persons, as the case may be.
SECTION 13: POWER TO MAKE PROVISIONAL ASSESSMENTS
- (1) The Income-tax officer, before proceeding to make an assessment (in this section referred to as the regular assessment) under section 12-, may, at any time after the expiry of the period specified in the notice issued under sub-section (1) of section 11-as that within which the return therein referred to is to be furnished, and whether the return has or has not been furnished, proceed to make in summary manner a provisional assessment of the taxable profits and the amount of business profits tax payable thereon.
(2) Before making such provisional assessment, the Income-tax Officer shall give notice in the prescribed form to the person on whom assessment is to be made of his intention to do so, and shall with the notice forward a statement of the amount of the proposed assessment, and the said person shall be entitled to deliver to the Income-tax Officer at any time within fourteen days of receipt of the said notice a statement of his objections, if any, to the amount of the proposed assessment.
(3) On expiry of one month from the date of service of the notice referred to in sub-section (2), or earlier, if the assessee agrees to the proposed assessment, the Income-tax Officer, may, after taking into account the objections, if any, made under sub-section (2), make a provisional assessment, and shall furnish a copy of the order of assessment to the assessee: Provided that assent to the amount of the assessment, or failure to make objection to it, shall in no way prejudice the assessee in relation to the regular assessment.
(4) In making any such provisional assessment the Income-tax officer shall make allowance for any deficiencies, of profits for the previous chargeable accounting periods which are under the provisions of section 6-to be set off against the taxable profits of the chargeable accounting period in respect of which the assessment is being made: Provided that, where such deficiencies of profits have not been determined under sub-section (1) of section 12-, the Income-tax Officer shall estimate the amount thereof to the best of his judgment.
(5) There shall be no right of appeal against a provisional assessment made under this section and it shall, until a regular assessment is made in due course under section 12-, determine the amount of business profits tax due from the assessee.
(6) If, when a regular assessment is made in due course under section 12-, the amount of business profits tax payable there under is found to exceed that determined as payable by the provisional assessment, it shall be reduced by he amount determined as payable by the provisional assessment.
(7) If, when a regular assessment is made in due course under section 12-, the amount of business profits tax payable there under is found to be less than that determined as payable by the provisional assessment, any excess of tax paid as a result of the provisional assessment shall be refunded to the assessee, together with interest at two per cent per annum calculated from the date of payment of such excess tax to the date of the older of refund, both days inclusive.
SECTION 14: PROFITS ESCAPING ASSESSMENT
- If, in-consequence of definite information which has come into his possession, the Income-tax Officer discovers that profits of any chargeable accounting period chargeable to business profits tax have escaped assessment, or have been under-assessed, or have been the subject of excessive relief, he may at any time within four years of the end of the chargeable accounting period in question serve on the person liable to such tax a notice containing all or any of the requirements which may be included in a notice under section 11-, and may proceed to assess or reassess the amount of such profits liable to business profits tax, and the provisions of this Act shall, so far as may be, apply as if the notice were a notice issued under that section,
SECTION 15: PENALTIES
- If the Income-tax officer, the Appellate Assistant Commissioner of Income-tax or the Commissioner of Income-tax, in the course of any proceedings under this Act, is satisfied that any person has, without reasonable cause, failed to furnish the return required under sub-section (1) of section 11-, or to produce or cause to be produced the accounts or documents or other evidence required by the Income-tax Officer under sub-section (2) of that section, or has concealed particulars of the profits of the business, or has deliberately furnished inaccurate particulars of such profits, he may direct that such person shall pay by way of penalty, in addition to the amount of any business profits tax payable, a sum not exceeding-
(a) where the person has failed to furnish the return required under sub-section (1) of section 11-, the amount of the business profits tax payable;
(b) in any other case, the amount of business profits tax which would have been avoided if the return made had been accepted as correct: Provided that the Income-tax Officer shall not impose any penalty under this section without the previous approval of the Inspecting Assistant Commissioner of Income-tax.
SECTION 16: APPEALS TO APPELLATE ASSISTANT COMMISSIONER OF INCOME TAX
(1) Any person objecting to the amount of business profits tax for which he is liable as assessed by the Income-tax Officer or denying his liability to be assessed under this Act, or objecting to any penalty imposed by the Income-tax officer, or to the amount of any deficiency of profits as assessed by the Income-tax Officer, or to the amount allowed by the Income-tax Officer by way of relief under any provision of this Act or to any refusal by the Income-tax Officer to grant relief, may appeal to the Appellate Assistant Commissioner of Income-tax.
(2) An appeal shall ordinarily be presented within forty-five days of receipt of the notice of demand relating to the assessment or penalty objected to, or in the case of an appeal against the assessment of a deficiency of profits, within thirty days of the receipt of the copy of the order determining the deficiency, or in the case of an appeal against the amount of a relief granted or a refusal to grant relief, within forty-five days of the receipt of the intimation of the order granting or refusing to grant the relief, but the Appellate Assistant Commissioner of Income-tax may admit an appeal after the expiration of that period if he is satisfied that the appellant had sufficient cause for not presenting it within that period.
(3) An appeal shall be in the prescribed form and shall be verified in the prescribed manner.
(4) The Appellate Assistant Commissioner of Income-tax shall hear and determine the appeal and. subject to the provisions of this Act shall pass such orders as he thinks fit and such orders may include an order enhancing the assessment or a penalty: Provided that an order enhancing an assessment or penalty shall not be made unless the person affected thereby has been given a reasonable opportunity of showing cause against such enhancement.
(5) The procedure to be adopted in the hearing and determination of appeals shall be in accordance with the rules made by the Central Board of Revenue in relation to income-tax.
SECTION 17: APPEAL TO APPELLATE TRIBUNAL
Any Income-tax Officer or any person in respect of whose business an order under section 12-has been passed and who objects to an order passed by an Appellate Assistant Commissioner of Income tax under section 15-orsection 16-may, within the prescribed time and in the prescribed manner, appeal against such order to the Appellate Tribunal constituted under the Indian Income-tax Act, 1922, and that Tribunal shall have all such powers in disposing of the appeal as it has in respect of appeals preferred to it under the said Act.
SECTION 18: RECTIFICATION OF MISTAKES
- The Commissioner of Income-tax may, at any time within four years from the date of any order passed by any Appellate Assistant Commissioner of Income-tax or Income-tax Officer under this Act, rectify any mistake in any evidence recorded during assessment or appellate proceedings, or any mistake apparent from the record and shall within the like period rectify any mistake apparent from the record which has been brought to his notice by a person to whose business this Act applies : Provided that no such rectification shall be made having the effect of enhancing the liability of any person unless that person has been given a reasonable opportunity of being heard.
SECTION 18A: AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION IN INDIA AND PAKISTAN
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