FINANCE (NO.2) ACT, 1965

S.1 Short Title

This Act may be called the Finance (No. 2) Act, 1965.

S.2 Amendment of Section 2

In section 2 of the Income-tax Act, 1961 (43 of 1961), (hereinafter referred to as the Income-tax Act), in sub-clause (iv) of clause (14), after the figures "1977", the following shall be, and shall be deemed to have been, inserted with effect from the 1st day of April, 1965, namely :-
"or 7 per cent. Gold Bonds, 1980".

S.3 Amendment of Section 10

       In section 10 of the Income-tax Act, -
       (a) after clause (10), the following clause shall be, and shall be deemed always to have been, inserted, namely :-
       "(10A)(i) any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable to the members of the Defence Services or to the employees of a State Government, a local authority or a corporation established by a Central, State or Provincial Act;
       (ii) any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed -
       (a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive

S.4 Amendment of Section 17

In section 17 of the Income-tax Act, in sub-clause (ii) of clause (3), after the word, brackets and figures "clause (10)", the word, brackets, figures and letter "clause (10A)", shall be, and shall be deemed always to have been, inserted.

S.5 Amendment of Section 33

       In section 33 of the Income-tax Act, in clause (iii) of sub-section (1), -
       (i) in sub-clause (a), for the figures "1966", the figures "1965" shall be, and shall be deemed to have been, substituted with effect from the 1st day of April, 1965;
       (ii) for sub-clause (c), the following sub-clause shall be, and shall be deemed to have been, substituted with effect from the 1st day of April, 1965, namely :-
       "(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, -
       (a) thirty-five per cent. of the actual cost of the machine

S.6 Amendment of Section 43

In section 43 of the Income-tax Act, in clause (6), after sub-clause (b), the following proviso shall be, and shall be deemed always to have been, inserted, namely :-
Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of clause (ii) of sub-section (1) of section 32, "depreciation actually allowed" shall not include depreciation allowed under sub-clauses (a), (b) and (c) of clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi).'.

S.7 Amendment of Section 44A

In section 44A of the Income-tax Act, in sub-section (1), after the words "any trade, professional or similar association", the brackets, words, figures and letter "[other than an association or institution referred to in clause (23A) of section 10]" shall be, and shall be deemed always to have been, inserted.

S.8 Amendment of Section 84

In section 84 of the Income-tax Act, in clause (iii) of sub-section (2), for the words "eighteen years", the words "twenty-three years" shall be substituted.

S.9 Amendment of Section 88

       In section 88 of the Income-tax Act, -
       (a) after sub-section (5), the following sub-sections shall be, and shall be deemed to have been, inserted with effect from the 1st day of April, 1964, namely :-
       (5A) In this section, "charitable purpose" does not include any purpose the whole or substantially the whole of which is of a religious nature.
       (5B) Nothing contained in sub-section (5A) shall affect the benefit conferred by sub-section (1), in respect of any sums paid before the 1st day of April, 1964, by way of donations referred to in clause (ii) or clause (iii) of that sub-section.';
       (b) in sub-section (6), for the words, brackets and figure "in sub-section (5)", the words, brackets, figures and letter "in sub-section (5) or sub-section (5A)" shall

S.10 Amendment of Section 112

       In section 112 of the Income-tax Act, -
       (a) in clause (i), for the words "and of the capital gains", the words and brackets "and by the amount of the interest on National Savings Certificates (First Issue) and of the capital gains" shall be substituted;
       (b) in clause (iii), for the words "by the amount of capital gains", the words and brackets "by the amount of the interest on National Savings Certificates (First Issue) and of the capital gains" shall be substituted;
       (c) for clause (iv), the following clause shall be substituted, namely :-
       "(iv) the tax on the interest on National Savings Certificates (First Issue) and on capital gains, if any, computed in accordance with the provisions of clause (b) of section 112A and clause (b) of section 114, re

S.11 Insertion of New Section 112A

       After section 112 of the Income-tax Act, the following section shall be inserted, namely :-
       "112A. Tax on interest on National Savings Certificates (First Issue). - Where the total income of an assessee, not being a company, includes any interest on National Savings Certificates (First Issue), the tax payable by him on his total income shall be -
       (a) the amount of income-tax payable on the total income as reduced by the amount of such inclusion and by the amount of compensation or other payment referred to in clause (ii) of section 28 and of the capital gains, if any, had the total income so reduced been his total income; plus
       (b) the amount of income-tax calculated on the amount of such interest included in the total income at the average rate of income-tax which would have been applicable to

S.12 Amendment of Section 114

       In section 114 of the Income-tax Act, -
       (a) in clause (a), for the words, brackets and figures "if any, referred to in clause (ii) of section 28", the words, brackets and figures "referred to in clause (ii) of section 28 and of the interest on National Savings Certificates (First Issue), if any," shall be substituted;
       (b) in sub-clause (i) of clause (b), after the words "the amount of compensation or other payment", the words and brackets "and of the interest on National Savings Certificates (First Issue)" shall be inserted;
       (c) for clause (c), the following clause shall be substituted, namely :-
       "(c) the tax on such compensation or other payment and on the interest on National Savings Certificates (First Issue) aforesaid, if any, computed in accord

S.13 Amendment of Section 193

       In section 193 of the Income-tax Act, for the proviso, the following proviso shall be substituted, namely :-
       "Provided that no tax shall be deducted from -
       (i) any interest payable on 4 1/4 per cent. National Defence Bonds, 1972, where the bonds are held by an individual, not being a non-resident; or
       (ii) any interest payable on National Savings Certificates (First Issue); or
       (iii) any interest payable on 6 1/2 per cent. Gold Bonds, 1977, or 7 per cent. Gold Bonds, 1980, where the bonds are held by an individual not being a non-resident, and the holder thereof makes a declaration in writing before the person responsible for paying the interest that the total nominal value of the 6 1/2 per cent. Gold Bonds, 1977, or, as the case may be, the 7 per cen

S.14 Amendment Of Section 280M

       In section 280M of the Income-tax Act, for sub-section (2), the following sub-section shall be substituted, namely :-
       "(2) Where any depositor has deposited any amount for any assessment year which -
       (a) he is not liable to deposit under the provisions of this Chapter or which is in excess of the amount required to be deposited under the said provisions for that year; or
       (b) is less than the amount required to be deposited under the said provisions for that year and an additional amount has been recovered to make up the deficiency,
       then the entire amount, excess amount or additional amount, as the case may be, may be refunded, adjusted or otherwise dealt with in such manner and having regard to such factors as may be specified in a scheme framed und

S.15 Amendment of Section 280N

In section 280N of the Income-tax Act, for the words "adjusted or otherwise dealt with in such manner as may be provided", the following shall be substituted, namely :-
"refunded, adjusted or otherwise dealt with in such manner and having regard to such factors as may be specified".

S.16 Amendment of Section 280W

In section 280W of the Income-tax Act, in clause (b) of sub-section (2), for the words "and the manner in which the excess or deficiency of annuity deposit may be adjusted or otherwise dealt with;", the following shall be substituted, namely :-
"and the manner in which the amount of annuity deposit which is not required to be deposited under the provisions of this Chapter or the excess or deficiency of annuity deposit, as the case may be, may be refunded, adjusted or otherwise dealt with and the factors that may be taken into account in this connection;".

S.17 Amendment of Section 280ZC

       In section 280ZC of the Income-tax Act, -
       (i) in sub-section (1), the following Explanations shall be, and shall be deemed to have been, inserted with effect from the 1st day of April, 1965, namely :-
       Explanation 1 : For the removal of doubts it is hereby declared that the expression "sale proceeds" in this sub-section does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962).
       Explanation 2 : For the purposes of this sub-section, a person who exports any goods or merchandise in respect of which the declaration in pursuance of rule 3 of the Foreign Exchange Regulation Rules, 1952, is required to be in Form E.P., or Form E.P. I in the First Schedule to the said rules, shall not in re

S.18 Amendment of Fifth Schedule

In the Fifth Schedule to the Income-tax Act, in item (3), for the words "Iron ore", the words "Coal, lignite, iron ore" shall be, and shall be deemed to have been, substituted with effect from the 1st day of April, 1965.

S.19 Amendment of Act 34 of 1953

In section 3 of the Estate Duty Act, 1953, after sub-section (3), the following sub-section shall be, and shall be deemed to have been, inserted with effect from the 1st day of April, 1964, namely :-
"(4) Any reference in sections 9, 11 and 33 to public charitable purpose or purposes in relation to a gift made or disposition or determination of an interest effected or suffered on or after the 1st day of April, 1964, shall be construed as not including a purpose the whole or substantially the whole of which is of a religious nature.".

S.20 Amendment of Act 27 of 1957

       In the Wealth-tax Act, 1957, -
       (i) in section 5, in sub-section (1), for clause (xvia), the following clause shall be, and shall be deemed to have been, substituted with effect from the 1st day of April, 1965, namely :-
       "(xvia) 6 1/2 per cent. Gold Bonds, 1977, and 7 per cent. Gold Bonds, 1980;";
       (ii) in section 18, after sub-section (2), the following sub-sections shall be inserted, namely :-
       "(2A) Notwithstanding anything contained in clause (i) or clause (iii) of sub-section (1), the Commissioner may, in his discretion, -
       (i) reduce or waive the amount of minimum penalty imposable on a person under clause (i) of sub-section (1) for failure, without reasonable cause, to furnish the return of net wealth

S.21 Amendment of Act 18 of 1958

       In the Gift-tax Act, 1958, -
       (i) in section 5, after sub-section (1), the following sub-section shall be, and shall be deemed to have been, inserted with effect from the 1st day of April, 1964, namely :-
       "(1A) Any reference in clause (v) or clause (vi) of sub-section (1) to charitable purpose in relation to a gift made on or after the 1st day of April, 1964, shall be construed as not including a purpose the whole or substantially the whole of which is of a religious nature.";
       (ii) in sections 32 and 33A, for the words "four per cent." wherever they occur, the words "six per cent." shall be, and shall be deemed to have been, substituted with effect from the 1st day of April, 1965.

S.22 Insertion of New Section 24a In Act 7 of 1964

       After section 24 of the Companies (Profits) Surtax Act, 1964, the following section shall be inserted, namely :-
       "24A. Agreement with foreign countries. - The Central Government may enter into an agreement -
       (a) with the Government of any country outside India for the granting of relief in respect of chargeable profits on which have been paid both surtax under this Act and tax of a similar character or income-tax on such profits in that country, or
       (b) with the Government of any country outside India for the avoidance of double taxation of chargeable profits under this Act and under any law relating to the taxation of income or profits in force in that country.".

S.23 Exclusion of Commuted Value of Pension From Total Income Under The Indian Income-Tax Act, 1922

Notwithstanding anything contained in the Indian Income-tax Act, 1922 (11 of 1922), any sum due to or received by any person in commutation of pension shall not be included and shall be deemed never to have been includible in computing the total income of such person under the provisions of that Act.

S.24 Voluntary Disclosure of Income

       (1) Subject to the provisions of this section, where any person makes, on or after the 19th day of August, 1965, and before the 1st day of April, 1966, a declaration in accordance with sub-section (2) in respect of the amount representing income chargeable to tax under the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961), for any assessment year commencing on or before the 1st day of April, 1964 -
       (a) for which he has failed to furnish a return within the time allowed under section 22 of the Indian Income-tax Act, 1922 (11 of 1922), or section 139 of the Income-tax Act, 1961 (43 of 1961), or
       (b) which he has failed to disclose in a return of income filed by him on or before the 19th day of August, 1965, under the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961), or
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Legal Commentary on Section 24 of the FINANCE (NO. 2) ACT, 1965

Introduction

Section 24 of the Finance (No. 2) Act, 1965, provides a statutory scheme for voluntary disclosure of undisclosed income or wealth, aiming to encourage taxpayers to come forward and declare previously unreported income, thereby facilitating tax compliance and collection. It introduces a legal fiction that treats the disclosed amount as the total income of the declarant for the purpose of taxation, with certain immunities and finality provisions.

What does Section 24 Say

Section 24 establishes that a person who makes a declaration of undisclosed income within the specified period shall be liable to pay tax on the declared amount as if it were their total income, at prescribed rates. The section also provides that such declaration, once accepted and the tax paid, shall be final and not subject to further challenge or investigation, except as provided under certain subsections. Sub-section (11) explicitly states that the declaration shall not be admissible as evidence against the declarant in assessment proceedings or proceedings relating to penalty, prosecution, or wealth-tax in respect of the declared amount.

Essential Ingredients

Declaration: Made by the taxpayer in prescribed form, specifying the undisclosed income.
Time Frame: Made within the period specified (generally before April 1, 1966).
Acceptance and Payment: The declaration must be accepted by the Commissioner, and the tax paid accordingly.
Legal Fiction: The declared amount is deemed to be the total income of the declarant for tax purposes.
Finality: An order under Section 24(6) is final and not subject to question in any court or authority.
Immunity: The declaration is not admissible as evidence against the declarant in assessment or penalty proceedings.

Scope of Section 24

Scope of Immunity: The immunity applies only to the declarant and does not extend to third parties or other persons whose income or deposits are involved.
Investigation Rights: Despite the immunity, revenue authorities retain the right to investigate the genuineness of deposits or sources in cases involving third parties, especially when declarations are made on their behalf (e.g., minors or third-party depositors).
Legal Fiction Limitations: The legal fiction created by Section 24(3) is limited to the assessment of the declarant and does not preclude the revenue from examining the true nature and source of the amounts credited or declared.
Finality and Non-Admissibility: The declaration, once accepted, cannot be used as evidence against the declarant but does not prevent the revenue from investigating the actual source of the funds or deposits.

Punishment for Section 24

Section 24 itself does not prescribe specific penalties; however, penalties for concealment, false declaration, or evasion can be imposed under the relevant provisions of the Income-tax Act, 1961, or other applicable laws. The scheme primarily offers immunity from penalty or prosecution in respect of the declared amount if the conditions are met.

Legal Comments

Scope of Immunity - The immunity under Section 24 is strictly confined to the declarant and does not extend to third parties or other persons involved in the transactions. [Commissioner of Income-tax vs. United Trading and Construction, AIR 1984 SC 990]
Investigation Rights - Revenue authorities retain the right to investigate the genuineness of deposits or transactions, even after a declaration under Section 24, especially when made on behalf of minors or third parties. [Jamnaprasad Kanhaiyalal v. CIT, 130 ITR 244 (SC)]
Finality of Orders - Orders under Section 24(6) are final and cannot be questioned in any court, but this does not bar the revenue from examining the true source of the declared amounts. [Commissioner of Income-tax vs. Salig Ram Prem Nath, 1984]
Legal Fiction Limitations - The legal fiction that treats the declared amount as the total income of the declarant is limited to the assessment of the declarant and does not prevent the revenue from investigating the actual source of the funds. [Rattan Lal v. ITO, 98 ITR 681 (Del)]
Admissibility of Declaration - The declaration made under Section 24(11) is not admissible as evidence against the declarant in assessment proceedings, but the declaration and the tax paid do not bar the revenue from examining the genuineness of deposits or sources. [Supreme Court in Jamnaprasad Kanhaiyalal, 130 ITR 244]
Scope of Finality - The finality clause applies only to the order of acceptance and not to the underlying facts or genuineness of the transactions. [Gujarat High Court in Manilal Gafoorbhai Shah, 95 ITR 624]
Investigation of Third Parties - The immunity does not extend to third-party depositors or persons whose income or deposits are involved; the revenue can investigate their genuineness. [Allahabad High Court in Badri Pd. & Sons, 98 ITR 657]
Burden of Proof - The burden remains on the assessee to prove the genuineness and source of deposits or transactions, even after a declaration under Section 24. [Rajasthan High Court in CIT v. K. K. Soni, 1978]
Scope of Legal Fiction - The legal fiction under Section 24(3) is a deeming provision that does not override the fundamental principles of assessment and source verification. [Supreme Court in Jamnaprasad Kanhaiyalal]
Reopening of Assessments - The scheme does not bar the revenue from reopening assessments if there is evidence of false declaration or concealment, especially when the declaration is made on behalf of minors or third parties. [Allahabad High Court in R. Shantilal & Co., 1972]
Genuineness of Deposits - The revenue can investigate the genuineness of deposits or cash credits, particularly when the declaration was made on behalf of minors or third parties, and the source is doubtful. [Gujarat High Court in Manilal Gafoorbhai Shah]
Legal Authority - The revenue authorities have statutory authority to scrutinize and verify the genuineness of transactions, notwithstanding the immunity clause, if there are reasons to doubt the declaration's authenticity. [Supreme Court in Jamnaprasad Kanhaiyalal]
Finality and Investigation - The finality of the order under Section 24(6) does not preclude the revenue from conducting further investigations into the actual source of the declared amounts. [Allahabad High Court in Badri Pd. & Sons]
Scope of Section 24(11) - The provision that the declaration shall not be admissible as evidence against the declarant does not prevent the revenue from examining the source of the deposits or transactions involved. [Supreme Court in Jamnaprasad Kanhaiyalal]
Legal Interpretation - The immunity is a statutory benefit granted only to the declarant and does not extend to third parties or other persons involved in the transactions. [Delhi High Court in Rattan Lal]
Judicial View - Courts have consistently held that the declaration under Section 24 does not bar the revenue from investigating the true nature and source of the declared amounts, especially when made on behalf of minors or third parties. [Gujarat High Court in Manilal Gafoorbhai Shah]

This commentary synthesizes judicial interpretations and statutory provisions to clarify the scope, limitations, and legal implications of Section 24 of the Finance (No. 2) Act, 1965.