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22 1965

FINANCE ACT, 1965

PART IX.

Amendment of Part IX of Finance Act, 1963: Income Tax and Sur-tax.

Amendment of section 83 of Finance Act, 1963.

56. Section 83 of the Finance Act, 1963 , is hereby amended by the insertion after subsection (2) of the following subsection:

“(2A) Any reference in this Part of this Act to one person being connected with another shall be construed in accordance with subsection (3) of section 41 of the Finance Act, 1965 .”

Certain leases to be deemed to have required payments of premiums.

57. Section 86 of the Finance Act, 1963 , is hereby amended by—

(i) the insertion after subsection (2) of the following subsections:

“(2A) Where, under the terms subject to which a lease is granted, a sum becomes payable by the lessee in lieu of the whole or a part of the rent for any period, or as consideration for the surrender of the lease, the lease shall be deemed for the purposes of this section to have required the payment of a premium to the lessor (in addition to any other premium) of the amount of that sum; but—

(a) in computing tax chargeable by virtue of this subsection in respect of a sum payable in lieu of rent, the term of the lease shall be treated as not including any period other than that in relation to which the sum is payable;

(b) notwithstanding anything in subsection (1) of this section, rent treated as arising by virtue of this subsection shall be deemed to become due when the sum in question becomes payable by the lessee.

(2B) Where, as consideration for the variation or waiver of any of the terms of a lease, a sum becomes payable by the lessee otherwise than by way of rent, the lease shall be deemed for the purposes of this section to have required the payment of a premium to the lessor (in addition to any other premium) of the amount of that sum; but in computing tax chargeable by virtue of this subsection the term of the lease shall be treated as not including any period which precedes the time at which the variation or waiver takes effect or falls after the time at which the variation or waiver ceases to have effect, and notwithstanding anything in subsection (1) of this section rent treated as arising by virtue of this subsection shall be deemed to become due when the contract providing for the variation or waiver is entered into.”;

(ii) the insertion in subsection (3) of “, (2A) or (2B)” before “of this section” and before “shall not apply” and the addition to the said subsection (3) of the following proviso :

“Provided that where the amount relates to a payment falling within the said subsection (2B), it shall not be so treated unless the payment is due to a person connected with the lessor.”;

(iii) the deletion in paragraph (a) of subsection (4) of “of premium” and of “subsection (1) or subsection (3) of” and the substitution in that paragraph of “foregoing provisions of this section” for “said subsection (1) or, as the case may be, the said subsection (3)”;

(iv) the deletion in paragraph (b) of subsection (4) of “subsection (1) or subsection (3) of” and of “of premium”.

Charge on assignment of lease granted at undervalue and charge on sale of land with right to reconveyance.

58. —The following sections are hereby inserted in the Finance Act, 1963 , after section 86 :

“86A.—(1) Where the terms subject to which a short lease was granted are such that the lessor having regard to values prevailing at the time it was granted, and on the assumption that the negotiations for the lease were at arm's length, could have required the payment of an additional sum (hereafter in this section referred to as the amount foregone) by way of premium, or additional premium, for the grant of the lease, then, on any assignment of the lease for a consideration—

(a) where the lease has not previously been assigned, exceeding the premium, if any, for which it was granted, or

(b) where the lease has been previously assigned, exceeding the consideration for which it was last assigned,

the amount of the excess, in so far as it is not greater than the amount foregone reduced by the amount of any such excess arising on a previous assignment of the lease, shall, in the same proportion as the amount foregone would under subsection (1) of section 86 of this Act, have fallen to be treated as rent if it had been a premium under a lease, be treated as profits or gains of the assignor chargeable to tax under Case VI of Schedule D.

(2) In computing the profits or gains of a trade of dealing in land, any trading receipts falling within this section shall be treated as reduced by the amount on which tax is chargeable by virtue of this section.

86B.—(1) Where the terms subject to which an estate or interest in land is sold provide that it shall be, or may be required to be, reconveyed at a future date to the vendor or a person connected with him, the vendor shall be chargeable to tax under Case VI of Schedule D on any amount by which the price at which the estate or interest is sold exceeds the price at which it is to be reconveyed or, if the earliest date at which, in accordance with those terms, it would fall to be reconveyed is a date two years or more after the sale, on that excess reduced by one-fiftieth thereof for each complete year (other than the first) in the period between the sale and that date.

(2) Where under the terms of the sale the date of the reconveyance is not fixed, then—

(a) if the price on reconveyance varies with the date, the price shall be taken for the purposes of this section to be the lowest possible under the terms of the sale;

(b) the vendor may, before the expiration of six years after the date on which the reconveyance takes place, claim repayment of any amount by which tax assessed on him by virtue of this section exceeded the amount which would have been so assessed if that date had been treated for the purposes of this section as the date fixed by the terms of the sale.

(3) Where the terms of the sale provide for the grant of a lease directly or indirectly out of the estate or interest to the vendor or a person connected with him, this section shall apply as if the grant of the lease were a reconveyance of the estate or interest at a price equal to the sum of the amount of the premium (if any) for the lease and the value at the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run:

Provided that this subsection shall not apply if the lease is granted, and begins to run, within one month after the sale.

(4) In computing the profits or gains of a trade of dealing in land, any trading receipts falling within this section shall be treated as reduced by the amount on which tax is chargeable by virtue of this section, but where, on a claim being made under paragraph (b) of subsection (2) of this section, the amount on which tax was chargeable by virtue of this section is treated as reduced, this subsection shall be deemed to have applied to the amount as reduced, and such adjustment of liability to tax shall be made (for all relevant years of assessment), whether by means of an additional assessment or otherwise, as may be necessary.”

Amendment of section 92 of Finance Act, 1963.

59. —The following section is hereby substituted for section 92 of the Finance Act, 1963 :

“92.—(1) Where, in relation to any premises, an amount (hereafter in this section referred to as the amount chargeable)—

(a) has become chargeable to tax under subsection (1), (2), (2A), (2B) or (3) of section 86 or under section 86A or 86B of this Act, or

(b) would have become so chargeable but for subsection (4) of the said section 86 or but for subsection (2) of section 93 of this Act or but for any exemption from tax,

and, during any part of the relevant period, the premises are wholly or partly occupied by the person for the time being entitled to the lease, estate or interest as respects which the amount chargeable arose for the purposes of a trade, profession or vocation carried on by him, that person shall be treated, for the purpose of computing the profits or gains of the trade, profession or vocation for assessment under Case I or Case II of Schedule D, as paying in respect of the premises rent for any part of the relevant period during which the premises are occupied by him as aforesaid (in addition to any rent actually paid) an amount which bears to the amount chargeable the same proportion as that part of the relevant period bears to the whole, and such rent shall be taken as accruing from day to day.

(2) In this section ‘the relevant period’ means—

(a) where the amount chargeable arose under section 86 of this Act, the period treated, in computing that amount, as being the duration of the lease;

(b) where the amount chargeable arose under section 86A of this Act, the period treated, in computing that amount, as being the duration of the lease remaining at the date of the assignment;

(c) where the amount chargeable arose under section 86B of this Act, the period beginning with the sale and ending on the date fixed under the terms of the sale as the date of the reconveyance or grant, or, if that date is not fixed, ending with the earliest date at which the reconveyance or grant could take place in accordance with the terms of the sale.

(3) Where the amount chargeable arose under subsection (2) of section 86 of this Act by reason of an obligation which included the incurring of expenditure in respect of which any allowance has fallen or will fall to be made under Part IV of the Finance (Miscellaneous Provisions) Act, 1956 , or Part V of the Finance Act, 1959 , this section shall apply as if the obligation had not included the incurring of that expenditure and the amount chargeable had been calculated accordingly.

(4) Where the amount chargeable arose under section 86B of this Act and the reconveyance or grant in question takes place at a price different from that taken in calculating that amount or on a date different from that taken in determining the relevant period, the foregoing provisions of this section shall be deemed to have had effect (for all relevant years of assessment) as they would have had effect if the actual price or date had been so taken and such adjustments of liability to tax shall be made, by means of additional assessment or otherwise, as may be necessary.”

Amendment of section 93 of Finance Act, 1963.

60. —The following section is hereby substituted for section 93 of the Finance Act, 1963 :

“93.—(1) Where in relation to any premises an amount has become or would have become chargeable to tax as mentioned in subsection (1) of section 92 of this Act by reference to a lease, estate or interest, the person for the time being entitled to that lease, estate or interest shall, subject to the provisions of the following subsections of this section, be treated for the purposes of subsection (4) of section 84 of this Act as paying rent, accruing from day to day, in respect of the premises (in addition to any rent actually paid), during any part of the relevant period in relation to the said amount for which he is entitled to the lease, estate or interest and in all bearing to that amount the same proportion as that part of the said relevant period bears to the whole.

(2) Where in relation to any premises an amount has become or would have become chargeable to tax as aforesaid, and by reference to a lease granted out of, or a disposition of, the lease, estate or interest by reference to which the said amount (hereafter in this section referred to as the prior chargeable amount) so became or would have become chargeable, a person would apart from this subsection be chargeable under section 86, 86A or 86B of this Act on any amount (hereafter in this section referred to as the later chargeable amount), the amount on which he is so chargeable shall, where no claim is or can be made under subsection (4) of the said section 86, be the excess, if any, of the later chargeable amount over the appropriate fraction of the prior chargeable amount or, where the lease or disposition by reference to which the person would be chargeable as aforesaid extends to a part only of the said premises, the excess, if any, of the later chargeable amount over so much of the appropriate fraction of the prior chargeable amount as, on a just apportionment, is attributable to that part of the premises.

(3) In a case in which subsection (2) of this section operates to reduce the amount on which, apart from that subsection, a person would be chargeable by reference to a lease or disposition, subsection (1) of this section shall apply for the relevant period in relation to the later chargeable amount only if the appropriate fraction of the prior chargeable amount exceeds the later chargeable amount and shall then apply as if the prior chargeable amount were reduced in the proportion which the said excess bears to the said appropriate fraction:

Provided that where the lease or disposition extends to a part only of the premises mentioned in the said subsection (2), the said subsection (1) and this subsection shall be applied separately in relation to that part and to the remainder of the premises but as if for any reference to the prior chargeable amount there were substituted a reference to that amount proportionately adjusted.

(4) In this section ‘the relevant period’ means in relation to any amount—

(a) where the amount arose under section 86 of this Act, the period treated, in computing that amount, as being the duration of the lease;

(b) where the amount arose under section 86A of this Act, the period treated, in computing that amount, as being the duration of the lease remaining at the date of the assignment;

(c) where the amount arose under section 86B of this Act, the period beginning with the sale and ending on the date fixed under the terms of the sale as the date of the reconveyance or grant, or, if that date is not fixed, ending with the earliest date at which the reconveyance or grant could take place in accordance with the terms of the sale.

(5) For the purposes of subsections (2) and (3) of this section the appropriate fraction of the prior chargeable amount is the sum which bears to that amount the same proportion as the length of the relevant period in relation to the later chargeable amount bears to the length of the relevant period in relation to the prior chargeable amount.

(6) Where the prior chargeable amount arose under subsection (2) of section 86 of this Act by reason of an obligation which included the incurring of expenditure in respect of which any allowance has fallen or will fall to be made under Part V of the Finance Act, 1959 , this section shall apply as if the obligation had not included the incurring of that expenditure and the prior chargeable amount had been calculated accordingly.

(7) Where the prior chargeable amount arose under section 86B of this Act and the reconveyance or grant in question takes place at a price different from that taken in calculating that amount or on a date different from that taken in determining the relevant period in relation to that amount, the foregoing provisions of this section shall be deemed to have had effect (for all relevant years of assessment) as they would have had effect if the actual price or date had been so taken and such adjustments of liability to tax shall be made, by means of additional assessment or otherwise, as may be necessary.”