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INCOME-TAX ACT 1995

ACT NO. 43 OF 1961

[date 13-9-1961]

Short title, extent and commencement. 1. Short title, extent and commencement

(1) This Act may be called the Income-tax Act, 1961.

(2) It extends to the whole of India.2

(3) Save as otherwise provided in this Act, it shall come into force on the 1st day of April, 1962.

Definitions. 2. Definitions In this Act, unless the context otherwise requires,-

3[(1) "advance tax" means the advance tax payable in accordance with the provisions of Chapter XVII-C;] 4[(1A)] "agricultural income" means- (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes; (b) any income derived from such land by- (i) agriculture; or (ii)the performance by a cultivator or receiver of rent- in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or ---------------------------------------------------------------------- 1.32 (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub- clause (b) is carried on: 1[Provided that- (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated- (A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (B) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (A), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification2 in the Official Gazette.] 3[Explanation.-For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause

(14) of this section;] ---------------------------------------------------------------------- 1 Substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962. 2 Inserted by the Finance Act, 1989 w.r.e.f. 1-4-1970. ----------------------------------------------------------------------- 1.33 1[2[(1B)] "amalgamation", in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than nine-tenths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first- mentioned company;]

(2) "annual value", in relation to any property, means its annual value as determined under section 23;

3[(3) Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1 April, 1988.]

(4) "Appellate Tribunal" means the Appellate Tribunal constituted under section 252; ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1967 w.e.f. 1-4-1967. 2 Renumbered for "(1A)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

3 Prior to the omission, clause (3), as originally enacted, read as under:

"(3) "Appellate Assistant Commissioner" means a person appointed to be an Appellate Assistant Commissioner of Income-tax under sub-

section (1) of section 117;" ---------------------------------------------------------------------- 1.34

(5) "approved gratuity fund" means a gratuity fund which has been and continues to be approved by the 1[Chief Commissioner or Commissioner] in accordance with the rules contained in Part C of the Fourth Schedule;

(6) "approved superannuation fund" means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the 2[Chief Commissioner or Commissioner] in accordance with the rules contained in Part B of the Fourth Schedule;

(7) "assessee" means a person by whom 3[any tax] or any other sum of money is payable under this Act, and includes- (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; (c) every person who is deemed to be an assessee in default under any provision of this Act; 4[(7A) "Assessing Officer" means the Assistant Commissioner or the Income-tax Officer who is vested with the relevant jurisdiction by

virtue of directions or orders issued under sub-section (1) or sub-

section (2) of section 120 or any other provision of this Act, and the Deputy Commissioner who is directed under clause (b) of sub-section

(4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act;]

(8) "assessment" includes reassessment;

(9) "assessment year" means the period of twelve months commencing on the 1st day of April every year; 5[(9A) "Assistant Commissioner" means a person appointed to be an

Assistant Commissioner of Income-tax under sub-section (1) of section 117;]

(10) "average rate of income-tax" means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income;

6[(11) "block of assets" means a group of assets falling within a class of assets, being buildings, machinery, plant or furniture, in respect of which the same percentage of depreciation is prescribed;] ---------------------------------------------------------------------- 1 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Substituted for "income-tax or super-tax" by the Finance Act, 1965, w.e.f. 1-4-1965. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

5 Ibid. 6 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Earlier, the original clause was omitted by the Finance Act, 1965, w.e.f. 1-4-1965. ----------------------------------------------------------------------- 1.35

(12) "Board" means the 1[Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 19632 (54 of 1963)];

(13) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;

(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; 3[(ii) 4 personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him. Explanation.-For the purposes of this sub-clause, "jewellery" includes- (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semiprecious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;] 5[(iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or 6(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;] ---------------------------------------------------------------------- 1 Substituted for "Central Board of Revenue constituted under the Central Board of Revenue Act, 1924 (4 of 1924)" by the Central Boards of Revenue Act, 1963, w.e.f. 1-1-1964. 2 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973. 3 Substituted for "(iii) agricultural land in India" by the Finance Act, 1970, w.e.f. 1-4-1970. ---------------------------------------------------------------------- 1.36 1[(iv) 6 1/2 per cent Gold Bonds, 1977, 2[or 7 per cent Gold Bonds, 1980,] 1[or National Defence Gold Bonds, 1980,] issued by the Central Government;] 4[(V) Special Bearer Bonds, 1991, issued by the Central Government;]

(15) 5 "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility 6[* * *]; ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1962, w.e.f. 13-12-

2 Inserted by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965. 3 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965. 4 Inserted by the Special Bearer Bonds (Immunities and Exemptions) Act, 1981, w.e.f. 12-1-1981. 5 The words 'not involving the carrying on of any activity for profit' omitted by the Finance Act, 1983, w.e.f. 1-4-1984. ---------------------------------------------------------------------- 1.37 1[(15A) "Chief Commissioner" means a person appointed to be a

Chief Commissioner of Income-tax under sub-section (1) of section 117;] 2[3[(15B)] "child", in relation to an individual, includes a step-child and an adopted child of that individual;]

4[(16) "Commissioner" means a person appointed to be a

Commissioner of Income-tax under sub-section (1) of section 117 5[* * *];] 6[(16A) "Commissioner (Appeals)" means a person appointed to be a

Commissioner of Income-tax (Appeals) under sub-section (1) of section 117;]

7[(17) "company" means- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India; or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company: Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration;] ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 Renumbered for "(15A)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted by the Finance Act, 1970, w.e.f. 1-4-1970. 5 The words " and includes a person appointed to be an Additional Commissioner of Income-tax under that sub-section" omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 7 Substituted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. ---------------------------------------------------------------------- 1.38

(18) "company in which the public are substantially interested" -- a company is said to be a company in which the public are substantially interested-- 2[(a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank; or] 3[(aa) if it is a company which is registered under section 25 of the Companies Act, 19564 (1 of 1956); or (ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested: Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration; or] 5[(ac) if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 19566 (1 of 1956), to be a Nidhi or Mutual Benefit Society; or] 7[(ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative societies;] 8[(b) if it is a company which is not a private company as defined in the Companies Act, 19569 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely:- (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in --------------------------------------------------------------------- 2 Substituted by the Finance Act, 1964, w.e.f. 1-4-1964. 3 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. 4 Inserted by the Finance Act, 1985, w.r.e.f. 1-4- 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 6 Substituted by the Finance Act, 1969, w.e.f. 1-4-1970. Earlier, it was amended by the Finance Act, 1965, w.e.f. 1-4-1965 and the Finance Act, 1966, w.e.f. 1-4-1966. --------------------------------------------------------------------- 1.39 accordance with the Securities Contracts (Regulation) Act, 1956 1 (42 of 1956), and any rules made thereunder; 2[(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially 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 1[if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.] Explanation.-In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words "not less than fifty per cent", the words "not less than forty per cent" had been substituted;]]

(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 4 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies; 5[(19A) "Deputy Commissioner" means a person appointed to be a Deputy Commissioner of Income-tax 6[or an Additional Commissioner of

Income-tax] under sub-section (1) of section 117; (19B) "Deputy Commissioner (Appeals)" means a person appointed to be a Deputy Commissioner of Income-tax (Appeals) 7 [or an Additional

Commissioner of Income-tax (Appeals)] under sub-section (1) of section 117;] 8[(19c) "Deputy Director" means a person appointed to be a Deputy Director of Income-tax or an Additional Director of Income-tax under

sub-section (1) of section 117;]

(20) "director", "manager" and "managing agent", in relation to a --------------------------------------------------------------------- 2 Substituted by the Finance Act, 1983, w.e.f. 2-4-1983. 3 Substituted for 'where such subsidiary company fulfils the conditions laid down in clause (b) of section 108' by the Finance Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 6 Ibid. --------------------------------------------------------------------- 1.40 company, have the meanings respectively assigned to them in the Companies Act, 1956 1 (1 of 1956);

2[(21) "Director General or Director" means a person appointed to be a Director General of Income-tax or, as the case may be, a Director

of Income-tax, under sub-section (1) of section 117, and includes a person appointed under that sub-section to be 3[an Additional Director of Income-tax or] a Deputy Director of Income-tax or an Assistant Director of Income-tax;]

(22) 4"dividend" includes- (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not; (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) 5[made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as --------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987,

w.e.f. 1-4-1988. Prior to the substitution, clause (21) read as under:

(21) 'Director of Inspection' means a person appointed to be a

Director of Inspection under sub-section (1) of section 117, and includes a person appointed to be an Additional Director of Inspection, a Deputy Director of Inspection or an Assistant Director of Inspection;' 3 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 5 Substituted for 'by way of advance or loan to a shareholder, being a person who has a substantial interest in the company,' by the Finance Act, 1987, w.e.f. 1-4-1988. --------------------------------------------------------------------- 1.41 the said concern)] or any payment by any such company on behalf, or for- the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but "dividend" does not include-- (i) a distribution made in accordance with sub-clause (c) or sub-clause (d)in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; 1[(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, 2[and before the 1st day of April, 1965];] (ii) any advance or loan made to a shareholder 3[or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off. Explanation 1.-The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.--The expression "accumulated profits" in sub- clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in subclause (c) shall include all profits of the company up to the. date of liquidation, 4[but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. Explanation 3.-For the purposes of this clause,- (a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern;] --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 2 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. 3 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Direct Taxes (Amendment) Act, 1964, w.r.e.f. 1-4-

5 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. --------------------------------------------------------------------- 1.4

(23) "firm", "partner" and "partnership" have the meanings respectively assigned to them in the Indian Partnership Act, 1932 4 (9 of 1932); but the expression "partner" shall also include any person who, being a minor has been admitted to the benefits of partnership; 5[(23A) "foreign company" means a company which is not a domestic company;]

(24) 6"income" includes- (i) profits and gains; (ii) dividend; 7[(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes 8[or by an association or institution referred to in

clause (21) or clause (23), or by a fund or trust or institution referred to in subclause (iv) or sub-clause (v) of clause (23C) of section 10]. Explanation.-For the purposes of this sub-clause, "trust" includes any other legal obligation;] --------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. quit 2 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 3 Renumbered for "(22A)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 5 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 7 Inserted by the- Finance Act, 1972, w.e.f. 1-4-1973. 8 Substituted for 'or by a trust or institution of national

importance refer-red to in clause (d) of sub-section (1) of section 80F" by the Direct Tax Laws (Amendment), Act, 1989, w.e.f. 1-4-1989. Earlier, the said expression was substituted for " not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution' by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. --------------------------------------------------------------------- 1.43 (iii) the value of any perquisite or profit in lieu of

salary taxable under clauses (2) and (3) of section 17; 1[(iiia) any special allowance 2 or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; (iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living;] (iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid; 3[(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-

section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the "beneficiary") and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary;] (v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59; 4[(va) any sum chargeable to income-tax under clause (iiia) of section 28;] 5[(vb)] any sum chargeable to income-tax under clause (iiib) of section 28; 6[(VC ) any sum chargeable to income-tax under clause (iiic) of section 28;] 7[(vd)] the value of any benefit or perquisite taxable under clause (iv) of section 28; 8[(ve) any sum chargeable to income-tax under clause (v) of section 28;] --------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1962 2 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. 3 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962. 4 Inserted, ibid, w.r.e.f. 1-4-1967. 5 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972. 6 Renumbered for "(va)" by the Finance Act, 1990, w.e.f. 1-4- 1990. The original clause (va) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 8 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. --------------------------------------------------------------------- 1.44 (vi) any capital gains chargeable under section 45; (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule; 1[(viii) Omitted by the Finance Act, 1988, with effect from April, 1988. It was inserted by the Finance Act, 1964, w.e.f 1-4-1964.] 2[(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever;] 3[(x)any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees;] --------------------------------------------------------------------- 1 Prior to omission, sub-clause (viii) read as under: "(viii) any annuity due, or commuted value of any annuity paid, under the provisions of section 280D;" 2 Inserted by the Finance Act, 1972 w.e.f. 1-4-1972. 3 Inserted by the Finance Act, 1987 w.e.f. 1-4-1988. --------------------------------------------------------------------- 1.45 interest in the company or a relative of the director or the other person. 4. The word 'income' is of the widest amplitude and it must be given its natural and grammatical meaning. The definition of income

in section 2(24) is inclusive. The purpose of the definition is not to limit the meaning of 'income' but to widen its net and the several clauses therein are not exhaustive of the meaning of income; even if a receipt did not fall within the ambit of any of those clauses, it might still be income if it partook the nature of income. The words "other games of any sort' were of wide amplitude and their meaning was not confined to mere gambling or betting activities. Assuming that the expression "winnings" had acquired a particular meaning viz. receipts from activities of a gambling or betting nature only, it did not follow that monies received from non-gambling or non-betting activities were not included within the ambit of income. The assessee participated in a car rally and won a prize. The car rally was a contest, if not a race and the assessee entered the contest to win it. What he got was a return for his skill and endurance. It was "income" construed in its widest sense. Though it was casual in nature, it was nevertheless income.

(25) "Income-tax-Officer" means a person appointed to be an Income-tax Officer under 1[* * *] section 117; 2[(25A) "India" shall be deemed to include the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu and Pondicherry,- (a) as respects any period, for the purposes of section 6; and (b) as respects any period included in the previous year, for the purposes of making any assessment for the assessment year commencing on the 1st day of April, 1963, or for any subsequent year;]

(26) "Indian Company" means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes- (i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir 3[and the Union territories specified in sub-clause (iii) of this clause]); 4[(ia) a corporation established by or under a Central, State or Provincial Act; (ib) any institution, association or body which is declared

by the Board to be a company under clause (17);] (ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State; 5[(iii) in the case of any of the Union territories of Dadra and Nagar ---------------------------------------------------------------------

1 The words 'sub-section (1) of' omitted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. Earlier, they were inserted by the Direct Tax Laws (Amendment.) Act, 1987, with effect from the same date. 2 Inserted by the Taxation Laws (Extension 'to Union Territories) Regulation, 1963, w.e.f. 1-4-1963. 3 Ibid. 4 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. 5 Inserted by the Taxation Laws (Extension to Union Territories) Regulation, 1963, w.e.f. 1-4-1963. --------------------------------------------------------------------- 1.46 Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory:] Provided that the 1[registered or, as the case may be, principal office of the company, corporation, institution, association or body] in all cases is in India; 4[ (28A) "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;] 6[(28B) "interest on securities" means,- (i) interest on any security of the Central Government or a State Government; (ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act;]

(29) "legal representative" has the meaning assigned to it in

clause (11) of section 2 of the Code of Civil Procedure, 1908 7 (5 of 1908); 8[(29A) "long-term capital asset" means a capital asset which is not a short-.term capital asset; (29B) "long-term capital gain" means capital gain arising from the transfer of a long-term capital asset;] 9[(29C) "maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual 10[association of --------------------------------------------------------------------- 1 Substituted for "registered office of the company" by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.

2 Prior to omission, clause (27) read as under:

"(27) 'Inspecting Assistant Commissioner' means a person appointed to be an Inspecting Assistant Commissioner of Income-tax

under sub-section (1) of section 117;

3 Substituted for "(2)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976. 5 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 6 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 8 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. --------------------------------------------------------------------- 1.47 persons or, as the case may be, body of individuals] as specified in the Finance Act of the relevant year;]

(30)"non-resident" means a person who is not a 'resident', and for the purposes of sections 92, 93 1[* * *] and 168, includes a person who is not ordinarily resident within the meaning of sub-

section (6) of section 6;

(31) "person" includes- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses;

(32) "person who has a substantial interest in the company", in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power;

(33) "prescribed" means prescribed by rules made under this Act;

(34) "previous year" means the previous year as defined in section 3;

(35) "principal officer", used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means- (a) the secretary, treasurer, manager or agent of the authority, company, association or body, or (b) any person connected with the management or administration of the local authority, company, association or body upon whom the 2[Assessing] Officer has served a notice of his intention of treating him as the principal officer thereof;

(36) "Profession" includes vocation; 3[(36A) "public sector company" means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 19564 (1 of 1956);]

(37) "public servant" has the same meaning as in section 21 of the Indian Penal Code, 18605 (45 of 1860); 6[(37A) "rate or rates in force" or "rates in force", in relation to an assessment year or financial year, mean- --------------------------------------------------------------------- 1 The figure 113 omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 5 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. --------------------------------------------------------------------- 1.48 (i) for the purposes of calculating income-tax under the

first proviso to sub-section (5) of section 132, or computing

the income-tax chargeable under sub-section (4) of section

172 or sub-section (2) of section 174 or section 175 or sub-

section (2) of section 176 or deducting income-tax under section 192 from income chargeable under the head "Salaries" 1[* * *] or 2 [computation of the "advance tax" payable under Chapter XVII-C, in a case not falling under 3[section 115A or section 115B 4[or section 115BB or section 115E] or] section 164 5[or section 164A 6[* * *]] 7[or section 167B], the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of computation of the "advance Tax" payable under Chapter XVII-C 8[in a case falling under section 115A or section 115B 9[or section 115BB or section 115E] or section 164 10[or section 164A 11[* * *]] 12[or section 167B], the rate or rates specified in section 115A or 13[section 115B or section 115BB or section 115E or section 164 or section 164A 14[* * *1 15[or section 167B], as the case may be,] or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable;] (ii) for the purposes of deduction of tax under sections 193, 194, 194A 16[194B] 17[, 194BB] 18[and 194D], the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year;] ---------------------------------------------------------------------

1 The words or sub-section (9) of section 80E from any payment referred to therein' omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. These words were inserted by the Finance Act, 1968, w.e.f. 1-4-1968. 2 Substituted for 'computation of the "advance tax" payable under Chapter XVII-C, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year' by the Finance Act, 1970, w.e.f. 1-4-1971. 3 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Ibid. 6 The words or section 167A" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 8 Substituted for "in a case falling under section 164, the rate specified in that section' by the Finance Act, 1976, w.e.f. 1-6-1976. 9 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 ibid. 11 The words "or section 167A" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 12 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 13 Substituted for "section 115B or, as the case may be, section 164" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 14 The words "or section 167A" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 15 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 16 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 17 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 18 Substituted for ", 194D and 195 by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. --------------------------------------------------------------------- 1.49 1[(iii)for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, whichever is applicable by virtue of the provisions of section 90;]

(38) 2"recognised provident fund" means a provident fund which has been and continues to be recognised by the 3[Chief Commissioner or Commissioner] in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees' Provident Funds Act, 1952 4 (19 of 1952);

5[(39) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993]

(40)"regular assessment" means the assessment made under 6[sub-

section (3) of] section 143 or section 144; --------------------------------------------------------------------- 1 Substituted by the Finance Act, 1992, w.e.f. 1-6-1992. Prior to the substitution, subclause (iii), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991, read as under: "(iii) for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in section 115A or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable;" 3 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

5 Prior to the omission, clause (39), as inserted by the Direct Tax Laws (Amendment) Act, 1989, read as under:

"(39) "registered firm" means a firm registered under the

provisions of clause (a) of sub-section (1) of section 185 or deemed

to be registered under the provisions of subsection (6) of that

section or under those provisions read with sub-section (7) of section 184;" Earlier, the following original clause was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989:

"(39) 'registered firm' means a firm registered under the

provisions of clause (a) of sub-section (1) of section 185 or under

that provision read with sub-section (7) of section 184;" 6 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989. --------------------------------------------------------------------- 1.50

(41)"relative", in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual;

(42)"resident" means a person who is resident in India within the meaning of section 6; 1[(42A) 2["short-term capital asset"3 means a capital asset held by an assessee for not more than 4[thirty-six] months immediately preceding the date of its transfer":] 6[Provided that in the case of a share held in a company 7[or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of section 10], the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted.] Explanation 8[1].--In determining the period for which any capital asset is held by the assessee-- (a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation; (b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in

9[sub-section (1)] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section; 10[(c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee;] 11[(d) in the case of a capital asset, being a share or any other security (hereafter in this clause referred to as the financial asset) subscribed to by the assessee on the basis of' his right to subscribe to such financial asset or subscribed to by the person in whose favour the assessee has renounced his right to subscribe to such financial asset, the period shall be reckoned from the date of allotment of such financial asset; --------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962. 2 Substituted by the Finance Act, 1973, w.e.f. 1-4-1974. It was also amended by the Finance Act, 1966, w.e.f. 1-4-1966; Finance (No. 2) Act, 1967, w.e.f. 1-4-1967 and Finance Act, 1968, w.e.f. 1-4-1969. 4 Substituted for "sixty" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 6 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 8 Ibid. 9 Substituted for "clauses (i) to (iii)" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 10 Inserted by the Finance (No. 2) Act, 1967 w.e.f. 1-4-1967. 11 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ---------------------------------------------------------------------- 1.51 (e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of the offer of such right by the company or institution, as the case may be, making such offer;] 1[(f)in the case of a capital asset, being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset;] (ii) in respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the assessee shall be determined subject to any rules which the Board may make in this behalf,] 2[Explanation 2.-For the purposes of this clause, the expression "security" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 3 (42 of 1956) 4[(42B) "short-term capital gain" means capital gain arising from the transfer of a short-term capital asset;] 5[(42C) Omitted by the Finance Act, 1990, with effect from 1 April, 1990. Earlier, it was inserted by the Direct Tax Laws (Second Amendment) Act, 1989, with effect from the same date.]

6[(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;] --------------------------------------------------------------------- 1 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 2 Inserted by the Finance Act, 1994, w.e.f 1-4-1995. 3 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 4 Prior to the omission, it read as under: 5 "(42C) 'security' means a Government security as defined in

clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944);" 6 Substituted by the Finance Act, 1965, w.e.f. 1-4-1965. --------------------------------------------------------------------- 1.52 1[(43A) "tax credit certificate" means a tax credit certificate granted to any person in accordance with the provisions of Chapter XXII-B and any scheme made thereunder;] 2[(43B) Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1 April, 1989.]

3[(44) "Tax Recovery Officer" means any Income-tax Officer who may be authorised by the Chief Commissioner or Commissioner, by general or special order in writing, to exercise the powers of a Tax Recovery Officer;]

(45)"total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act;

4[(46) * * *]

(47) 5["transfer", in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;] 6[or] 7[(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. This clause needs to be omitted consequent upon the omission of Chapter XXII-B by the Finance Act, 1990, w.e.f. 1-4-1990. 2 Prior to the omission, clause (43B), as inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972, read as under: "(43B) "Tax Recovery Commissioner" means a Commissioner or an Assistant Commissioner of Income-tax who may be authorised by the Central Government, by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Commissioner;" 3 Substituted by the Direct Tax Laws (Amendment). Act, 1987, w.r.e.f. 1-4-1988 [as amended by the Direct Tax Laws (Amendment) Act,

1989]. Prior to the substitution, clause (44), as substituted by the Finance Act, 1963, w.r.e.f. 1-4-1962, read as under:

"(44) "Tax Recovery Officer" means- (i) a Collector or an Additional Collector; (ii) any such officer empowered to effect recovery of arrears of land revenue or other public demand under any law relating to land revenue or other public demand for the time being in force in the State as may be authorised by the State Government, by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Officer; (iii)any Gazetted Officer of the Central or a State Government who may be authorised by the Central Government, by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Officer;" 4 Omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 5 Substituted for "transfer" in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law;" by the Taxation Laws (Amendment), Act 1984, w.e.f. 1-4-1985. 6 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 7 Ibid. --------------------------------------------------------------------- 1.53 a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 1 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation.-For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;]

2[(48) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

"Previous year" defined 4. 3[3. "Previous year" defined 4

(1) Save as otherwise provided in this section, "previous year" for the purposes of this Act, means the financial year immediately preceding the assessment year: ---------------------------------------------------------------------

2 Prior to the omission, clause (48) read as under;

"(48) "unregistered firm" means a firm which is not a registered firm." Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. the same date. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989. Prior to the substitution, section 3, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under:

"Previous year" defined.-(1) For the purposes of this Act, "previous year" means- (a) the financial year immediately preceding the assessment year; or (b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date; or (c) in the case of any person or business or class of persons or business not falling within clause (a) or clause (b), such period as may be determined by the Board or by any authority authorised by the Board in this behalf; or (d) in the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and- (i) ending with the said financial year, or (ii) if the accounts of the assessee have been made up to a date within the said financial year, then,, at the option of the assessee, ending on that date, or (iii)ending with the period, if any, determined under clause (c), as the case may be; or (e) in the case of a business or profession newly set up in the twelve months immediately preceding the said financial year- (i)if the accounts of the assessee have been made up to a date within the said financial year and the period from the date of the setting up of the business or profession to such date does not exceed twelve months, then, at the option of the assessee, such period, or (ii)if any period has been determined under clause (c), then the period beginning with the date of the setting up of the business or profession and ending with that period, as the case may be; or (f) where the assessee is a partner in a firm and the firm has been assessed as such, then, in respect of the assessee's share in the income of the -> -> --------------------------------------------------------------------- 1.54 Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.

(2) "Previous year", in relation to the assessment year commencing on the 1st day of April, 1989, means the period which begins with the date immediately following the last day of the previous year relevant to the assessment year commencing on the 1st day of April, 1988, and ends on the 31st day of March, 1989: 1 Provided that where the assessee has adopted more than one period as the "previous year" in relation to the assessment year commencing on the 1st day of April, 1988, for different sources of his income, the previous year in relation to the assessment year commencing on the 1st day of April, 1989, shall be reckoned separately in the manner aforesaid in respect of each such source of income, and the longer or the longest of the periods so reckoned shall be the previous year for the said assessment year: 2[Provided further that in the case of a business or profession newly set up, or a source of income newly coming into existence on or after the, 1st day of April, 1987, but before the 1st day of April, 1988 and where the --------------------------------------------------------------------- -> -> firm, the period determined as the previous year for the assessment of the income of the firm; or (g) in respect of profits and gains from life insurance business, the year immediately preceding the assessment year for which annual accounts are required to be prepared under the Insurance Act, 1938 (4 of 1938), or under that Act read with section 43 of the Life Insurance Corporation Act, 1956 (31 of 1956).

(2) Where an assessee has newly set up a business or profession in the said financial year and his accounts are made up to a date in the assessment year in respect of a period not exceeding twelve months from the date of such setting up, then, notwithstanding anything

contained in sub-clause (iii) of clause (d) of sub-section (1), the assessee shall, in respect of that business or profession, at his option, be deemed to have no previous year for the said assessment year under that clause and such option shall, in relation to the immediately succeeding assessment year, have effect as an option

exercised under sub-clause (i) of clause (e) of sub-section (1).

(3) Subject to the other provisions of this section, an assessee may have different previous years in respect of separate sources of his income.

(4) Where in respect of a particular source of income or in respect of a business or profession newly set up, an assessee has once exercised the option under clause (b) or sub-clause (ii) of clause (d)

or sub-clause (i) of clause (e) of sub-section (1) or has once been assessed, then, he shall not, In respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression "previous year" as then applicable to him, except with the consent of the Assessing Officer and upon such conditions as the Assessing Officer may think fit to impose." 1 See rule 125. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. --------------------------------------------------------------------- 1.55 accounts in relation to such business or profession or source of income have not been made up to the 31st day of March, 1988, the "previous year" in relation to the assessment year commencing on the 1st day of April, 1989, shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending on the 31st day of March, 1989: 1 Provided also that where the assessee has adopted one or more periods as the "previous year" in relation to the assessment year commencing on the 1st day of April, 1988, for any source or sources of his income, in addition to the business or profession or source of income referred to in the second proviso, the previous year in relation to the assessment year commencing on the 1st day of April, 1989, shall be reckoned separately in the manner aforesaid in respect of each such source of income, and the longer or the longest of the periods so reckoned shall be the previous year in relation to the said assessment year.]

(3)Where the previous year in relation to the assessment year commencing on the 1st day of April, 1989, referred to in sub-section

(2) exceeds a period of twelve months, the provisions of this Act shall apply subject to the modifications specified in the rules in the Tenth Schedule.] --------------------------------------------------------------------- --------------------------------------------------------------------- CHAP BASIS OF CHARGE. CHAPTER II BASIS OF CHARGE

Charge of income-tax 1. 4. Charge of income-tax 1

(1)Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and 2[subject to the provisions (including provisions for the levy of additional income-tax) of, this Act] in respect of the total income of the previous year * *] of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.

(2)In respect of income chargeable under sub-section (1), income- tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. -------------------------------------------------------------------- 1 Substituted for 'subject to the provisions of, this Act" by the Direct Tax Laws (Amendment)' Act, 1987, w.e.f. 1-4-1989. This amendment was consequent to the insertion of Chapter XIV-B (comprising of section 158B), but after the withdrawal of the chapter, without even coming into effect, this amendment too needs to be undone. 3 The words "or previous years, as the case may be," omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. --------------------------------------------------------------------- 1.57 liability arising from contracts as well as torts. it would be incorrect to assume that the share of an assessee in a form consists only of income yielding assets. It equally comprises of risk and liability of paying debts on behalf of the firm. An assessee cannot, under the Hindu law make a declaration whereby the joint family would have to bear the risk and liability of the business and such a declaration should be ignored altogether. 6.Where payment is made to compensate for the loss of the use of any goods in which the assessee does not carry on any business or the payment is a just equivalent of the cost incurred by the assessee, but excess accrues due to fortuitous circumstances or is a windfall, then ccrual may be a receipt, but it would not be income arising from business, and, therefore, not taxable under the Act. 7.In the hands of an assessee, who maintains his accounts on the mercantile system, sales tax collected but not paid to the Sales Tax Department pending adjudication of dispute over his liability to pay sales tax, is a revenue receipt of the year in which it is collected. 8.Where a company goes into liquidation and the liquidator distributes the assets of the company among the shareholders, what each shareholder gets is in lieu of his shareholding. That is the worth, the value and the price of his shareholding. A shareholder participates in the distribution of the assets of a company on its liquidation by virtue of and because of his shareholding. It is true that a liquidator does not sell the shares. It is equally true that there is no transfer of shares by the shareholder to the liquidator or to any other person. That is not really necessary. So long as money is received in lieu of shares, there is a receipt and where an assessee is a dealer in shares, any surplus amount received by him constitutes his income. The money received by the assessee in lieu of its shareholding partakes of the same character in which he held the shares. If he held the shares as stock-in-trade, the money received by it represents his income i.e. a revenue receipt in its hands. If it held them by way of investment, the money it receives represents a capital receipt by it.

Scope of total income 1. 5. Scope of total income 1.

(1)Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in

India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derivedfrom a business controlled in or a profession set up in India.

(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which - (a) is received or is deemed to be received in India in such year by or on behalf of such person; or --------------------------------------------------------------------- 1.58 (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. 1[5A. Apportionment of income between spouses governed by Portuguese Civil Code

(1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 1860 as "COMMUNIAO DOS BENS") in force in the State of Goa and in the Union territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head "Salaries") shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly.

(2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963. --------------------------------------------------------------------- 1.59 "Salaries", such income shall be included in the total income of the spouse who has actually earned it.]

Residence in India 1. 6. Residence in India 1. For the purposes of this Act,-

(1) An individual is said to be resident in India in any previous year, if he- (a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or 2[(b) * * *] (c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year. 3[Explanation.-In the case of an individual,- (a) being a citizen of India, who leaves India in any previous year 4 [as a member of the crew of an Indian ship as

defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employment outside India, the provisions of subclause (c) shall apply in relation to that year as if for the words "sixty days", occurring therein, the words "one hundred and eighty two days" had been substituted; (b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words "sixty days", occurring therein, the words 5["one hundred and eighty-two days"] had been substituted.]

(2) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India. -------------------------------------------------------------------- 2 Omitted by the Finance Act, 1982, w.e.f. 1-4-1983. 3 Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. Prior to the substitution, the Explanation, as substituted by the Finance Act, 1982, w.e.f. 1-4-1983, read as under: 3[Explanation : In the case of an individual, being a citizen of India,- (a) who leaves India in any previous year for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words "sixty days", occurring therein, the words "one hundred and eighty-two days' had been substituted; (b) who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words 'sixty days", occurring therein, the words "ninety days" had been substituted." It was originally inserted by the Finance Act, 1978, w.e.f. 1-4-

4 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 5 Substituted for "one hundred and fifty days" by the Finance Act, 1994, w.e.f. 1-4-1995. --------------------------------------------------------------------- 1.60

(3) A company is said to be resident in India in any previous year, if- (i) it is an Indian company; or (ii) during that year, the control and management of its affairs is situated wholly in India.

(4) Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.

(5) If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.

(6) A person is said to be "not ordinarily resident" in India in any previous year if such person is- (a) an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or (b) a Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more.

Income deemed to be received. 7. Income deemed to be received The following incomes shall be deemed to be received in the previous year:- (i) the annual accretion in the previous year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6 of Part A of the Fourth Schedule; (ii) the transferred balance in a recognised provident fund,

to the extent provided in sub-rule (4) of rule 11 of Part A of the Fourth Schedule.

Dividend income. 8. Dividend income 1[For the purposes of inclusion in the total income of an assessee,- (a) any dividend] declared by a company or distributed or paid by it within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e)

of clause (22) of section 2 --------------------------------------------------------------------- 1 Substituted for 'For the purposes of inclusion in the total income of an assessee, any dividend' by the Finance Act, 1965, w.e.f. 1-4-1965. --------------------------------------------------------------------- 1.61 shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be; 1[(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.]

Income deemed to accrue or arise in India 2. 9. Income deemed to accrue or arise in India 2.

(1) The following incomes shall be deemed to accrue or arise in India- 3(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India 4[* or through the transfer of a capital asset situate in India. Explanation.-For the purposes of this clause- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operation,., which are confined to the purchase of goods in India for the purpose of export; 5[* * *] 6[(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India;] 7[ (d) in the case of a non-resident, being-

(1) an individual who is not a citizen of India; or

(2) a firm which does not have any partner who is a citizen of India or who is resident in India; or

(3) a company which does not have any shareholder who is a citizen of India or who is resident in India, --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1965, w.e.f. 1-4-196 4 The words "or through or from any money lent at interest and brought into India in cash or in kind" omitted by the Finance Act, 1976, w.e.f. 1-6-1976. 5 Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964. 6 Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1962. 7 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1982. --------------------------------------------------------------------- 1.62 no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematography film in India;] (ii) income which falls under the head "Salaries" if it is earned in India. 1[Explanation.-For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India;] (iii)income chargeable under the head "Salaries" payable by the Government to a citizen of India for service outside India; (iv) a dividend paid by an Indian company outside India; 2[(v) income by way of interest payable by- (a) the Government; or (b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India; (vi) income by way of royalty payable by- (a) the Government; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, de sign, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government: --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979. 2 Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w.e.f. 1-6-1976. --------------------------------------------------------------------- 1.63 1[Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a nonresident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.] Explanation 1.-For the purposes of the 2[first] proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time

allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the 3[Assessing] Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976. Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in --------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 2 Substituted for "foregoing", ibid. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. --------------------------------------------------------------------- 1.64 connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (v); 1[Explanation 3.-For the purposes of this clause, the expression "computer software" shall have the meaning assigned to it in clause (b) of the Explanation to section 80HHE;] (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: 2[Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.] 3[Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] Explanation 4 [2].-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".]

(2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in Article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. --------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 2 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977. 3 Ibid. 4 Ibid. --------------------------------------------------------------------- 1.65 Where a foreign agent of Indian exporter operates in his own country and no part of his income arises in India and his commission is usually remitted directly to him and is not received by him or on his behalf in India, the agent is not liable to income-tax in India on the commission. A non-resident will not be liable to tax in India, on any income attributable to operations confined to purchase of goods in India for export even though the nonresident has an office or agency in India for this purpose. Where a non-resident allows an Indian customer facilities of extended credit for payment there would be no assessment merely for this reason provided that the contracts to sell were made outside India and the sales were made on a principal to principal basis. Section 9 does not seek to bring into the tax net the profits of a non-resident which cannot reasonably be attributed to operations carried out in India. Even if there be a business connection in India the whole of the profit accruing or arising from the business connection is not deemed to accrue or arise in India. It is only that portion of the profit which can reasonably be attributed to the operations of the business carried out in India which is liable to income-tax. 1.66 5. The mere existence of an agency, established by a non- resident in India, will not be sufficient to make the non-resident liable to tax, if the sole function of the agency is to purchase goods for export. 6. Where shares in Indian companies are allotted in consideration for the machinery and plant, the income embedded in the payments would be received in India as the shares in the Indian companies are located in India and would accordingly attract liability to income-tax as income received in India. 1.67 CHAP INCOMES WHICH DO NOT FORM PART OF TOAL INCOME. CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Incomes not included in total income. 10. Incomes not included in total income In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-

(1) agricultural income;

(2) 1[subject to the provisions of sub-section (2) of section 64,] any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family; 2[(2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation.-For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits;]

3[(3) any receipts which are of a casual and non-recurring nature, 4[to the extent such receipts do not exceed five thousand rupees in the aggregate:] 5[Provided that where such receipts relate to winnings from races including horse races, the provisions of this clause shall have effect as if for the words "five thousand rupees", the words "two thousand five hundred rupees" had been substituted: Provided further that) this clause shall not apply to- (i) capital gains chargeable under the provisions of section 45; or --------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1970 w.e.f. 1-4-

2 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, clause (2A) was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 3 Substituted by the Finance Act, 1972, w.e.f. 14-1972. Section 59 of the said Finance Act has made the following special provision in this regard: "59. Certain casual and non-recurring receipts not to be included in the total income for the assessment year 1972-73.- Notwithstanding the amendments made by this Act to the Income-tax Act, in computing, in the case of any person, the total income of a previous year relevant to the assessment year commencing on the 1st

day of April, 1972, any income falling within clause (3) of section 10 of the Income-tax Act as it stood immediately before the 1st day of April, 1972, shall not be included." 4 Substituted for 'not being winnings from lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate' by the Finance Act, 1986, w.e.f. 1-4-1987. 5 Substituted for 'Provided that' by the Finance Act, 1992, w.e.f. 1-4-1992. --------------------------------------------------------------------- 1.68 (ii) receipts arising from business or the exercise of a profession or occupation; or (iii) receipts by way of addition to the remuneration of an employee;] I[* * *] 2[(iv)* * * *]

3[(4)(i) in the case of a non-resident, any income by way of interest on ---------------------------------------------------------------------- 1 The word 'or' omitted by the Finance Act, 1992, w.e.f. 1-4-1992. Earlier, it was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 2 Omitted by the Finance Act, 1992, w.e.f. 1-4-1992. Prior to the omission, clause (iv), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991, read as under: "(iv) winnings from races including horse races;"

3 Substituted for clauses (4) and (4A) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution,

clause (4), as amended by the Finance Act, 1964, w.e.f. 1-4-1964, and clause (4A), as inserted by the Finance Act, 1964, w.e.f. 1-4-1965; amended by the Finance Act, 1968, w.e.f. 1-4-1969 and substituted by the Finance Act, 1982, w.e.f. 1-4-1982, read as under: -> -> 1.69 such securities or bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf, including income by way of premium on the redemption of such bonds; 1[(ii) 2 in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the rules made thereunder: Provided that such individual is a person resident outside India as defined in clause (q) of section 23 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account;] ---------------------------------------------------------------------

-> -> "(4) in the case of a non-resident, any income from interest on such securities as the Central Government may, by notification in the Official Gazette, specify in this behalf, or any income from interest on, or from premium on the redemption of, any bonds issued by the Central Government under a loan agreement between the Central Government and the International Bank for Reconstruction and Development or under a loan agreement between the Central Government and the Development Loan Fund of the United States of America or by any industrial undertaking or financial corporation in India under a loan agreement with the said Bank or Fund, as the case may be, which is guaranteed by the Central Government; (4A) in the case of a per-son resident outside India, any income from interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder. Explanation.-In this clause, 'person resident outside India" shall have the meaning assigned to it in clause (q) of section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973);" 1 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. Prior to the substitution, sub-clause (ii) read as under: "(ii) in the case of an individual, who is a person resident outside India as defined in clause (q) of section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the said Act and the rules made thereunder;" ---------------------------------------------------------------------- 1.70

August, 1990 would be eligible for exemption under section 10(4)(ii) in respect of NRE/FCNR accounts maintained upto 30th June, 1991.

[(4A) Substituted by clause 10(4)(ii), supra, by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April, 1989.] 1[(4B) in the case of an individual.. being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued by the-Central Government as that Government may, by notification in the Official Gazette, specify in this behalf: Provided that the individual has subscribed to such certificates in convertible foreign exchange remitted from a country outside India in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder. Explanation.-For the purposes of this clause,- (a) a per-son shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India; (b) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;]

2[(5) 'in the case of an individual, the value of any travel concession or --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 2 Substituted by the Direct Tax Laws (Second Amendment) Act, 1989,

w.r.e.f. 1-4-1989. Prior to the substitution, clause (5), as substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 14- 1962 and amended by the Finance Act, 1975, w.e.f. 14-1975, read as under:

"(5) subject to such conditions as the Central Government may prescribe, in the case of an individual being a citizen of India,- (i) in relation to any assessment year not being an assessment year commencing after the 1st day of April, 1970, the value of any travel concession or assistance received by or due to such individual,- (a)from his employer for himself, his spouse and children, in connection with his proceeding on leave to his home-district in India; (b)from his employer or former employer for himself, his spouse and children, in connection with his proceeding to his home-district in India after retirement from service or after the termination of his service; (ii) in relation to any other assessment year, the value of any travel concession or assistance received by or due to such individual,- (a)from his employer for himself and his family, in connection with his proceeding on leave to any place in India; (b)from his employer or former employer for himself, and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service: Provided that the amount exempt under item (a) or item (b) of this sub-clause shall not, except in such cases and under such circumstances, as may be prescribed, having regard to the travel concession or assistance granted to the employees of the Central Government, exceed the value of the travel concession or assistance which would have been received by or due to the individual in connection with his proceeding to his home district in India on leave or, as the case may be, after retirement from service -> -> 1.71 assistance received by, or due to, him,- (a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India; (b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service, subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government: Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel. Explanation.-For the purposes of this clause, "family", in relation to an individual, means- (i) the spouse and children of the individual; and (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual;] 2. Home district: Meaning.-The following criteria have been laid down for determining home district for the purposes of section

10(5): --------------------------------------------------------------------- -> -> or after the termination of his service. Explanation.-For the purposes of this sub-clause, "family", in relation to an individual, means- (i) the spouse and children of the individual; and (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual."

The new clause (5) substituted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989 was again substituted by the Direct Tax Laws (Second Amendment) Act, 1989 with effect from the same date making the earlier amendment of academic interest only. --------------------------------------------------------------------- 1.72 (a) the place declared by the assessee is one which requires his physical presence at intervals, for discharging various domestic or social obligations and if so, after his entry into service he had been visiting that place frequently; or (b) the assessee owns residential property in the place or is a member of the joint family having such property there; or (c) his near relations are resident in that place; or (d) prior to his entry into service he had been living there for some years. If any of these conditions is satisfied, the assessee may be allowed to claim a particular place as his home district. 1[(5A) in the case of an individual who is not a citizen of India and is a non-resident, who comes to India solely in connection with the shooting of a cinematograph film in India by the individual, firm or company referred to in clause (d) of the Explanation to clause (i)

of sub-section (1) of section 9, any remuneration received by him for rendering any service in connection with such shooting;] 2[(5B) in the case of an individual who renders services as a technician in the employment (commencing from a date after the 31st day of March, 1993) of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this clause or sub-clause

(viia) of clause (6) by the prescribed authority or in any business carried on in India and the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India and the tax on his income for such services chargeable under the head "Salaries" is paid to the Central Government by the employer (which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 19563) (1 of 1956), the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India: Provided that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the condition relating to non-residence in India as specified in this clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning. Explanation.-For the purposes of this clause, "technician" means a person having specialised knowledge and experience in- (i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or (ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or (iii) such other field as the Central Government may, having regard to availability of Indians having specialised knowledge and --------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-

2 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. ---------------------------------------------------------------------- 1.73 experience therein, the needs of the country and other relevant circumstances, by notification' in the Official Gazette, specify, who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised;]

(6) in the case of an individual who is not a citizen of India,- 2[(i) 3 subject to such conditions as the Central Government may prescribe, passage moneys or the value of any free or concessional passage received by or due to such individual- (a) from his employer, for himself, his spouse and children, in connection with his proceeding on home leave out of India; 4 [(aa) from his employer, for his children having full time education in any educational institution outside India, in connection with their proceeding to India during vacation;] (b) from his employer or former employer for himself, his spouse and children, in connection with his proceeding to his home country out of India after retirement from service in India or after the termination of such service;] 5[(ii) the remuneration received by him as an official, by whatever name --------------------------------------------------------------------- 1 The fields of (i) grading and evaluation of diamonds for diamond export or import trade; (ii) cookery; and (iii) information technology including computer architecture systems platforms and associated technology, software development process and tools have been specified: 2 Substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f 1-4-1962. 4 Inserted by the Finance (No. 2) Act, 1977, w.r.e.f. 1-4-1972. 5 Substituted for sub-clauses (ii) to (v) by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to the substitution, sub-clauses (ii) to (v) read as under: "(ii) the remuneration received by him as ambassador, high commissioner, envoy, minister, charged affaires, commissioner, counsellor or the secretary, adviser or attache of an embassy, high commission, legation or commission of a foreign State, for service in such capacity; (iii) the remuneration received by him as a consul de carrier, whether called a consul general, consul, vice- consul, consular agent, pro-consul or by any other name, of a foreign State for service in such capacity; (iv) the remuneration received by him as a trade commissioner or other official representative in India of the Government of a foreign State (not holding office as such in an honorary capacity), if the remuneration of the corresponding officials, if any, of the Government resident for similar purposes in the country concerned enjoys a similar exemption in that country; (v) the remuneration received by him as a member of the staff of any of the officials referred to in clause (ii), clause (iii) or clause (iv), if the member- (a) is a subject of the country represented-, (b) is not engaged in any business or profession or employment in India otherwise than as a member of such staff; and further, where the individual is a member of the staff of any official referred to in clause (iv) if the country represented has made corresponding provisions for similar exemptions in the case of members of the staff of the corresponding officials of the Government;". 1.74 called, of an embassy, high commission, legation, commission, consulate or the trade representation of a foreign State, or as a member of the staff of any of these officials, for service in such capacity: Provided that the remuneration received by him as trade commissioner or other official representative in India of the Government of a foreign State (not holding office as such in an honorary capacity), or as a member of the staff of any of those officials, shall be exempt only if the remuneration of the corresponding officials or, as the case may be, members of the staff, if any, of the Government resident for similar purposes in the country concerned enjoys a similar exemption in that country: Provided further that such members of the staff are subjects of the country represented and are not engaged in any business or profession or employment in India otherwise than as members of such staff;] (vi) the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the following conditions are fulfilled- (a) the foreign enterprise is not engaged in any trade or business in India; (b) his stay in India does not exceed in the aggregate a period of ninety days in such previous year; and (c) such remuneration is not liable to be deducted from the income of the employer chargeable under this Act; 1[(via) the remuneration received by him as an employee of, or a consultant to, an institution or association or a body established or formed outside India solely for philanthropic purposes, for services rendered by him in India in connection with such purposes, provided that such institution or association or body and the purposes for which his services are rendered in India are approved by the Central Government;] 2[(Vii) Omitted by the Finance Act, 1993, w.e.f 1-4-1993.] --------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Prior to the omission, sub-clause (vii), as originally enacted and amended by the Finance Act, 1964, w.e.f. 1-4-1964; Finance Act, 1965, w.e.f. 1-4-1965 and the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under: "(vii) *the remuneration due to or received by him chargeable under the head 'Salaries' for services rendered as a technician in the employment (commencing from a date before the 1st day of April, 1971) of the Government or of a local authority or of any corporation set up under any special law or in any business carried on in India, if he was not resident in any of the four financial years immediately preceding the financial year in which he arrived in India to the extent mentioned below- (a) where his contract of service is approved by the Central Government before the commencement of his service or within one year of such commencement- (i) in the case of a technician who has special knowledge and experience in industrial or business management techniques, such remuneration due to or received by him during the period of six -> -> ---------------------------------------------------------------------- 1.75 1[(viia)'where such individual renders services as a technician in the employment 3[* * *] of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this sub-clause by the prescribed authority or in any business carried on in India and 4[the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India,] the remuneration for such services due to or received by him, which is chargeable under the head "Salaries", to the extent mentioned below, namely:- --------------------------------------------------------------------- -> -> months commencing from the date of his arrival in India; (ii)in the case of any other technician, such remuneration due to or received by him during the thirty-six months commencing from the date of his arrival in India, and where any such person continues with the approval of the Central Government obtained before the 1st day of October of the relevant assessment year to remain in employment in India after the expiry of the thirty-six months aforesaid and the tax on his income chargeable under the head 'Salaries' is paid by the employer to the Central Government which tax in the case of an employer being a company may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956), the tax so paid by the employer for a period not exceeding sixty months following the expiry of the thirty-six months aforesaid; (b) in any other case, not being the case of a technician who has special knowledge and experience in industrial or business management techniques, such remuneration due to or received by him for the period of three hundred and sixty-five days in all commencing from the date of his arrival in India. Explanation.-For the purposes of this sub-clause, 'Technician' means a person having specialised knowledge and experience in- (i)constructional or manufacturing operations, or in mining or in the generation or distribution of electricity or any other form of power, or (ii)industrial or business management techniques, who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised;". 1 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

3 The words '(commencing from a date after the 31st day of March, 1971)" omitted by the Finance Act, 1988, w.e.f. 1-4-1988. 4 Substituted for "the following conditions are fulfilled, namely, that-

(1) the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India, and

(2) the contract of his service in India is approved by the Central Government, the application for such approval having been made to that Government before the commencement of such service or within six months of such commencement," by the Finance Act, 1992, w.e.f. 1-6-1992. --------------------------------------------------------------------- 1.76

1[(1) where such services commence from a date after the 31st day of March, 1971 but before the 1st day of April, 1988,- (A) such remuneration due to or received by him] during the period of twenty-four months commencing from the date of his arrival in India, in so far as such remuneration does not exceed an amount calculated at the rate of four thousand rupees per month, and where the tax on the excess, if any, of such remuneration for the period aforesaid over the amount so calculated is paid to the Central Government, by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 2 (1 of 1956)], also the tax so paid by the employer; and (B) where he continues, with the approval of the Central Government obtained before the 1st day of October of the relevant assessment year, to remain in employment in India after the expiry of the period of twenty-four months aforesaid and the tax on his income chargeable under the head "Salaries" is paid to the Central Government by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 3 (1 of 1956)], the tax so paid by the employer for a period not exceeding twenty-four months next following the expiry of the first mentioned twenty-four months;

4[(11)where such services commence from a date after the 31st day of March, 1988 5 [but before the 1st day of April, 1993], and tax on his income chargeable under the head "Salaries" is paid to the Central Government by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 19566 (1 of 1956)], the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India: 7[Omitted by the Finance Act, 1992, w.e.f 1-6-1992.]] --------------------------------------------------------------------- 1 Substituted for '(A) such remuneration due to or received by him' by the Finance Act, 1988, w.e.f. 1-4-1988. 3 Ibid. 4 Substituted for 'Provided that' by the Finance Act, 1988, w.e.f 1-4-1988. 5 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. 7 Prior to the omission, the proviso, as inserted by the Finance Act, 1988, w.e.f. 1-4-1988, read as under: "Provided that nothing in this item shall relate to a period exceeding twenty-four months commencing from the date of his arrival in India if the approval of the Central Government for his employment in India for such period is not obtained before the 1st day of October of the relevant assessment year:" --------------------------------------------------------------------- 1.77 1[Provided [* * *] that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the 3[condition relating to non-residence in India as specified in] this sub-clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning.] Explanation.-For the purposes of this sub-clause, "technician" means a person having specialised knowledge and experience in- (i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or (ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, 4[or] 5[(iii)such other field6 as the Central Government may, having regard to the availability of Indians having specialised knowledge and experience therein, the needs of the country and other relevant circumstances, by notification in the Official Gazette, specify,] who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised;] (viii) any income chargeable under the head "Salaries" received by or due to any such individual being a non- resident as remuneration for services rendered in connection with his employment on a foreign ship where his total stay in India does not exceed in the aggregate a period of ninety days in the previous year; 7[(ix) "any income chargeable under the head "Salaries" received by or due to him during the thirty-six months commencing from the date of his arrival in India for service rendered as a professor or other teacher in a University or other educational institution, and where any such individual continues to remain in employment in India after the expiry of the thirty-six months aforesaid and the tax on his income chargeable under the head "Salaries" is paid by the University or other educational institution concerned to the ---------------------------------------------------------------------- 1 Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-

2 The word 'further' omitted by the Finance Act, 1992, w.e.f. 1-6- 1992. Earlier, it was Inserted by the Finance Act, 1988, w.e.f. 1-4-

3 Substituted for 'condition specified in item (1) of by the Finance Act, 1992, w.e.f. 1-6-1992. 4 Inserted by the Finance Act, 1979, w.e.f. 1-6-1979. 5 Ibid. 6 The fields of 'grading and evaluation of diamonds for diamond export or import trade'; 'cookery' 'information technology including computer architecture systems platforms and associated technology, software development process and tools' have been notified: 7 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. ---------------------------------------------------------------------- 1.78 Central Government, the tax so paid for a period not exceeding twenty-four months following the expiry of the thirty-six months aforesaid, provided in either case the following conditions are fulfilled, namely:- (i) such individual was not resident in any of the four financial years immediately preceding the financial year in which he arrived in India; and (ii) his contract of service is approved by the Central Government- (a) on or before the 1st day of October, 1964, in the case of a professor or other teacher whose service commenced before the 1st day of April, 1964; (b) before the commencement of his service or within one year of such commencement, in any other case;] 1[(x) 'any sum due to or received by him, during the twenty- four months commencing from the date of his arrival in India, for undertaking any research work in India, provided the following conditions are fulfilled, namely:- (a) the research work is undertaken in connection with a research scheme approved in this behalf by the Central Government on or before the 1st day of October of the relevant assessment year; and (b) such sum is payable or paid directly or indirectly by the Government of a foreign State or any institution or association or other body established outside India;] 3[(xi) the remuneration received by him as an employee of the Government of a foreign State during his stay in India in connection with his training in any establishment or office of, or in any undertaking owned by,- (i) the Government; or (ii) any company in which the entire paid-up share capital is held by the Central Government, or any State Government or Governments, or partly by the Central Government and partly by one or more State Governments; or (iii) any company which is a subsidiary of a company refer-red to in item (ii); or (iv) any corporation established by or under a Central, State or Provincial Act; or (v) any society registered under the Societies Registration Act, 1860 (14 of 1860), or under any other corresponding law for the time being in force and wholly financed by the Central Government, or any State Government or State Governments, or partly by the Central Government and partly by one or more State Governments;] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 3 Inserted by the Finance Act, 1976, w.e.f. 1-4-1976. ----------------------------------------------------------------------- 1.79 1[(6A) 2 where in the case of a foreign company deriving income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976 3[and,- ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, 3 Substituted for the following by the Finance Act, 1992, w.e.f. 1- 6-1992: "and approved by the Central Government, the tax on such income is payable, under the terms of such agreement, by Government or the Indian concern to the Central Government, the tax so paid;" ----------------------------------------------------------------------- 1.81 (a) where the agreement relates to a matter included in the industrial policy, for the time being in force,. of the Government of India, such agreement is in accordance with that policy; and (b) in any other case, the agreement is approved by the Central Government, the tax on such income is payable, under the terms of the agreement, by Government or the Indian concern to the Central Government, the tax so paid.) Explanation.-For the purposes of this clause 1[and clause (6B)],- (a) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section

(1) of section 9; (b) "foreign company" shall have the same meaning as in section 80B; (c) "royalty" shall have the same meaning as in Explanation

2 to clause (vi) of sub-section (1) of section 9;] 2[(6B) where in the case of a non-resident (not being a company) or of a foreign company deriving income (not being salary, royalty or fees for technical services) from Government or an Indian concern in pursuance of an agreement entered into by the Central Government with the Government of a foreign State or an international Organisation, the tax on such income is payable by Government or the Indian concern to the Central Government under the terms of that agreement or any other related agreement approved by the Central Government, the tax so paid;] 3[(6C ) 4 any income arising to such foreign company, as the Central Government may, by notification in the Official Gazette, specify in this behalf, by way of fees for technical services received in pursuance of an agreement entered into with that Government for providing services in or outside India in projects connected with security of India;]

(7) any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India;

(8) in the case of an individual who is assigned to, duties in India in connection with any co-operative technical assistance programmes and projects in accordance with an agreement entered into by the Central Government and the Government of a foreign State (the terms whereof provide for the exemption given by this clause)- (a) the remuneration received by him directly or indirectly from the Government of that foreign State for such duties, and (b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the Government of that foreign State; ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1988, w.e.f. 1-4-1988. 2 Ibid. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.82 1[(8A) in the case of a consultant- (a) any remuneration or fee received by him or it, directly or indirectly, out of the funds made available to an international Organisation [hereafter referred to in this clause and clause (8B) as the agency] under a technical assistance grant agreement between the agency and the Government of a foreign State; and (b) any other income which accrues or arises to him or it outside India, and is not deemed to accrue or arise in India, in respect of which such consultant is required to pay any income or social security tax to the Government of the country of his or its origin. Explanation.-In this clause, "consultant" means- (i) any individual, who is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India, or (ii) any other person, being a non-resident, engaged by the agency for rendering technical services in India in connection with any technical assistance programme or project, provided the following conditions are fulfilled, namely:-

(1) the technical assistance is in accordance with an agreement entered into by the Central Government and the agency; and

(2) the agreement relating to the engagement of the consultant is approved by the prescribed authority2 for the purposes of this clause; (8B) in the case of an individual who is assigned to duties in India in connection with any technical assistance programme and project in accordance with an agreement entered into by the Central Government and the agency- (a) the remuneration received by him, directly or indirectly, for such duties from any consultant referred to in clause (8A); and (b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the country of his origin, provided the following conditions are fulfilled namely:- (i) the individual is an employee of the consultant referred to in clause (8A) and is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India; and (ii) the contract of service of such individual is approved by the prescribed authority' before the commencement of his service;]

(9) the income of any member of the family of any such individual as is referred to in clause (8 ) 4 [or clause (8A) or, as the case may be, clause (8B)] accompanying him to India, which accrues or arises outside India, and is not deemed to accrue or, arise in India, in respect of which such --------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991. 2 Additional Secretary, Department of Economic Affairs, Ministry of Finance, Government of India, in concurrence with Member (Income-tax) of the Board: 3 Ibid. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991. -------------------------------------------------------------------- 1.83 member is required to pay any income or social security tax to the Government of that foreign State 1[or, as the case may be, country of origin of such member];

2[(10)(i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services; (ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount

calculated in accordance with the provisions of sub-sections (2) and

(3) of section 43 of that Act; (iii) 4 any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependents on his death, to the extent it does not, in either case, exceed one-half month's salary for each year of completed service, 5[calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government]: Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause 6[shall not exceed the limit so specified]: ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991. 2 Substituted by the Finance Act, 1974, w.e.f. 1-4-1975. Earlier, it was amended by the Finance Act, 1972, w.e.f. 1-4-1973 and the Finance Act, 1974 itself w.r.e.f. 1-6-1972/ 1-4-1962. 5 Substituted for 'calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, subject to a maximum of thirty-six thousand rupees or twenty months' salary so calculated, whichever is less' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. The italicised words were substituted for 'thirty thousand' by the Finance Act, 1983, w.r.e.f. 1-4-1982. 6 Substituted for 'shall not exceed thirty-six thousand rupees" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. The italicised words were substituted for "thirty thousand' by the Finance Act, 1983, w.r.e.f. 1-4-1982. 1.84 Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this clause 1[shall not exceed the limit so specified] as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years: 2[* * *] Explanation.-3[In this clause and in clause (IOAA)], "salary" shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;] ---------------------------------------------------------------------- 1 Substituted for 'shall not exceed thirty-six thousand rupees' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. The italicised words were substituted for 'thirty thousand" by the Finance Act, 1983, w.r.e.f. 1-4-1982. 2 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989. Prior to the omission, the third and fourth provisos, as amended by the Finance Act, 1983, w.r.e.f. read as under: "Provided also that the Central Government may, having regard to the maximum amount which may for the time being be exempt under sub- clause (i) increase, by notification in the Official Gazette, the limit of thirty-six thousand rupees, for all the three purposes for which it has been mentioned in the foregoing provisions of this clause, up to such maximum amount: Provided also that in relation to cases in which the event (that is to say retirement of the employee or his becoming incapacitated or termination of his employment or his death, as the case may be) on which gratuity is received had taken place before the 31st day of January, 1982, the proviso immediately preceding this proviso shall not apply and the remaining provisions of this clause shall have effect as if for the words "thirty six thousand rupees", at the three places where they occur, the words "thirty thousand rupees" had been substituted." 3 Substituted for "In this clause' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.85 3. All the three limits specified in the section will operate as cumulative conditions and the exempt portion of the gratuity will be restricted to any of these three limits whichever is the least. Retirement gratuity will be exempt to the extent mentioned in the latter half of the section and the remaining amount will be entitled

to relief under section 89(1). In the case of gratuity funds approved for the purposes of Income-tax Act a provision authorising the payment of gratuity to an employee while he continues to remain in service should not be allowed. The latter half of the section should be regarded as covering the case of only a gratuity payment on the employee's retirement or on his becoming incapacitated or on termination of his employment or on his death. The rules of a fund approved for the purposes of Income tax Act should not permit the payment of gratuity in the form of annuities payable over a specified number of years. In order to claim the exemption under the section it is necessary that the amount of gratuity should be calculated exactly on the basis laid down in the section. [Letter No. 1 (1 79)162, dated 13th December, 1962] 4. The expression 'termination of employment used in the section as amended by Finance Act, 1972 covers the case of an employee whose services come to an end due to his resignation. 5. Limit of exemption of death-cum-retirement gratuity under

section 10(10)(iii) has been raised to Rs. 1 lakh in relation to employees who retire of become incapacitated or die on or after 1st April, 1988 or whose employment is terminated on or after that date. 1[(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 2[to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India- services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of 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, and (b) in any other case, the commuted value of one-half of such pension, such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality; --------------------------------------------------------------------- 2 Substituted for 'to the members of the Defence Services or to the employees of a State Government, a local authority' by the Finance Act, 1974, w.r.e.f. 1-4-1962. ---------------------------------------------------------------------- 1.86 1[* * *] 2[(10AA)(i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement 3[whether] on superannuation or otherwise; (ii) any payment of the nature refer-red to in sub-clause (i) received by .an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement 4

[whether] on superannuation or otherwise as does not exceed 5[eight]

received under sub-section (3) of section 8ODDA];]

(11)any payment from a provident fund to which the Provident Funds Act, 1925 5 (19 of 1925), applies 6[or from any other provident fund set up by the Central Government and notified7 by it in this behalf in the Official Gazette];

(12)the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule;

8[(13) any payment from an approved superannuation fund made- (i) on the death of a beneficiary; or (ii) to any 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; or (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;] 9[(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by ----------------------------------------------------------------- 2 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 3 Inserted by the Finance (No. 2) Act, 1991 w.r.e.f. 1-4-1962. 4 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 6 Inserted by the Finance Act, 1968, w.e.f. 1-4-1969. 7 Public Provident Fund, Scheme, 1968 has been notified under this clause: 8 Substituted by the Finance Act, 1965, w.r.e.f. 1-4-1962. 9 Inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-

---------------------------------------------------------------------- 1.91 whatever name called) in respect of residential accommodation occupied by the assessee, to such extent 1[* * *] as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.] 2[Explanation.-For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where- (a) the residential accommodation occupied by the assessee is owned by him; or (b) the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him;]

3[(14)(i) 4 any such special allowance or benefit, not being in

the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively ---------------------------------------------------------------------- 1 The words '(not exceeding four hundred rupees per month)' omitted by the Finance Act, 1986, w.e.f. 1-4-1987. Earlier, 'four' was substituted for 'three' by the Finance Act, 1975, w.e.f. 1-4-1975. 2 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1976. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, clause (14), as amended by the Finance Act, 1975, w.r.e.f. 1-4-1962, read as under:

"(14) any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning

of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose. Explanation.-For the removal of doubts, it is hereby declared that any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides shall not be regarded, for the purposes of this clause, as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties." ---------------------------------------------------------------------- 1.92 incurred in the performance of the duties of an office or employment of profit, 1[as may be prescribed], to the extent to which such expenses are actually incurred for that purpose; (ii)any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, 3[as may be prescribed and to the extent as may be prescribed:] 4[Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence;] 5[(14A) any income received by a public financial institution as exchange risk premium from any person borrowing foreign currency from such institution, provided the amount of such premium is credited by such institution to a fund specified under clause (23E). Explanation.-For the purposes of this clause,- (i) the expression "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 6 (1 of 1956); (ii) the expression "exchange risk premium" means a premium paid by a person borrowing foreign currency from a public financial institution to cover the risk which may be borne by such institution on account of fluctuations in exchange rate of foreign currencies borrowed by such institution;]

(15) 7[(i) income by way of interest, premium on redemption or other --------------------------------------------------------------------- 1 Substituted for 'as the Central Government may, by notification in the Official Gazette, specify' by the Finance Act, 1995, w.e.f. 1-7-199.5. 3 Substituted for "as the Central Government may, by notification in the Official Gazette, specify, to the extent specified in the notification" by the Finance Act, 1995, w.e.f. 1-7-1995. 4 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989 w.r.e.f. 1-4-1989. 5 Inserted by the, Finance Act, 1989, w.e.f. 1-4-1989. 7 Substituted for sub-clauses (i), (ia), (ib), (ii) and (iia) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, sub-clause (ia), as inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965; sub-clause (ib), as inserted by the Special Bearer Bonds (Immunities & Exemptions) Act, 1981, w.e.f. 12-1-1981; sub-clause (ii), as amended by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965, the Finance Act, 1979, w.e.f. 1-4-1980 and the Finance Act, 1987, w.r.e.f. 1-4-1983; and sub-clause (iia), as inserted by the Finance Act, 1968, w.e.f. 1-4-1969, read as under: "(i) monthly payment on the 15-Year Annuity Certificates issued by or under the authority of the Central Government or such other annuity certificates issued by or under the authority of that Government as that Government may, by notification in the Official Gazette, specify in this behalf, to the extent to which the amounts of the certificates do not exceed in each case the ---------------------------------------------------------------------- 1.93 payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification' in the Official Gazette, specify in this behalf, subject to such conditions and limits as may be specified in the said notification;] 2 [(iib ) 3 (in the case of an individual or a Hindu undivided family,] interest on such Capital Investment Bonds4 as the Central Government may, by notification in the Official Gazette, specify in this behalf;] 5[(iic) in the case of an individual or a Hindu undivided family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify6 in this behalf;] 7[(iid) interest on such bonds, as the Central Government may, by notifications in the Official Gazette, specify, arising to- (a) a non-resident Indian, being an individual owning the bonds, or (b) any individual owning the bonds by virtue of being a nominee or survivor of the non-resident Indian; or ---------------------------------------------------------------------- -> -> maximum amount which is permitted to be invested therein; (ia) annual payment on National Defence Gold Bonds, 1980; (ib) premium on the redemption of Special Bearer Bonds, 1991; (ii) interest on Treasury Savings- Deposit Certificates, Post Office Cash Certificates, Post Office National Savings Certificates, National Plan Certificates, Twelve-Year National Plan Savings Certificates and such other certificates, issued by the Central. Government as that Government may, by notification in the Official Gazette, specify in this behalf, interest on deposits in Post Office Savings Bank and bonus in respect of deposits under the Post Office Cumulative Time Deposits Rules, 1981, to the extent to which the amounts of such certificates or deposits do not exceed in each case the maximum amount which is permitted to be invested or deposited therein: Provided that where in the case of an assessee the interest on deposits in a Public Account of the nature referred to in

item (6) in the Table below rule 4 of the Post Office Savings Account Rules, 1981, exceeds two thousand two hundred and fifty rupees, the amount of interest on such deposits that shall not be included in the total income of the assessee under this sub-clause shall be two thousand two hundred and fifty rupees; (iia) interest on fixed deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette, to the extent to which the amounts of such deposits do not exceed, in each case, the maximum amount which is permitted to be deposited therein." 2 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 5 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 6 The 9 Relief Bonds 1987, notified by notification dated 17-11- 1987, shall be deemed to have been notified for the purposes of this sub-clause: 7 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 8 The NRI Bonds, 1988 and NRI Bonds (Second Series) have been notified. ---------------------------------------------------------------------- 1.94 (c) any individual to whom the bonds have been gifted by the nonresident Indian: Provided that the aforesaid bonds are purchased by a non- resident Indian in foreign exchange and the interest and principal received in respect of such bonds, whether on their maturity or otherwise, is not allowable to be taken out of India: Provided further that where an individual, who is a non- resident Indian in any previous year in which the bonds are acquired, becomes a resident in India in any subsequent year, the provisions of this subclause shall continue to apply in relation to such individual: Provided also that in a case where the bonds are uncashed in a previous year prior to their maturity by an individual who is so entitled, the provisions of this sub-clause shall not apply to such individual in relation to the assessment year relevant to such previous year. Explanation.-For the purposes of this sub-clause, the expression "non-resident Indian" shall have the meaning assigned to it in clause (e) of section 115C;] (iii) interest on securities held by the Issue Department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949; 1[(iiia) interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India, with any scheduled bank. Explanation.-For the purposes of this sub-clause, "scheduled bank" shall have the meaning assigned to it in 2[clause (ii) of the

Explanation to clause (viia) of sub-section (1) of section 36];] (iv) interest payable- (a) by Government or a local authority on moneys borrowed by it from 3[, or debts owed by it to,] sources outside India; (b) by an industrial undertaking in India on moneys borrowed by it under a loan agreement entered into with any such financial institution in a foreign country as may be approved4 in this behalf by the Central Government by general or special order; (c) 5by an industrial undertaking in India on any moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of raw materials 6[or components] or capital plant and machinery, 7[to the extent to which such ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. 2 Substituted for the Explanation to clause (iii) of sub-section

(5) of section 11" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 6 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 7 Substituted for 'in any case where the loan or debt is approved by the Central Government, having regard to its terms generally and in particular to the terms of its repayment' by the Finance Act, 1964, w.e.f. 1-4-1964. ----------------------------------------------------------------------- 1.95 interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or debt and its repayment]. 1[Explanation.-For the purposes of this item, "purchase of capital plant and machinery" includes the purchase of such capital plant and machinery under a hire-purchase agreement or a lease agreement with an option to purchase such plant and machinery;] 2[(d) by the Industrial Finance Corporation of India established by the Industrial Finance Corporation Act, 1948 (15 of 1948), or the industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), 3[or the Export-Import Bank of India established under the Export-Import Bank of India Act, 1981 (28 of 1981),] 4[or the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987),] 5[or the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of India Act, 1989 [(39 of 1989),] or the Industrial Credit and Investment Corporation of India [a company formed and registered under the Indian Companies Act, 1913 (7 of 1913)], on any moneys borrowed by it from sources outside India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;] 6[(e) by any other financial institution established in India or a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act), on any moneys borrowed by it from sources outside India under a loan agreement approved by the Central Government where the moneys are borrowed either for the purpose of advancing loans to industrial undertakings in India for purchase outside India of raw materials or capital plant and machinery or for the purpose of importing any goods which the Central Government may consider necessary to import in the public interest, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;] 7[(f) by an industrial undertaking in India on any moneys borrowed ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 2 Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-

3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1992. 6 Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-

7 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976. ---------------------------------------------------------------------- 1.96 by it in foreign currency from sources outside India under a loan agreement approved by the Central Government having regard to the need for industrial development in India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment; 1[(fa) by a scheduled bank 2[to a non-resident or to a person who is not ordinarily resident within the

meaning of sub-section (6) of section 61, on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India. Explanation.-For the purposes of this item, the expression "scheduled bank" shall have the meaning assigned to it in clause (ii) of the Explanation to

clause (viia) of subsection (1) of section 36;] 3[(g) by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, being a company approved by the Central Government for the

purposes of clause (viii) of sub-section (1) of section 36 on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment.] Explanation.-For the purposes of 4 [items (f) 5[(fa)] and (g)], the expression "foreign currency" shall have the meaning assigned to it in the Foreign Exchange Regulation Act, 19736 (46 of 1973);] 7[(h) by any public sector company in respect of such bonds or debentures and subject to such conditions, including the condition that the holder of such bonds or debentures registers his name and the holding with that company, as the Central Government may, by notification in the Official Gazette, specify" in this behalf;] 9[(i) by Government on deposits made by an employee of the Central --------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991. 2 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Substituted for this item" by the Finance Act, 1983, w.e.f. 1-4-

5 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 7 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 9 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. ---------------------------------------------------------------------- 1.97 Government or a State Government, 1 2 [or a public sector company3] in accordance with such scheme as the Central Government may, by notification in the Official Gazette, frame in this behalf, out of the moneys due to him on account of his retirement, whether on superannuation or otherwise.] 4 [Explanation.-For the purposes of this sub-clause, the expression "industrial undertaking" means any undertaking which is engaged in- (a) the manufacture or processing of goods; or (b) the business of generation or distribution of electricity or any other form of power; or (c) mining; or (d) the construction of ships; or (e) the operation of ships or aircrafts;] 5[(v) interest on- (a) securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal, in the Reserve Bank's SGL Account No. SLIDHO48; (b) deposits for the benefit of the victims of the Bhopal gas leak disaster held in such account, with the Reserve Bank of India or with a public sector bank, as the Central Government may, by notification in the Official Gazette, specify, whether prospectively or retrospectively but in no case earlier than the 1st day of April, 1994 in this behalf Explanation.-For the purposes of this sub-clause, the expression "public sector bank" shall have the meaning assigned to it in the Explanation to clause (23D);] ---------------------------------------------------------------------- 2 Inserted by the Finance Act, 1990 w.e.f. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 5 Substituted by the Finance Act, 1995, w.e.f. 1-4-199.5. Prior to the substitution, subclause (v), as inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989, read as under: "(v) interest on securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal, in Reserve Bank's SGL Account No. SL/DHO48." Earlier, the italicised words were substituted for "Registrar, Supreme Court" by the Finance Act, 1993, w.r.e.f. 2-11-1992. ---------------------------------------------------------------------- 1.98

3. Under section 10(15)(ii) read with proviso (c) to section 13 of the Post Office Savings Certificates Rules, 1960, in the event of death of a joint holder of the certificates, the surviving joint holder would continue to get exemption from tax on the interest received upto the maximum amount permitted to be held in the case of joint holdings. 1[(15A) any payment made, by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft on lease from the Government of a foreign State or a foreign enterprise under an agreement approved by the Central Government in this behalf. Explanation.-For the purposes of this clause, "foreign enterprise" means a person who is a non-resident.] The following clause (15A) is being substituted for the above clause by the Finance Act, 1995, w.e.f. 1-4-1996: "(15A) any payment made, by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft or an aircraft engine (other than a payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease from the Government of a foreign State or a foreign enterprise under an agreement approved by the Central Government in this behalf. Explanation.-For the purposes of this clause, the expression "foreign enterprise" means a person who is a non-resident;"

2(16) scholarships granted to meet the cost of education;

3[(17) 4any income by way of- (i) daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof; 5[* * *1 6[(ii) any allowance received by any person by reason of his ---------------------------------------------------------------------- 1 Inserted by the Income-tax (Amendment) Act, 1989, w.e.f. 24-1-

3 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1986. Prior to the substitution,

clause (17), as amended by the Finance Act, 1976, w.e.f. 1-4-1976, read as under:

"(17) any daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof or any allowance received by a member of either House of Parliament under the Members of Parliament (Additional Facilities) Rules, 1975;" 5 The word "and" omitted by the Finance Act, 1987, w.r.e.f. 1-4-

6 Substituted by the Finance Act, 1987, w.r.e.f. 1-4-1986. Prior to the substitution, subclause (ii), as substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4- 1986, read as under: "(ii) all other allowances not exceeding rupees twelve hundred and fifty per month in the aggregate received by any person by reason of his membership of Parliament or of any Committee thereof, or all other allowances not exceeding rupees six hundred per month in the aggregate received by any person by reason of his membership of any State Legislature or any committee thereof which the Central Government may, by notification in the Official Gazette, specify in this behalf;' ---------------------------------------------------------------------- 1.99 membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986; (iii) all other allowances not exceeding six hundred rupees per month in the aggregate received by any person by reason of his membership of any State Legislature or of any Committee thereof, which the Central Government may, by notification in the Official Gazette, specify in this behalf;]] 1[(17A) 2any payment made, whether in cash or in kind,- (i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body. and approved by the Central Government in this behalf; or (ii) as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest;] 3[(18A) any ex gratia payments made by the Central Government consequent on the abolition of privy purse;]

4[(19) * * *] 5[(19A) the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States (Taxation Concessions) Order, 1949, or the Part B States (Taxation Concessions) Order, 1950, or, as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958: ----------------------------------------------------------------------

1 Substituted for clauses (17A), (17B) and (18) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, these clauses [clause (17A), as inserted by Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-1973 and amended by the Finance Act, 1980, w.e.f. 1-4-1980 and clause (17B), as inserted by the Direct Taxes Amendment Act, 1974, w.r.e.f. 1-4-1973] read as under: "(17A) any payment made, whether in cash or in kind, in pursuance of awards for literary, scientific or artistic work or attainment or for service for alleviating the distress of the poor, the weak and the ailing, or for proficiency in sports and games, instituted by the Central Government or by any State Government or approved by the Central Government in this behalf: Provided that the approval granted by the Central Government shall have effect for such assessment year or years (including an assessment year or years commencing before the date on which such approval is granted) as may be specified in the order granting the approval; (17B) any payment made, whether in cash or in kind, as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest;

(18) any payment made, whether in cash or in kind, by the Central Government or any State Government in pursuance of gallantry awards instituted or approved by the Central Government. 3 Inserted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.e.f. 9-9-1972. 4 Omitted, ibid, w.e.f. 2-4-1973. 5 Inserted, ibid, w.r.e.f. 28-12-1971. -------------------------------------------------------------------- 1.100 Provided that for the assessment year commencing on the 1st day of April, 1972, the annual value of every such palace in the occupation of such Ruler during the relevant previous year shall be

exempt from income-tax;] 1(20) the income of a local authority which is chargeable under the head 2[* * *] "Income from house property", "Capital gains", or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service 3[(not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]; 4[(20A) any income of an authority' constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both;]

6[ (21) 7 any income of a scientific research association for the

time being approved for the purpose of clause (ii) of sub-section (1) of section 35: Provided that the scientific research association- (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is

established, and the provisions of sub-section (2) and sub-

section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely:- ---------------------------------------------------------------------- 2 The words "Interest on securities," omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 Substituted for "within its own jurisdictional area" by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 4 Inserted by the Finance Act, 1970, w.r.e.f. 1-4-1962. 6 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f.

1-4-1990. Prior to the substitution, clause (21), as amended by the Finance Act, 1983, w.e.f. 1-4-1984 and the Direct Tax Laws (Amendment) Act, 1987 and the Direct Tax Laws (Amendment) Act, 1989, both with effect from 1-4-1989, read as under:

"(21) any income of a scientific research association for the

time being approved for the purpose of clause (ii) of sub-section (1) of section 35 which is applied solely to the purposes of that association: Provided that nothing contained in this clause shall apply if for any period during the previous year- (i) any sums by way of contributions received by the association are invested or deposited after the 28th day of February, 1983, otherwise than in any one or more of the

forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the association invested or deposited before the 1st day of March, 1983, otherwise than in any one

or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii)any shares in a company [not being a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) or a corporation established by or under a Central, State or Provincial Act] are held by the association after the 30th day of November, 1983;" ---------------------------------------------------------------------- 1.101

(i) in sub-section (2),-

(1) the words, brackets, letters and figure "referred

to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section" shall be omitted;

(2) for the words "to charitable or religious purposes", the words "for the purposes of scientific research" shall be substituted;

(3) the reference to "Assessing Officer" in clause (a) thereof shall be construed as a reference to the "prescribed authority" referred to in clause (ii) of

sub-section (1) of section 35;

(ii) in sub-section (3), in clause (a), for the words "charitable or religious purposes", the words "the purposes of scientific research" shall be substituted; and 1[(b) does not invest or deposit its funds, other than- (i) any assets held by the scientific research association where such assets form part of the corpus of the fund of the association as on the 1st day of June, 1973; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the scientific research association before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i), by way of bonus shares allotted to the scientific research association; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during-the previous year otherwise than in any one or more of the forms or modes specified in sub-section

(5) of section 11:] 2[Provided further that the exemption under this clause shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the first proviso to this clause, subject to the condition that such voluntary contribution is not held by the scientific research association, otherwise than in any one or more of

the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later: --------------------------------------------------------------------- 1 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990. Prior

to the substitution, clause (b), substituted as a part of clause (21) by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990, read as under: "(b) does not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify) for any period during the previous year otherwise than in any one

or more of the forms or modes specified in sub-section (5) of section 11:" 2 Substituted for "Provided further" by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. ---------------------------------------------------------------------- 1.102 Provided also] that nothing contained in this clause shall apply in relation to any income of the scientific research association, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of accounts are maintained by it in respect of such business;]

(22)'any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit; 2[(22A) 3any income of a hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit;] 4[ (22B) any income of such news agency set up in India solely for collection and distribution of news as the Central Government may, by notification in the Official Gazette, specify5 in this behalf: Provided that the news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members: Provided further that any notification issued by the Central Government under this clause shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification;]

6[(23) 'any income of an association or institution established in India --------------------------------------------------------------------- 2 Inserted by the Finance Act, 1970, w.e.f. 1-14-1970. 4 Inserted by the Finance Act, 1994, w.e.f. 1-4-1994. 5 The Press Trust of India Ltd., New Delhi (Notification No. 9638, dated 10-11-1994) and United News India (Notification No. 9724, dated 21-3-1995) have been specified for the assessment years 1994-95 to 1996-97. 6 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f.

1-4-1990. Prior to the substitution, clause (23), as amended by the Direct Tax Laws (Amendment) Act, 1987 and Direct Tax Laws (Amendment) Act, 1989, both w.e.f. 1-4-1989, read as under:

"(23) any income of an association or institution established in India having as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, specify in this behalf from time to time by notification in the Official Gazette: --------------------------------------------------------------------- 1.103 which may be notified' by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports2 as the Central Government may, by notification in the Official Gazette, specify in this behalf: Provided that the association or institution shall make an application in the prescribed form3 and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under this clause: Provided further that the Central Government may, before notifying the association or institution under this clause call for such documents (including audited annual accounts) or information from the association, or institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the association or institution and that Government may also make such inquiries as it may deem necessary in this behalf: Provided also that the association or institution,- (a) applies its income or accumulates it for application, wholly and exclusively to the objects for which it is

established and the provisions of sub-section (2) and sub-

section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely:-

(i) in sub-section (2),-

(1) the words, brackets, letters and figure "referred

to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section" shall be omitted;

(2) for the words "to charitable or religious purposes", the words "for the purposes of games or sports" shall be substituted;

(3) the reference to "Assessing Officer" in clause (a) thereof shall be construed as a reference to the "prescribed authority" referred to in the first proviso to this clause; ---------------------------------------------------------------------- Provided that- (i) the association or institution applies its income, or accumulates it for application, solely to the objects for which it is established; (ii) no part of the income of the association or institution is distributed in any manner to its members except as grants to any association or institution affiliated to it; and (iii) the association or institution is, for the time being, approved for the purpose of this clause by the Central Government by general or special order;" ----------------------------------------------------------------------- 1.104

(ii) in sub-section (3) in clause (a) for the words "charitable or religious purposes", the words "the purposes of games or sports" shall be substituted; and 1[(b) does not invest or deposit its funds, other than- (i) any assets held by the association or institution where such assets form part of the corpus of the fund of the association or institution as on the 1st day of June, 1973; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the association or institution before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i), by way of bonus shares allotted to the association or institution; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section

(5) of section 11; and;] (c) does not distribute any part of its income in any manner to its members except as grants to any association or institution affiliated to it: Provided also that the exemption under this clause shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989 otherwise than in any one or more of the forms or

modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 2[1993]: 3[provided also that the exemption under this clause shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this clause, subject to the condition that such voluntary contribution is not held by the association or institution, otherwise than in any one or more of the

forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:] Provided also that nothing contained in this clause shall apply in relation to any income of the association or institution, being profits and ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990. Prior

to the substitution, clause (b), substituted as a part of clause (23) by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990, read as under: "(b) does not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify) for any period during the previous year otherwise than in any one

or more of the forms or modes specified in sub-section (5) of section 11; and" 2 Substituted for "1992" by the Finance Act, 1992, w.e.f. 1-4-1992, which was earlier substituted for "1990" by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. 3 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. --------------------------------------------------------------------- 1.105 gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business: Provided also that any notification issued by the Central Government under this clause in relation to any association or institution shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification;] 1[(23A) 2 any income (other than income chargeable under the head * *] "Income from house property" or any income received for rendering any specific services or income by way of interest or dividends derived from its investments) of an association or institution established in India having as its object the control, supervision, regulation or encouragement of the profession of law, 4 medicine, accountancy, engineering or architecture or such other profession' as the Central Government may specify in this behalf, from time to time, by notification in the Official Gazette: Provided that- (i) the association or institution applies its income, or accumulates it for application, solely to the objects for which it is established; and (ii) the association or institution is for the time being approved6 for the purpose of this clause by the Central Government by general or special order;] 7[(23AA) any income received by any person on behalf of any Regimental Fund or Non-public Fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependents;] --------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962. 3 The words "Interest on securities" omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 7 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1962. ----------------------------------------------------------------------- 1.106 1[(23AAA) any income received by any person on behalf of a fund established, for such Purposes as may be notified by the Board in the Official Gazette, for the welfare of employees or their dependants and of which fund such employees are members if such fund fulfills the following conditions, namely:- (a) the fund- (i) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established,- and (ii) invests its funds and contributions and other sums received by it in the forms or modes specified in sub-

section (5) of section 11; (b) the fund is approved by the Commissioner in accordance with the rules made in this behalf- Provided that any such approval shall at any one time have effect for such assessment year or years not exceeding three assessment years as may be specified in the order of approval;] 2[(23B) any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India, and existing solely for the development of khadi or village industries or both, and not for purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries: Provided that- (i) the institution applies its income, or accumulates it for application, solely for the development of khadi or village industries or both; and (ii) the institution is, for the time being, approved for the purpose of this clause by the Khadi and Village Industries Commission: Provided further that the Commission shall not, at any one time, grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted. Explanation.-For the purposes of this clause,- (i) "Khadi and Village Industries Commission" means the Khadi and Village Industries Commission established under the Khadi and Village Industries Commission Act, 1956 (61 of 1956); (ii) "Khadi" and "village industries" have the meanings respectively assigned to them in that Act;] 3[(23BB) any income of an authority (whether known as the Khadi and Village Industries Board or by any other name) established in a State by or under a State or Provincial Act for the development of khadi or village industries in the State. Explanation.-For the purposes of this clause, "khadi" and "village industries" have the meanings respectively assigned to them in the Khadi and Village Industries Commission Act, 1956 (61 of 1956);] --------------------------------------------------------------------- 1 Being inserted by the Finance Act, 1995, w.e.f 1-4-1996. 2 Inserted by the Finance Act, 1974, w.e.f. 1-6-1974. 3 Inserted by the Finance Act, 1979, w.r.e.f. 1-4-1962. ----------------------------------------------------------------------- 1.107 1[(23BBA) any income of any body or authority (whether or not a body corporate or corporation sole) established, constituted or appointed by or under any Central, State or Provincial Act which provides for the administration of any one or more of the following, that is to say, public, religious or charitable trusts or endowments (including maths, temples, gurdwaras, wakfs, churches, synagogues, agiaries or other places of public religious worship) or societies for religious or charitable purposes registered as such under the Societies Registration Act, 1860 (21 of 1860), or any other law for the time being in force: Provided that nothing in this clause shall be construed to exempt from tax the income of any trust, endowment or society referred to therein;] 2[(23BBB) any income of the European Economic Community derived in India by way of interest, dividends or capital gains from investments made out of its funds under such scheme as the Central Government may, by notification in the Official Gazette, specify3 in this behalf. Explanation.-For the purposes of this clause, "European Economic Community" means the European Economic Community established by the Treaty of Rome of 25th March, 1957;] 4[(23C) 5any income received by any person on behalf of- (i) the Prime Minister's National Relief Fund; or (ii) the Prime Minister's Fund (Promotion of Folk Art); or (iii) the Prime Minister's Aid to Students Fund; 6[or] 7[(iiia) the National Foundation for Communal Harmony; or] 8[(iv) any other fund or institution established for charitable purposes ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1979, w.r.e.f. 1-4-1962. 2 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. 3 The European Community International Institutional Partners (ECIIP) Scheme, 1993 has been specified vide Notification No. 971 1, dated 23-2-1995. 4 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

6 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier it was omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from the same date. 7 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. 8 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990. Prior to the substitution, sub-clauses (iv) and (v), as amended by the Direct Tax Laws (Amendment) Act, 1987 and Direct Tax Laws (Amendment) Act, 1989, both w.e.f. 1-4-1989, read as under: "(iv) any other fund or institution established for charitable purposes which may be notified by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution, being a trust or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be notified by the Central Government in the Official Gazette, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the purposes thereof: -> -> . ---------------------------------------------------------------------- 1.108 which may be notified' by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be notified2 by the Central Government in the Official Gazette, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof: Provided that the fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) shall make an application in the prescribed form3 and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v): Provided further that the Central Government may, Wore notifying the fund or trust or institution under sub-clause (iv) or sub-clause (v), call for such documents (including audited annual accounts) or information from the fund or trust or institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the fund or trust or institution and that Government may also make such inquiries as it may deem necessary in this behalf: Provided also that the fund or trust or institution referred to in sub-clause (iv) or sub-clause (v)- (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established; and 4[ (b) does not invest or deposit its funds, other than- (i) any assets held by the fund, trust or institution where such assets form part of the corpus of the --------------------------------------------------------------------- Provided that any notification issued by the Central Government under sub-clause (iv) or sub-clause (v) shall have effect for such assessment year or years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification;" 2 For complete list of specified trusts/institutions, refer, ibid. 4 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990. Prior to the substitution, clause (b), substituted as a part of sub-clauses (iv) and (v) by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4- 1990, read as under: "(b) does not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify) for any period during the previous year otherwise than in any one

or more of the forms or modes specified in sub-section (5) of section 11:" ---------------------------------------------------------------------- 1.109 fund, trust or institution as on the 1st day of June, 1973; (ii)any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution before the 1st day of March, 1983; (iii)any accretion to the shares, forming part of the corpus mentioned in sub-clause (i), by way of bonus shares allotted to the fund, trust or institution; (iv)voluntary contributions received and maintained in the form of jewellers, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes

specified in sub-section (5) of section 11:] Provided also that the exemption under sub-clause(iv) or sub-clause (v) shall not be denied in relation to anyfunds invested or deposited before the 1st day of April, 1989, otherwise than in any one or more of the forms ormodes

specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30thday of March, 1[1993]: 2[Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the trust or institution, otherwise than in any one or more of

the forms or modes specified in sub-section (5) of section 1 1, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:] Provided also that nothing contained in sub-clause (iv) or sub-clause (v) shall apply in relation to any income of the fund or trust or institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of accounts are maintained by it in respect of such business: Provided also that any notification issued by the Central Government under sub-clause (iv) or sub-clause (v) shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification;] ---------------------------------------------------------------------- 1 Substituted for "1992" by the Finance Act, 1992, w.e.f. 1-4-1992, which was earlier substituted for "1990" by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. 2 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. ---------------------------------------------------------------------- 1.110 The term 'deemed to have been utilised' in column 11 has been used to cover income of the type mentioned in Explanation 2 to sub-

section (1) and sub-section (1A) of section 11 so that such income may be excluded for determining compliance with the condition regarding application/accumulation of income to the objects of the trusts/institutions. In the amended Form 56 columns 16 and 17 seek information in

respect of transactions contemplated in sub-sections (2) and (3) of section 13. This does not imply that the provisions of sections 11 and 1,3 will be applied. It will enable the prescribed authority to know broadly that the institution/trust is working genuinely towards its objects. 3. The Notifications issued under section 10(23C) should specify the assessment year or years and be valid for that period which is specified therein and for no other period. 1[(23D) any income of- ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1995, w.e.f. 1-7-1995. Prior to the substitution, clause (23D), as inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988 and subsequently amended, read as under: "(23D) any income *[of] such Mutual Fund set up by a public sector bank or a public financial institution [or authorised by the Securities and Exchange Board of India or the Reserve Bank of India] and subject to such conditions [* * *] as the Central Government may, by notification* in the Official Gazette, specify in this behalf." * Substituted for "from" by the Finance Act, 1988, w.e.f. 1- 4-1988. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. The words " including the condition that at least ninety per cent of such income shall be distributed to the holders of its units every year," omitted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. Earlier, the words "such income shall be distributed to the holder of its units" were substituted for "the income from the mutual fund shall be distributed to the unit holders' by the Finance Act, 1988, w.e.f. 1-4-1988. ** The SBI Mutual Fund, LIC Mutual Fund, Indian Magnum Fund, N.V. Mutual Fund of SBI, Indian Bank Mutual Fund, PNB Mutual Fund, BOI Mutual Fund, BOB Mutual Fund, Asian Convertibles and Income Mutual Fund, Mutual Fund of GIC, Canbank (Offshore) Mutual Fund, Canbank Mutual Fund, ICICI Mutual Fund, Indbank Offshore Mutual Fund, Commonwealth Equity Fund Mutual Fund, Kothari Pioneer Mutual Fund, Taurus Mutual Fund, Morgan Stanley Mutual. Fund, Apple Mutual Fund, CRB Mutual Fund, Shriram Mutual Fund, 20th Century Mutual Fund, Birla Mutual Fund, J.M. Mutual Fund and IDBI Mutual Fund have since been notified under this clause, as it stood before the above substitution. 1.111 (i) a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder; (ii) such other Mutual Fund set up by a public sector bank or a public financial institution or authorised by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf.] Explanation.-For the purposes of this clause,- (a) the expression "public sector bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 1 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 2 (40 of 1980); (b) the expression "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 19563 (1 of 1956);] 4[(C) the expression "Securities and Exchange Board of India" shall have the meaning assigned to it in clause (a) of sub-

section (1) of section 2 of the Securities and Exchange Board of India Act, 1992 5 (15 of 1992);.] 6 [(23E) any income of such Exchange Risk Administration Fund set up by public financial institutions, either jointly or separately, as the Central Government may, by notification' in the Official Gazette, specify in this behalf: Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part, with a public financial institution, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall accordingly be chargeable to income-tax. Explanation.-For the purposes of this clause, the expression "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 8 (1 of 1956);] 9[(23F) any income by way of dividends or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking: ----------------------------------------------------------------------- 2 Ibid. 3 Ibid. 4 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 6 Inserted by the Finance Act, 1989, w.e.f. 1-4-1989. 7 The Exchange Risk Administration Fund set up by IDBI, IFCI and ICICI (vide Notification No. SO 872(E), dated 16-11-1990) and by Power Finance Corpn.Ltd. 9 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ------------------------------------------------------------------------ 1.112 Provided that such venture capital fund or venture capital company is approved for the purposes of this clause by the prescribed authority in accordance with the rules made in this behalf and satisfies the prescribed conditions: Provided further that any approval by the prescribed authority shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, as may be specified in the order of approval: Provided also that if the aforesaid equity shares are transferred (other than in the event of the said shares being listed in a recognised stock exchange in India) by a venture capital fund or a venture capital company to any person at any time within a period of three years from the date of their acquisition, the aggregate amount of income by way of dividends on such equity shares which has not been included in the total income of the previous year or years preceding the previous year in which such transfer has taken place shall be deemed to be the income of venture capital fund or of the venture capital company of the previous year in which such transfer has taken place: Provided also that the exemption shall not be allowed in respect of the long-term capital gains, if any, arising on such transfer of equity shares as is mentioned in the third proviso. Explanation.-For the purposes of this clause,- (a) "venture capital fund" means such fund, operating under a trust deed registered under the provisions of the registration Act, 1908 (16 of 1908), established to raise monies by the trustees for investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines; (b) "venture capital company" means such company as has made investments by way of acquiring equity shares of venture capital undertakings in accordance with the prescribed guidelines; and (c) "venture capital undertaking" means such domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the manufacture or production of such articles or things (including computer software) as may be notified by the Central Government in this behalf:]

(24) any income chargeable under the heads "Income from house property" and "Income from other sources" of a registered union within the meaning of the Indian Trade Unions Act, 1926 (16 of 1926), formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen;

(25) (i) interest on securities which are held by, or are the property of, any provident fund to which the Provident Funds Act, 1925 2 (19 of 1925), applies, and any capital gains of the fund arising from the sale, exchange or transfer of such securities; (ii) any income received by the trustees on behalf of a recognised provident fund; ---------------------------------------------------------------------- 1 The words "Interest on securities," omitted by the Finance Act, 1988, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.113 (iii)any income received by the trustees on behalf of an approved superannuation fund; 1[(iv) any income received by the trustees on behalf on an approved gratuity fund;] 2[(v) any income received- (a) by the Board of Trustees constituted under the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 3 (46 of 1948), on behalf of the Deposit- linked Insurance Fund established under section 3G of that Act; or (b) by the Board of Trustees constituted under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 4 (19 of 1952), on behalf of the Deposit- linked Insurance Fund established under section 6C of that Act;] 5[(25A) any income of the Employees' State Insurance Fund set up under the provisions of the Employees' State Insurance Act, 7948 (34 of 1948);]

6[(26) in the case of a member of a Scheduled Tribe as defined in

clause (25) of article 366 7 of the Constitution, residing in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the 7[States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura] or in the areas covered by Notification No. TAD/R/35/50/109, dated the 23rd February, 1951, issued by the Governor of Assam under the proviso to

sub-paragraph (3) of the said paragraph 20 [as it stood immediately before the commencement of the North-Eastern Areas (Reorganisation) Act, 1971 (18 of 1971)], any income which accrues or arises to him,- (a) from any source in the areas 9[or States] aforesaid, or (b) by way of dividend or interest on securities;] 10[(26A) "any income accruing or arising to any person 12[* * *] from any source in the district of Ladakh or outside India in any previous year ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 2 Inserted by the Labour Provident Fund Laws (Amendment) Act, 1976, w.e.f. 1-8-1976. 4 Ibid. 5 Inserted by the Finance Act, 1995, w.r.e.f. 1-4-1962. 6 Substituted by the North-Eastern Areas (Reorganisation) (Adaptation of Laws on Union Subjects) Order, 1974, w.r.e.f. 21-1- 1972. Earlier, it was amended by the State of Nagaland (Adaptation of Laws on Union Subjects) Order, 1965, w.r.e.f. 1-12-1963 and the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962.

7 Article 366(25) of the Constitution defines "Scheduled Tribes" as under:

"(25) 'Scheduled Tribes' means such tribes or tribal communities or parts of or groups within such tribes or tribal communities as are deemed under article 342 to be Scheduled Tribes for the purposes of this Constitution;" 8 Substituted for "States of Nagaland, Manipur and Tripura or in the Union territories of Arunachal Pradesh and Mizoram" by the Finance Act, 1994, w.e.f. 1-4-1995. 9 Substituted for ", States or Union territories" by the Finance Act, 1994, w.e.f. 1-4-1995. 10 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-

12 The words "(not being an individual who is in the service of Government)" omitted by the Finance (No. 2) Act, 1971, w.r.e.f. 1-4-

---------------------------------------------------------------------- 1.114 relevant to any assessment year commencing before the 1st day of April, 1[1989], where such person is resident in the said district in that previous year: Provided that this clause shall not apply in the case of any such person unless he was resident in that district in the previous year relevant to the assessment year commencing on the 1st day of April,

Explanation.-2[1].-For the purposes of this clause a person shall be deemed to be resident in the district of Ladakh if he fulfils the

requirements of sub-section (1) or sub-section (2) or sub-section (3)

or sub-section (4) of section 6, as the case may be, subject to the modifications that- (i) references in those sub-sections to India shall be construed as references to the said district; and

(ii) in clause (i) of sub-section (3), reference to Indian company shall be construed as reference to a company formed and registered under any law for the time being in force in the State of Jammu and Kashmir and having its registered office in that district in that year.] 3[Explanation 2.-In this clause, references to the district of Ladakh shall be construed as references to the areas comprised in the said district on the 30th day of June, 1979;] 4[(26AA) any income of a person by way of winnings from any lottery, the draw of which is held in pursuance of any agreement entered into on or before the 28th day of February, 1989, between the State Government of Sikkim and the organising agents of such lottery, where such person is resident in the State of Sikkim in any previous year. Explanation.-For the purposes of this clause, a person shall be deemed to be resident in the State of Sikkim if he fulfils the

requirements of clause (1) or clause (2) or clause (3) or clause (4) of section 6, as the case may be, subject to the modifications that- (i) references in those clauses to India shall be construed as references to the State of Sikkim; and

(ii) in sub-clause (i) of clause (3), reference to Indian company shall be construed as reference to a company formed and registered under any law for the time being in force in the State of Sikkim and having its registered office in that State in that year;] 5[(26B) any income of a corporation established by a Central, State or Provincial Act, or of any other body, institution or association (being a --------------------------------------------------------------------- 1 Substituted for "1986" by the Finance Act, 1985, w.e.f. 1-4-1985. Earlier, "1986" was substituted for "1983" by the Finance Act, 1983, w.e.f. 1-4-1983; "1983" for "1980" by the Finance Act, 1980, w.e.f. 4- 4-1980; "1980" for "1975" by the Finance (No. 2) Act, 1977, w.r.e.f. 1-4-1975 and "1975" for "1970" by the Finance (No. 2) Act, 1971, w.r.e. 1-4-1970. 2 Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1980. 3 ibid. 4 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. 5 Inserted by the Finance Act, 1980, w.r.e.f. 1-4-1972. -------------------------------------------------------------------- 1.115 body, institution or association wholly financed by Government) where such corporation or other body or institution or association has been established or formed for promoting the interests of the members of 1[the Scheduled Castes or the Scheduled Tribes or backward classes or of any two or all of them]. 2[Explanation.-For the purposes of this clause,- (a) "Scheduled Castes" and "Scheduled Tribes" shall have

the meanings respectively assigned to them in clauses (24)

and (25) of article 366 of the Constitution3 ; (b) "backward classes" means such classes of citizens, other than the Scheduled Castes and the Scheduled Tribes, as may be notified- (i) by the Central Government; or (ii) by any State Government, as the case may be, from time to time;]] 4[(26BB) any income of a corporation established by the Central Government or any State Government for promoting the interests of the members of a minority community. Explanation.-For the purposes of' this clause, "minority community" means a community notified as such by the Central Government in the Official Gazette in this behalf,]

5[(27) any income of a co-operative society formed for promoting the interests of the members of either the Scheduled Castes or Scheduled Tribes or both referred to in clause (26B): Provided that the membership of the co-operative society consists of only other co-operative societies formed for similar purposes and the finances of the society are provided by the Government and such other societies;]

6[(28) any amount adjusted or paid in respect of a tax credit certificate under the provisions of Chapter XXIIB and any scheme made thereunder;]

7 [(29) in the case of an authority constituted tinder any law for the time being in force for the marketing of commodities, any income derived from the letting of go downs or warehouses for storage, processing or facilitating the marketing of commodities;] --------------------------------------------------------------------- 1 Substituted for "either the Scheduled Castes or the Scheduled Tribes or of both" by the Finance Act, 1994, w.r.e.f. 1-4-1993. 2 Substituted by the Finance Act, 1994 w.r.e.f. 1-4-1993. Prior to the substitution, the Explanation, as originally enacted, read as under: "Explanation. For the purposes of this clause, "Scheduled Castes" and "Scheduled Tribes" shall have the meanings respectively

assigned to them in clauses (24) and (25) of Article 366 of the Constitution". 4 Inserted by the Finance Act, 1995, w.e.f. 1-4-1995. 5 Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1989. Earlier,

clause (27) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964; amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967 and omitted by the Finance Act, 1975, w.e.f. 1-4-1976. 6 Substituted by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965. It was inserted by the Finance Act, 1965, w.e.f. 1-4-1965. Chapter YXII-B has been omitted by the Finance Act, 1990, w.e.f. 1-4-1990. This clause too needs to be omitted. 7 Inserted by the Finance (No. 2) Act, 1967, w.e.f 1-4-1968. ---------------------------------------------------------------------- 1.116 1[(30 ) 2 in the case of an assessee who carries on the business of growing and manufacturing tea in India, the amount of any subsidy received from or through the Tea Board under any such scheme3 for replantation or replacement of tea bushes 4 [or for rejuvenation or consolidation of areas used for cultivation of tea] as the Central Government may, by notification in the Official Gazette, specify: Provided that the assessee furnishes to the 5[Assessing] Officer, along with his return of income for the assessment year concerned or within such further time as the 6[Assessing] Officer may allow, a certificate from the Tea Board as to the amount of such subsidy paid to the assessee during the previous year. Explanation.-In this clause, "Tea Board" means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953);]

7[ (31) in the case of an assessee who carries on the business of growing and manufacturing rubber, coffee, cardamom or such other commodity in India, as the Central Government may, by notification in the Official Gazette, specify in this behalf, the amount of any subsidy received from or through the concerned Board under any such scheme for replantation or replacement of rubber plants, coffee plants, cardamom plants or plants for the growing of such other commodity or for rejuvenation or consolidation of areas used for cultivation of rubber, coffee, cardamom or such other commodity as the Central Government may, by notification in the Official Gazette, specify: Provided that the assessee furnishes to the Assessing Officer, along with his return of income for the assessment year concerned or within such further time as the Assessing Officer may allow, a certificate from the concerned Board, as to the amount of such subsidy paid to the assessee during the previous year. Explanation.-In this clause, "concerned Board" means,- (i) in relation to rubber, the Rubber Board constituted under section 4 of the Rubber Act, 1947 (24 of 1947), (ii) in relation to coffee, the Coffee Board constituted under section 4 of the Coffee Act, 1942 (7 of 1942), (iii) in relation to cardamom, the Spices Board constituted under section 3 of the Spices Board Act, 1986 (10 of 1986), (iv) in relation to any other commodity specified under this clause, any Board or other authority established under any law for the time being in force which the Central Government may, by notification in the Official Gazette, specify in this behalf.] ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1969. 4 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Ibid. 7 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. --------------------------------------------------------------------- 1.117

1[(32) in the case of an assessee referred to in sub-section (1A) of section 64, any income includable in his total income under that sub-section, to the extent such income does not exceed one thousand five hundred rupees in respect of each minor child whose income is so includable.] 2[10A. Special provision in respect of newly established industrial undertakings in free trade zones 3

(1)Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee.

(2)This section applies to any industrial undertaking which fulfils all the following conditions, namely:- 4[(i) it has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year- (a) commencing on or after the 1st day of April, 1981, in any free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case may be, software technology park;] 5[(ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1995, its exports of such articles or things are not less than seventy-five per cent of the total sales thereof during the previous year;] (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanation 1 and Explanation 2 to

sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that subsection. --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Inserted by the Finance Act, 1981, w.e.f. 1-4-1981. 4 Substituted by the Finance Act, 1993, w.e.f. 1-4-1994. Prior to the substitution, clause (i) read as under: "(i) it has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year commencing on or after the 1st day of April, 1981, in any free trade zone;" 5 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ---------------------------------------------------------------------- 1.118

1[(3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any five consecutive assessment years, falling within a period of eight years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, specified by the assessee at his option: Provided that nothing in this sub-section shall be construed to extend the aforesaid five assessment years to cover any period after the expiry of the said period of eight years.]

(4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,- (i) section 32, section 32A, section 33, section 35 and

clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture used for the purposes of the business of the industrial undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly

sub-section (2) of section 32, clause (ii) of sub-section (3)

of section 32A, clause (ii) of sub-section (2) of section 33,

sub-section (4) of section 35 or the second proviso to clause

(ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to in sub-section (1) of section 72 or

sub-section (1) 2[or sub-section (3)] of section 74 and no

deficiency referred to in sub-section (3) of section 80J, in so far as such, loss or deficiency relates to the business of the industrial undertaking, shall be carried forward or set off where such loss, or, as the case may be, deficiency relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I 3[or section 80-IA] or section 80J in relation to the profits and gains of the industrial undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the industrial under-taking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment years.

(5) Where an industrial undertaking in any free trade zone has begun to manufacture or produce articles or things in any previous year relevant to the assessment year commencing on or after the 1st day of April, 1977, ---------------------------------------------------------------------- 1 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1987. 2 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1991. ---------------------------------------------------------------------- 1.119 but before the 1st day of April, 1981, the assessee may, at his

option, before the expiry of the time allowed tinder sub-section (1)

or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income for the assessment year commencing on the 1st day of April, 1981, furnish to the 4[Assessing] Officer a declaration in writing that the provisions of sub-section

(1) may be made applicable to him for each of the relevant assessment years as reduced by the number of assessment years which expired before the 1st day of April, 1981, and if he does so, then, the

provisions of sub-section (1) shall apply to him for each of such

relevant assessment years and the provisions of sub-section (4) shall also apply in computing the total income of the assessee for the assessment year immediately succeeding the last of the relevant assessment years and any subsequent assessment year.

(6) The provisions of sub-section (8) and sub-section (9) of section 80I shall, so far as may be, apply in relation to the industrial undertaking referred to in this section as they apply for the purposes of the industrial undertaking referred to in section 80- I.

(7) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, 2[before the due date

for furnishing the return of income under sub-section (1) of section 139] 3[* * *], furnishes to the 4 [Assessing] Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.

5[(8) References 7[in sub-section (5)] to any other provision of this Act, which has been amended or omitted by the Direct Tax Laws (Amendment) Act, 1987, shall, notwithstanding such amendment or omission, be construed, for the 8[purposes of that sub-section], as if such amendment or omission had not been made.] Explanation.-For the purposes of this section,- (i) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone" which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "before the expiry of the time allowed under sub-

section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income" by the Finance Act, 1988, w.e.f. 1-4-1989. 3 The words "for the initial assessment year" omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1987. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1988. 5 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 6 Substituted for "in this section" by the Finance Act, 1988, w.e.f. 1-4-1989. 7 Substituted for "purposes of this section", ibid. 8 The Export Processing Zones at Falta in West Bengal; Madras in Tamil Nadu; Cochin in Kerala and Noida in Uttar Pradesh have been specified vide Notification No. SO 872(E), dated 29-9-1987. ----------------------------------------------------------------------- 1.120 1[(ii) "relevant assessment years" means the five consecutive assessment years specified by the assessee at his option

under sub-section (3);]] 2[(iii) "manufacture" includes any- (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device;] 3[(iv) "electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce; (v) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified4 by the Government of India in the Ministry of Commerce; (vi) "produce", in relation to articles or things referred

to in clause (i) of sub-section (2), includes production of computer programmes.] 5[10B. Special provision in respect of newly established hundred per cent export-oriented undertakings'

(1) Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent export-oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the total income of the assessee.

(2) This section applies to any undertaking which fulfils all the following conditions, namely:- (i)it manufactures or produces any article or thing; 7[(ia)in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its exports of such articles and things are not less than seventy-five per cent of the total sales thereof during the previous year;] (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: ---------------------------------------------------------------------- 1 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 w.e.f. 1-4-1987. Prior to the substitution, clause (ii) read as under: "(ii) "relevant assessment years" means the initial assessment year and four assessment years immediately succeeding the initial assessment year;" 2 Inserted by the Finance Act, 1987, w.r.e.f. 1-4-1981. 3 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. 5 Inserted by the Finance Act, 1988, w.e.f. 1 7 Inserted by the Finance Act, 1994, w.e.f: 1-4-1995. ---------------------------------------------------------------------- 1.121 Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re- establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanation 1 and Explanation 2 to

sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section.

(3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any five consecutive assessment years, falling within a period of eight years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, specified by the assessee at his option: Provided that nothing in this sub-section shall be construed to extend the aforesaid five assessment years to cover any period after the expiry of the said period of eight years.

(4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year relevant to any subsequent assessment year,- (i) section 32, section 32A, section 33 and clause (ix) of

sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that

assessment year itself and accordingly sub-section (2) of

section 32, clause (ii) of sub-section (3) of section 32A,

clause (ii) of sub-section (2) of section 33 or the second

proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to in sub-section (1) of section 72 or

sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I 1[or section 80-IA] in relation to the profits and gains of the undertaking; and ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1991. ---------------------------------------------------------------------- 1.122 (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment years.

(5) Where the undertaking has begun to manufacture, or produce articles or things in any previous year relevant to the assessment year commencing before the 1st day of April, 1989, the assessee may, at his option, before the due date for furnishing the return of his

income under sub-section (1) of section 139 for the assessment year commencing on the 1st day of April, 1989, furnish to the Assessing Officer a declaration in writing that the provisions of sub-section

(1) may be made applicable to him for any five consecutive assessment years falling within a period of eight years beginning with the assessment year commencing on the 1st day of April, 1989, and if he

does so, then, the provisions of sub-section (1) shall apply to him for each of such assessment years and the provisions of sub-section

(4) shall also apply in computing the total income of the assessee for the assessment year immediately succeeding the last of such assessment years and any subsequent assessment year.

(6) The provisions of sub-section (8) and sub-section (9) of section 801 shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the industrial undertaking referred to in section 801.

(7) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date

for furnishing the return of his income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. Explanation.-For the purposes of this section,- (i) "hundred per cent export-oriented undertaking" means an under-taking which has been approved as a hundred per cent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act; (ii) "relevant assessment years" means the five consecutive assessment years specified by the assessee at his option

under sub-section (3) or sub-section (5), as the case may be; (iii) "manufacture" includes any- (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device.] 1[(iv) "produce", in relation to any article or thing

referred to in clause (i) of sub-section (2) includes production of computer programmes.] --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1994. ---------------------------------------------------------------------- 1.123

Income from property held for charitable or religious purposes 2. 1[11. Income from property held for charitable or religious purposes 2.

(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- 3[(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty five per cent of the income from such property;] (c) income 4[derived] from property held under trust- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and ---------------------------------------------------------------------- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989 with some modifications. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from the same date. 3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. Earlier, clauses (a) and (b) were amended by the Finance Act, 1970, w.e.f. 1-4-1971. 4 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. ---------------------------------------------------------------------- 1.124 (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; 1[(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.] 2[Explanation.-For the purposes of clauses (a) and (b),-

(1) in computing the twenty-five per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income;

(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount; and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before

the expiry of the time allowed under sub-section (1) 3[* * *] of section 139 4[* * *] for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. The Explanation was also substituted by the Finance Act, 1970, w.e.f. 1-4-1971.

3 The words "or sub-section (2)" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 The words ", whether fixed originally or on extension", omitted, ibid. ---------------------------------------------------------------------- 1.125 the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.)

1[(1A) For the purposes of sub-section (1),- (a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain; (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this sub-section,- (i) "appropriate fraction" means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; (ii) "cost of the transferred asset" means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause

(b) of clause (1) of section 55; (iii) "net consideration" means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.] ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1971, w.r.e.f. 1-4-1962. ---------------------------------------------------------------------- 1.126 1[(1B) Where any income in respect of which an option is

exercised under clause (2) of the Explanation to sub-section (1) is not applied to charitable or religious purposes in India during the period referred to in sub-clause (a) or, as the case may be, sub- clause (b), of the said clause, then such income shall be deemed to be the income of the person in receipt thereof- (a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received, or (b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.]

2[(2) 3[Where seventy-five per cent of the income refer-red to in

clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated, or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-] 4 (a) such person specifies, by notice in writing given to the 5[Assessing] Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; 6[(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section

(5):]] 7 [Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.]

8[(3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or 9[(b) ceases to remain invested or deposited in any of

the forms or modes specified in sub-section (5), or] --------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

2 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. Earlier, it was amended by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 7 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1962. 8 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 9 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. ----------------------------------------------------------------------- 1.127 (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited, or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.]

1[(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the

provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the 2[Assessing] Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the

provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the 3[Assessing] Officer

under clause (a) of sub-section (2).]

(4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the 4[Assessing] Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes 5[* * *].

6[(4A) 7Sub-section (1) or sub-section (2) or sub-section (3) or sub- ----------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Ibid. 4 Ibid. 5 The words "and accordingly chargeable to tax within the meaning

of sub-section (3)" omitted by the Finance Act, 1970, w.e.f. 1-4-1971. 6 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to the substitution, sub-section (4A), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, read as under:

"(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless- (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business." ------------------------------------------------------------------------ 1.128 section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.]

1[(5) The forms and modes of investing or depositing the money

referred to in clause (b) of sub-section (2) shall be the following, namely:- (i) 2investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 3 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co- operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co- operative land development bank). Explanation.-In this clause, "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 19704 (5 of 1970) or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 198 05 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the Central Government or a State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both the principle whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; (vii) investment or deposit in any 6 [public sector company]; (viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long- term finance for industrial development in India and which is approved by the ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Ibid. 5 Ibid. 6 Substituted for "Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ------------------------------------------------------------------------- 1.129 Central Government for the purposes of clause (viii) of sub- section

(1) of section 36; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is approved by the Central Government for the purposes of clause (viii) of sub-section

(1) of section 36; (x) investment in immovable property. Explanation.-"Immovable property" does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] 1[(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] 2[(Xii) 3any other form or mode of investment or deposit as may be prescribed.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w,e.f. 1-4-1989. ---------------------------------------------------------------------- 1.130 capital gains arising from the transaction in acquiring the new capital asset, the amount of capital gains so utilised would be regarded as having been applied to the charitable or religious purposes of the trust.

6. While under section 11 (1)(a) the tax will be levied in the

year to which the income relates, under section 11(3) the income would be chargeable in the year in which the amounts cease to be accumulated for the specific purpose mentioned. Thus when amounts are taxed under

section 11(3) the benefit which would have been available to a trust in respect of 25 per cent of its income or Rs. 10,000 under section

11(1)(a) would also be lost. 7. If a trust desires to accumulate income in excess of the

limits specified in section 11(1) the conditions specified in section

11(2) have to be fulfilled in respect of the entire accumulation and not merely in respect of the accumulation in excess of 25 per cent of the income. 5. The business income of a trust as disclosed by the accounts plus its other income will be the income of the trust for purposes of

section 11(1). The trust must spend at least 75 per cent of this income and not accumulate more than 25 per cent thereof. Excess

accumulation if any will become taxable under section 11(1). 9. Donations received by a charitable trust from the members of the public being capital receipts cannot be regarded as income of the trust. Accordingly donations should be excluded from the income of the trust for the purpose of calculating the accumulations limit of 25

per cent except in cases covered by section 12(2) 10. With a view to expediting the disposal of applications filed by trusts for condoning the delay, the Board had passed a general

order under section 119(2)(b) by which the Commissioners have been

authorised to admit belated applications under section 11(2) read with rule 17.

Income of trusts or institutions from contributions 2. 1[12. Income of trusts or institutions from contributions 2. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.] 3[ 12A. Conditions as to registration of trusts, etc. The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- ---------------------------------------------------------------------- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1969. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 12 was substituted by the Finance Act, 1972, w.e.f. 1-4-19 3 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 12A was originally inserted by the Finance Act, 1972, w.e.f. 1-4-1973. ---------------------------------------------------------------------- 1.131 (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the 2[Chief Commissioner or Commissioner] before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later: 3[Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,- (i) from the date of the creation of the trust or the establishment of the institution if the Chief Commissioner or Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) from the 1st day of the financial year in which the application is made, if the Chief Commissioner or Commissioner is not so satisfied;] 4(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds 5[fifty] thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section

(2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form .duly signed and verified by such accountant and setting forth such particulars as may be prescribed.] -------------------------------------------------------------------- 2 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. Prior to substitution, the proviso, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: 'Provided that the Chief Commissioner or Commissioner may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid;' 5 Substituted for 'twenty-five' by the Finance Act, 1994, w.e.f. 1-4-1995. ---------------------------------------------------------------------- 1.132

Section 11 not to apply in certain cases 2. 1[13. Section 11 not to apply in certain cases 2.

(1) Nothing contained in section 11 3[or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; (b) in the case of a trust -for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste; 4[(bb) * * *] (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person

referred to in sub-section (3): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any

person refer-red to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution: Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of ----------------------------------------------------------------------- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 13 was amended by the Finance Act, 1963, w.r.e.f. 1-4-1962; Finance Act, 1966, w.e.f. 1- 4-1966 and substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 3 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 4 Omitted by the Finance Act, 1983, w.e.f. 1-4-1984. Prior to the omission, clause (bb), as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977, read as under: "(bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution;' ----------------------------------------------------------------------- 1.133 this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any

person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; 1[(d) 2in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes

specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified

in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii)any shares in a company [not being a Government company as defined in section 617 of the Companies Act, 19563 (1 of 1956), or a corporation established by or under a Central,. State or Provincial Act) are held by the trust or institution after the 30th day of November, 1983: Provided that nothing in this clause shall apply in relation to- (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973 4[* * *]; 5[(ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution;] (ii) any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before the 1st day of March, 1983; 6[(iia)any asset, not being an investment or deposit in

any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. The original clause (d) was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977 and was amended by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978 and the Finance Act, 1982, w.e.f. 1-4-1982. 4 The words 'and such assets were not purchased by the trust or institution or acquired by it by conversion of, or in exchange for, any other asset' omitted by the Finance Act, 1992, w.r.e.f. 1-4-1983. 5 Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1983. 6 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1983. --------------------------------------------------------------------- 1.134 otherwise than in any of the forms or modes specified in

sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1[1993), whichever is later;] (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. Explanation.-Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business.] 2 [Explanation.-For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in

sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard shall be had to the amendments made to this section by section 7 (other than sub-clause (ii) of clause (a) thereof) of the Finance Act, 1972.]

(2) Without prejudice to the generality of the provisions of

clause (c) 3[and clause (d)] of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-

section (3),- (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person

referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the

use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to

in sub-section (3)out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made

available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in ----------------------------------------------------------------------- 1 Substituted for "1992" by the Finance Act, 1992, w.e.f. 1-4-1992. 2 2 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. ---------------------------------------------------------------------- 1.135

sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person refer-red

to in sub-section (3) during the previous year for consideration which is less than adequate; 1[(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person

referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;] (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any person referred to

in sub-section (3) has a substantial interest.

(3) The persons referred to in clause (c) of sub-section (1) and

sub-section (2) are the following, namely:- (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, 2[that is to say, any person whose total contribution up to the end of the 'relevant previous year exceeds 3[fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; 4[(CC) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, 5[member, trustee or manager] as aforesaid; (e) any concern in which any of the persons refer-red to in clauses (a), (b), (c) 6[,(cc)] and (d) has a substantial interest.

(4) Notwithstanding anything contained in clause (c) of sub-

section (1) 7[but without prejudice to the provisions contained in clause (d) of that sub-section], in a case where the aggregate of the funds of the trust or institution invested in a concern in which any

person referred to in sub-section (3) has a substantial interest, does not exceed five per cent of the ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 Substituted for 'twenty-five' by the Finance Act, 1994, w.e.f. 1- 4-1995. Earlier, 'twenty five' was substituted for 'five' by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985. 4 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 5 Substituted for 'or member, ibid. 6 Inserted, ibid. 7 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. ----------------------------------------------------------------------- 1.136 capital of that concern, the exemption under section 11 1[or section 12] shall not be denied in relation to any income other than the income arising to the trust or the institution from such investment, by reason only that the 2 [funds] of the trust or the institution have been invested in a concern in which such person has a substantial interest.

3[(5) Notwithstanding anything contained in clause (d) of sub-

section (1), where any assets (being debentures issued by, or on behalf of, any company or corporation) are acquired by the trust or institution after the 28th day of February, 1983, but before the 25th day of July, 1991, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such assets, by reason only that the funds of the trust or the institution have been invested in such assets if such funds do not continue to remain so invested in such assets after the 31st day of March, 1992.]

4[(6) * * *] 5[Explanation 1.-For the purposes of sections 11, 12, 12A and this section, "trust" includes any other legal obligation and for the purposes of this section "relative", in relation to an individual, means- (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) any lineal ascendant or descendant of the individual; (v) any lineal ascendant or descendant of the spouse of the individual; (vi) spouse of a person referred to in sub-clause (ii), sub- clause (iii), sub-clause (iv) or sub-clause (v); (vii) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.] Explanation 2.-A trust or institution created or established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or women and children shall not be deemed to be a trust or institution created or established for the benefit of a religious community or

caste within the meaning of clause (b) of sub-section (1). Explanation 3.-For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,- (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in

sub-section (3); ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 2 Substituted for 'moneys' by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. 3 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1983.

The original sub-section (5) was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and omitted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Omitted by the Finance Act, 1983, w.e.f. 1-4-1983. It was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977. 5 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973. ------------------------------------------------------------------------ 1.137 (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons

referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern.] 1[13A. Special provision relating to incomes of political parties Any income of a political party which is chargeable under the head 2[* * *] "Income from house property" or "Income from other sources" or any income by way of voluntary contributions received by a political party from any person shall not be included in the total income of the previous year of such political party: Provided that- (a) such political party keeps and maintains such books of account and other documents as would enable the 3[Assessing] Officer to properly deduce its income therefrom; (b) in respect of each such voluntary contribution in excess of ten thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution; and (c) the accounts of such political party are audited by an accountant as defined in the Explanation below sub-section

(2) of section

---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1978, w.e.f. 1-4-

2 The words "Interest on securities" omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.138 Explanation.-For the purposes of this section, "political party" means an association or body of individual citizens of India registered with the Election Commission of India as a political party under paragraph 3 of the Election Symbols (Reservation and Allotment) Order, 1968, and includes a political party deemed to be registered

with that Commission under the proviso to sub-paragraph (2) of that paragraph. 1.139 CHAP COMPUTATION OF TOTAL INCOME. CHAPTER IV COMPUTATION OF TOTAL INCOME Heads of income

Heads of income. 14. Heads of income Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:- A.-Salaries. 1[B.-* * *] C.-Income from house property. D.-Profits and gains of business or profession. E.-Capital gains. F.-Income from other sources. A.-Salaries

Salaries. 15. Salaries 2The following income shall be chargeable to income-tax under the head "Salaries"- (a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. 3Explanation 4[1].-For the removal of doubts, it is hereby declared that where any salary paid in advance in included in the total income of any person for any previous year, it shall not be included again in the total income of the person when the salary becomes due. 5[Explanation 2.-Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as "salary" for the purposes of this section.] ---------------------------------------------------------------------- 1 The words 'B.-Interest on securities' omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 Restored to the original provision by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. It was earlier amended by the Direct Tax Laws (Amendment) Act, 1987 consequent upon the omission of Explanation 2 with effect from the same date. The Direct Tax Laws (Amendment) Act, 1989 also omitted the Explanation 2 simultaneously. 4 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 5 Ibid. ---------------------------------------------------------------------- 1.140

Deductions from salaries. 16. Deductions from salaries The income chargeable under the head "Salaries" shall be computed after making the following deductions, namely:- 1[(i) 2[a deduction of] 3[4[a sum equal to thirty-three and one-third per cent of the salary or 3[fifteen] thousand rupees, whichever is less]]: 6 [Provided that in the case of an assessee, being a woman, ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1974, w.e.f. 1-4-1975. 2 Substituted for 'in respect of expenditure incidental to the employment of the assessee" by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 3 Substituted by the Finance Act, 1981, w.e.f. 1-4-1982. It was earlier amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 4 Substituted for "a sum equal to *thirty per cent of the salary or **ten thousand rupees, whichever is less' by the Finance Act, 1988, w.e.f. 1-4-1989. *Earlier, 'thirty' was substituted for "twenty-five" by the Finance Act, 1986, w.e.f. 1-4-1987 and for "twenty" by the Finance Act, 1982, w.e.f. 1-4-1983. **Earlier, 'ten' was substituted for "six" by the Finance Act, 1986, w.e.f. 1-4-1987 and for 'five' by the Finance Act, 1983, w.e.f. 1-4-1984. 5 Substituted for "twelve" by the Finance Act, 1993, w.e.f. 1-4-

6 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, the proviso was omitted by the Finance Act, 1989, w.e.f. 1-4-1990. Prior to the omission, it read as under: "Provided that-

[(i) * * *]

(2) of article 276 of the Constitution, leviable by or under any law.] --------------------------------------------------------------------- -> the deduction under this clause shall not exceed one thousand rupees;". Clause (i) was omitted by the Finance Act, 1981, w.e.f. 1-4-

1 Substituted for "twelve" by the Finance Act, 1993, w.e.f. 1-4-

2 Substituted for 'fifteen' by the Finance Act, 1993, w.e.f. 1-4-

3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1975. 4 The figure '1' omitted by the Finance Act, 1989, w.e.f. 1-4-1990. it was inserted by the Finance Act, 1985, w.e.f. 1-4-1986. 5 Omitted by the Finance Act, 1989, w.e.f. 1-4-1990. Prior to the omission, Explanation 2, as inserted by the Finance Act, 1985, w.e.f. 1-4-1986, read as under: "Explanation 2.-For the purposes of the proviso to this clause, the use of any vehicle referred to therein for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as the use of such vehicle otherwise than wholly and exclusively in the performance of his duties;" 6 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 7 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. Earlier, it was omitted by the Finance Act, 1974, w.e.f. 1-4-1975. ----------------------------------------------------------------------- 1.142 1[(iv) * * *] 2[(v) * * *]

"Salary" "perquisite" and "profits in lieu of salary" defined. 17. "Salary" "perquisite" and "profits in lieu of salary" defined 3For the purposes of sections 15 and 16 and of this section,-

(1) "Salary" includes- (i)wages; (ii)any annuity or pension; (iii)any gratuity; (iv)any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; (v) any advance of salary; 4[(va) any payment received by an employee in respect of any period of leave not availed of by him;] (vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and (vii) the aggregate of all sums that are comprised in

the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under

sub-rule (4) thereof;

5(2) "perquisite" includes- (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer; (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases- (a) by a company to an employee who is a director thereof; (b) by a company to an employee being a person who has a substantial interest in the company; ----------------------------------------------------------------------- 1 Omitted by the Finance Act, 1974, w.e.f. 1-4-1975. Earlier, it was substituted by the Finance Act, 1968, w.e.f. 1-4-1968 and amended by the Finance Act, 1969, w.e.f. 1-4-1970; the Finance Act, 1970, w.e.f. 1-4-1971 and the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 2 Omitted by the Finance Act, 1974, w.e.f. 1-4-1975. 4 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 5 See rule 3. ----------------------------------------------------------------------- 1.143 (c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this subclause do not apply and whose income 1[under the head "Salaries" (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds twenty-four thousand rupees;] 2[Explanation.-For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause;] (iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee; and (v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund 3[or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 19484 (46 of 1948), or, as the case may be, section 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 19525 (19 of 1952)], to effect an assurance on the life of the assessee or to effect a contract for an annuity: 6 [Provided that nothing in this clause shall apply to,- (i) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer; 7[(ii) any sum paid by the employer in respect of any expenditure ----------------------------------------------------------------------- 1 Substituted for 'under the head 'Salaries', exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds eighteen thousand rupees;' by the Finance Act, 1985, w.e.f. 1-4-1986. 2 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. 3 Inserted by the Labour Provident Fund Laws (Amendment) Act, 1976, w.e.f. 1-8-1976. 5 Ibid. 6 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 7 Substituted by the Finance Act, 1994, w.r.e.f. 1-4-1993. Prior to the substitution clause (ii), as substituted by the Finance Act, 1992, w.e.f. 14-1993, read as under: "(ii) any sum paid by the employer- (a) in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; (b) directly to a hospital, approved by the Chief Commissioner having regard to the prescribed guidelines for the purposes of medical treatment of the prescribed diseases or ailments, on account of such treatment of the employee or any member of his family;' Earlier, prior to the above substitution, clause (ii), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991, read as under: -> -> . ----------------------------------------------------------------------- 1.144 actually incurred by the employee on his medical treatment or treatment of any member of his family- (a) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; (b) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines': Provided that, in a case falling in sub-clause (b), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment2 for which medical treatment was required and the receipt for the amount paid to the hospital;] (iii) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government for the

purposes of clause (ib) of sub-section (1) of section 36; (iv) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government for the purposes of section 80D; (v) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family [other than the treatment referred to in clauses (i) and (ii)]; so, however, that such sum does not exceed ten thousand rupees in the previous year; (vi) any expenditure incurred by the employer on-

(1)medical treatment of the employee, or any member of the family of such employee, outside India;

(2)travel 3[and] stay abroad of the employee or any member of the family of such employee for medical treatment;

(3)travel and stay abroad of one attendant who accompanies the patient in connection with such treatment, 4 [subject to the condition that- ---------------------------------------------------------------------- "(ii)any sum paid by the employer in respect of any expenditure actually incur-red by the employee on his medical treatment or treatment of any member of his family in any hospital maintained by Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees:" 3 Substituted for "or" by the Finance Act, 1993, w.e.f. 1-4-1993. 4 Substituted for "subject to the condition that the expenditure on

travel referred to in sub-clauses (2) and (3) of this clause shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakh rupees and subject to such further ------------------------------------------------------------------------- 1.145 (A) the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and (B) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does. not exceed two lakh rupees]; (vii) any sum paid by the employer in respect of any expenditure actually incurred by the employee for any of the purposes specified in clause (vi) subject to the conditions specified in or under that clause.

Explanation.-For the purposes of clause (2),- (i) "hospital" includes a dispensary or a clinic 1[or a nursing home]; (ii) "family", in relation to an individual, shall have

the same meaning as in clause (5) of section 10; and (iii) "gross total income" shall have the same meaning

as in clause (5) of section 80B.] 2[* * *]

(3) "profits in lieu of salary" includes- (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto; (ii) any payment (other than any payment referred to in

clause (10), 3 [, clause (10A) ] 4[, clause (10B)],

clause (11), 5[clause (12) 6[, clause (13)] or clause (13A)] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund 7[(not being an approved superannuation fund)], to the extent to which it does not consist of contributions by the assessee or interest on such contributions. 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Omitted by the Finance Act, 1985, w.e.f. 1-4-1985. it was inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985, thus having never come into operation. The consequential amendments in sub-clauses (iv) and (v) were also made and omitted simultaneously. 3 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962. 4 Inserted by the Finance Act, 1975, w.e.f 1-4-1976.

5 Substituted for "or clause (12)" by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964. 6 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 7 Being omitted, ibid. ------------------------------------------------------------------------ 1.146 gardeners, night watchman and sweepers provided by the employer should be calculated on an ad hoc basis as given in Letter No. 40/25/69, dated 8-6-1971 (reproduced below) only when the services of sweeper are provided by the employer, i.e. the sweeper is recruited by the employer and remunerated by him but his services are placed at the disposal of the employee. 2. Rent-free accommodation.-While determining the fair rental value of an accommodation owned by the company, the cost of acquisition and other capital expenses on renovation, etc. incurred by the company should be taken into account. In respect of premises taken on lease or rent by the company the actual payment by the company should be taken as fair rental value of the premises. 3. Reimbursement of medical expenses.-The value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment incurred by his employee on himself or on his spouse, children or parents including the provision of free medical treatment or treatment at a concessional rate will not be included in the taxable salary of the employee in the following cases: (i) where the medical treatment is availed at hospitals, clinics, etc. maintained by the employer; (ii) where the medical treatment is availed at hospitals maintained by the Government or local authorities or hospitals approved for the purposes of CGHS or the Central Medical Scheme; (iii) where the expenditure is on medical insurance premia; (iv) where the medical treatment is availed of from any doctor outside the institutions/schemes mentioned above, an expenditure of upto Rs. 10,000 in a year in the aggregate; and (v) where the medical treatment is availed of in a hospital outside India and the expenditure is incurred for treatment including on travel and stay abroad in connection with such treatment, as also on travel and stay abroad of one attendant, to the extent permitted by RBI subject to the condition that the amount qualifying for such tax exemption would not include expenditure incurred on travel in the case of employees whose gross total income as computed without considering the amount paid or reimbursed for expenditure in connection with medical treatment exceeds Rs. 1 lakh. 4. Rent-free residential accommodation.-Keeping in view the steep escalation in rents, it has been decided that in the case of rent-free accommodation provided by an employer to an employee at Bombay, Calcutta, Delhi and Madras, the perquisite value will be calculated by adding the excess over 60 per cent of the salary of the employee. The valuation in regard to other places in India would be with reference to the excess over 50 per cent. In the case of rent- free furnished accommodation and addition in respect of the perquisite by way of furniture at 10 per cent per annum of the original cost of such furniture is to be made. Perquisite value of free furniture, including television sets, radio sets, refrigerators, other household appliances and air- conditioning plant and equipment provided to all categories of salaried taxpayers will be taken to be 15 per cent of the original cost of such furniture or where the furniture is hired, the hire charges payable by the employer. In the case of person,,, employed by the RBI, statutory corporations, government companies, bodies or undertakings financed wholly or mainly by the government and officers of government whose services have been lent to or who are employed after retirement from Government service with any company in 1.147 which not less than 40 per cent of the shares are held by the Government of RBI or a corporation owned by RBI, the perquisite value of unfurnished rent-free residential accommodation will be taken to be 10 per cent of the salary due to the person in respect of the period during which the accommodation was occupied by him. If residential accommodation is provided by the employer at a concessional rent the value of the perquisite will be determined as if the employee had been provided with rent-free residential accommodation and the amount so computed will be reduced by the rent payable by the employee. 5. Motor car/conveyance.-If a motor car is provided by the employer for the use by the employee partly for his private or personal purpose and partly for use in the performance of his duties, a proportionate part of the expenditure incurred by the employer on the running and maintenance of the motor car and of the amount representing normal wear and tear of the motor car, which is attributable to the user of the car by the employee for his private or personal purposes the duties of employment are to be performed or from back to his residence will be regarded as use motor car for private or personal purposes will be taken as the value of the perquisite in the hands of the employee. Where the employee is provided with or allowed the use of motor car for his private or personal purposes at a concessional rate, the value of the perquisite will first be computed as if the perquisite had been provided by the employer free of charge and the amount so computed will be reduced by the amount payable by the employee to the employer. 6. Payments to servants.-The amount spent on the salary of a gardener by the employer does not represent a sum paid by the employer in respect of any obligation which but for such payment would have been payable by the employee. The payment of salary to a gardener as such cannot be regarded as a perquisite so as to justify that amount being taxed in the hands of' the employees. However, the expenses incurred by way of maintenance of a gardener may be taken into account for the purposes of estimating the value of rent-free residential accommodation provided by the employer under rule 3. The taxable perquisite in the hands of the employee on account of services of servants provided by the employer will be calculated at 75 per cent of actual wages or Rs. 60 per month whichever is less in the case of sweeper and 50 per cent of actual wages or Rs. 60 per month whichever is less in the case of gardeners and watchman. 7. Sumptuary allowance.-Sumptuary allowance has to be treated as an entertainment allowance. Accordingly such allowance received by a person who is in receipt of salary from Government to the extent that such allowance is required to be deducted in computing the income chargeable under the head 'salaries' may be regarded as an allowance exempt and may not be included in the term 'salary' for the purposes of rule 3. 8. Children's education allowance.-Payments towards children's education made to the employee or on behalf of the employee will be liable to income-tax (i) where fixed allowances are given in cash by the employer to the employee to meet the cost of education of the latter's children; (ii) where the education fees are paid by the employer directly to the school; and (iii) where the employee incurs the expenses in the first instance and gets reimbursement from the employer. 9. Premium for annuity.-The premium paid by an ex-employer to purchase an annuity payable to an ex-employee is taxable only under

section 17(3)(ii). The payment will not be admissible as revenue expenditure in the hands of the employer. 1.148 1[Chapter sub-heading 'B.-Interest on securities' and sections 18 to 21 omitted by the Finance Act, 1988 w.e.f. 1-4-1989.] ---------------------------------------------------------------------- 1 Prior to the omission, the chapter sub-heading, section 18, as amended by the Finance Act, 1965, w.e.f. 1-4-1965 and the Finance Act, 1988, w.e.f. 1-4-1988; section 19; section 20, as amended by the Finance Act, 1979, w.e.f. 1-4-1980; and section 21 read as under: "B.-Interest on securities

Interest on securities.

18. Interest on securities.-(1) The following amounts due to an assessee in the previous year shall be chargeable to income-tax under the head "Interest on securities",- (i) interest on any security of the Central or State Government; (ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act.

(2) Nothing contained in sub-section (1) shall be construed as precluding an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year.

Deductions from interest on securities. 19. Deductions from interest on securities.-Subject to the provisions of section 21, the income chargeable under the head "Interest on securities" shall be computed after making the following deductions- (i) any reasonable sum expended by the assessee for the purpose of realising such interest; (ii) any interest payable on moneys borrowed for the purpose of investment in the securities by the assessee.

Deductions from interest on securities. 20. Deductions from interest on securities in the case of a

banking company.-(1) In the case of a banking-company- (i) the sum to be regarded as a sum reasonably expended for the purpose referred to in clause (i) of section 19 shall be an amount bearing to the aggregate of its expenses as are admissible under the provisions of sections 30, 31, 36 and 37 (other than clauses (iii), (vi), (vii) and (viia) of sub-

section (1) of section 36) the same proportion as the gross receipts from interest on securities (inclusive of tax deducted at source) chargeable to income-tax under section 18 bear to gross receipts of the company from all sources which are included in the profit and loss account of the company; (ii) the amount to be regarded as interest payable on moneys borrowed for the purpose referred to in clause (ii) of section 19 shall be an amount which bears to the amount of interest payable on all moneys borrowed by the company the same proportion as the gross receipts from interest on securities (inclusive of tax deducted at source) chargeable to income-tax under section 18 bear to the gross receipts from all sources which are included in the profit and loss account of the company.

(2) The expenses deducted under clauses (i) and (ii) of sub-

section (1) shall not again form part of the deductions admissible under sections 30 to 37 for the purposes of computing the income of the company under the head "Profits and gains of business or profession". Explanation.-For the purposes of this section, "moneys borrowed" includes moneys received by way of deposits.

Amounts not deductible from interest on securities. 21. Amounts not deductible from interest on securities.- Notwithstanding anything contained in sections 19 and 20 any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B, and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head "Interest on securities." --------------------------------------------------------------------- 1.149 C.-Income from house property

Income from house property. 22. Income from house property 1The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property".

Annual value how determined. 23. Annual value how determined

(1) 2[For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable:] 3[Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him:] 4[Provided further that the annual value as determined under this subsection shall,- (a) in the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 1961, and completed before the 1st day of April, 1970, for a period of three years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so ---------------------------------------------------------------------- 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. 3 Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1- 4-1985. Prior to the substitution, the proviso, as substituted for the first proviso and Explanation by the Finance Act, 1968, w.e.f. 1-4-1969, read as under: "Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are home by the owner, be deducted in determining the annual value of the property:" 4 Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1- 4-1971. ----------------------------------------------------------------------- 1.150 determined does not exceed six hundred rupees, the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds six hundred rupees, an amount of six hundred rupees; (b) in the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 196 1, and completed after the 31st day of March, 1970, 1[but before the 1st day of April, 1978,] for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so determined does not exceed one thousand two hundred rupees, the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds one thousand two hundred rupees, an amount of one thousand two hundred rupees; 2[(C) in the case of a building comprising one or more residential units, the erection of which is completed after the 31st day of March, 1978 3[, but before the 1st day of April, 1982], for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so determined does not exceed two thousand four hundred rupees, the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds two thousand four hundred rupees, an amount of two thousand four hundred rupees;] 4[ (d) in the case of a building comprising one or more residential units, the erection of which is completed after the 31st day of March, 1982 5[but before the 1st day of April, 1992], for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so determined does not exceed three thousand six hundred rupees, the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds three thousand six hundred rupees, an amount of three thousand six hundred rupees. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1978, w.e.f. 1-4-1979. 2 Ibid. 3 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 4 Substituted for "so, however, that the income in respect of any residential unit referred to in clause (a) or clause (b) or clause (c) is in no case a loss" by the Finance Act, 1982, w.e.f. 1-4-1983. 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. ----------------------------------------------------------------------- 1.151 1[* * *]]] 2[Explanation 3[11.-For the purposes of this sub-section, "annual rent" means- (a) in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year; and (b) in any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period.] 4 [Explanation 2.-For the removal of doubts, it is hereby declared that where a deduction in respect of any taxes referred to in the first proviso to this sub-section is allowed in determining the annual value of the property in respect of any previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any earlier assessment year), no deduction shall be allowed under the first proviso in determining the annual value of the property in respect of the previous year in which such taxes are actually paid by the owner.]

5[(2) Where the property consists of- (a) a house or part of a house in the occupation of the owner for the purposes of his own residence,- (i) which is not actually let during any part of the previous year and no other benefit therefrom is derived by the owner, the ------------------------------------------------------------------------ 1 The words "so, however, that the income in respect of any residential unit referred to in clause (a) or clause (b) or clause (c) or clause (d) is in no case a loss." omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1984. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

4 Ibid. 5 Substituted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to

the substitution, sub-section (2), as amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967; substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and again by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and amended by the Finance Act, 1982, w.e.f. 1-4-1983, read as under:

"(2) Where the property consists of- (i) a house in the occupation of the owner for the purposes of his own residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be reduced by one half of the amount so determined or three thousand and six hundred rupees, whichever is less; (ii) more than one house in the occupation of the owner for the purposes of his own residence, the provisions of clause (i) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf: Provided that for the purposes of clauses (i) and (ii), where the sum so arrived at exceeds ten per cent of the total income of the owner (the total income for this purpose being computed without including therein any income from such property and before making any deduction under Chapter VI-A), the excess shall be disregarded. Explanation.-Where any such residential unit as is referred to in

the second proviso, to sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit." ------------------------------------------------------------------------ 1.152 annual value of such house or part of the house shall be taken to be nil; (ii) which is let during any part or parts of the previous year, that part of the annual value (annual value being determined in the same manner as if the property had been let) which is proportionate to the period during which the property is in the occupation of the owner for the purposes of his own residence, or, as the case may be, where such property is let out in parts, that portion of the annual value appropriate to any part which was occupied by the owner for his own residence, which is proportionate to the period during which such part is wholly occupied by him for his own residence shall be deducted in determining the annual value. Explanation.-The deduction under this sub-clause shall be made irrespective of whether the period during which the property or, as the case may be, part of the property was used for the residence of the owner precedes or follows the period during which it is let; (b) more than one house in the occupation of the owner for the purposes of his own residence, the provisions of clause (a) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf; (c) more than one house and such houses are in the occupation of the owner for the purposes of his own residence, the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (b), shall be determined under sub-

section (1) as if such house or houses had been let. Explanation.-Where any such residential unit as is referred to in

the second proviso to sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit.] 1[(2A) * * *]

2 [(3) Where the property referred to in sub-section (2) consists of one ---------------------------------------------------------------------- 1 Omitted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to the omission, sub-section (2A), as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under: "(2A) For the removal of doubt, it is hereby declared that, where the property consists of more than one house and such houses are in the occupation of the owner for the purposes of his own residence, the annual value of the houses, other than that the annual value of which

is required to be determined under clause (ii) of sub-section (2),

shall be determined under sub-section (1) as if such houses had been let." 2 Substituted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to the

substitution, sub-section (3) read as under:

"(3) Where the property referred to in sub-section (2) consists of one residential house only and it cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house shall- ---------------------------------------------------------------------- 1.153 residential house only and it cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house shall be taken to be nil: Provided that the following conditions are fulfilled, namely,- (i) such house is not actually let, and (ii) no other benefit therefrom is derived by the owner.]

Deductions from income from house property. 24. Deductions from income from house property

1(1) Income chargeable under the head "Income from house

property" shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely:- 2[(i) in respect of repairs of, and collection of rent from, the property, a sum equal to one-fifth of the annual value;] (ii) the amount of any premium paid to ensure the property against risk of damage or destruction; 3[(iii) * * * 1 (iv) where the property is subject to an annual charge 4[(not being a charge created by the assessee voluntarily or a capital charge)], the amount of such charge; (v) where the property is subject to a ground rent, the amount of such ground rent; (vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. --------------------------------------------------------------------- (a) if the house was not actually occupied by the owner during the whole of the previous year, be taken to be nil; or (b) if the house was actually occupied by the owner for a fraction of the previous year, be taken to be that fraction

of the annual value determined under sub-section (2): Provided that the following conditions are in either case fulfilled:- (i) the house is not actually let, and (ii) no other benefit therefrom is derived by the owner." 2 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, clause (i), as originally enacted, read as under: "(i) in respect of repairs,- (a)where the property is in the occupation of the owner, or where the property is let to a tenant and the owner has under-taken to bear the cost of repairs, a sum equal to one-sixth of the annual value; (b)where the property is in the occupation of a tenant who has undertaken to bear the cost of repairs,- (i) the excess of the annual value over the amount of rent payable for a year by the tenant; or (ii)a sum equal to one-sixth of the annual value, whichever is less;" 3 Omitted by the Finance Act, 1968, w.e.f. 1-4-1969. 4 Substituted for "not being a capital charge" by the Finance Act, 1968, w.e.f. 1-4-1969. ---------------------------------------------------------------------- 1.154 1[Explanation.-Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years;] (vii) any sums paid on account of land revenue 2[or any other tax levied by the State Government] in respect of the property; 3[(viii) Omitted by the Finance Act, 1992, w.e.f 1-4-1993.] (ix) where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the period during which such part is wholly unoccupied 4[* * *]. 5[Explanation.-The deduction under this clause shall be made irrespective of whether the period during which the property or, as the case may be, part of the property was vacant precedes or follows the period during which it is let;] (x) subject to such rules as may be made in this behalf, the amount in respect of rent from property let to a tenant which the assessee cannot realise.

6[(2) No deduction shall be allowed under sub-section (1) in respect of property of the nature referred to in sub-clause (i) of

clause (a) of sub-section (2), or sub-section (3), of section 23: Provided that nothing in this sub-section shall apply to the

allowance of a deduction under clause (vi) of sub-section (1) of an amount not exceeding 7 [ten] thousand rupees in respect of the property of the nature referred to in sub-clause (i) of clause (a) of

sub-section (2) of section 23.

(3) The total amount deductible under sub-section (1) in respect of property of the nature referred to in sub-clause (ii) of clause (a)

of sub-section (2) of section 23 shall not exceed the annual value of the property as determined under that section.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 2 Inserted by the Finance Act, 1968, w.e.f. 1-4-1969. 3 Prior to the omission, clause (viii), as originally enacted, read as under: "(viii) any sums spent to collect the rent from the property, not exceeding six per cent of the annual value of the property;" 4 The punctuation and word "; and" omitted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977. 5 Inserted, ibid. 6 Substituted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to

the substitution, sub-section (2) read as under:

"(2) The total amount deductible under sub-section (1) in respect

of property of the nature referred to in sub-section (3) of section 23 shall not exceed the annual value of the property as determined under section 23." 7 Substituted for "five,, by the Finance Act, 1994, w.e.f. 1-4-

1.155

Amounts not deductible from income from house property. 25. Amounts not deductible from income from house property Notwithstanding anything contained in section 24, any annual charge or interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head "Income from house property". 1[25A. Special provision for cases where unrealised rent allowed as deduction is realised subsequently Where a deduction has been made under clause (x) of sub-section

(1) of section 24 in the assessment for any year in respect of rent from property let to a tenant which the assessee cannot realise and subsequently during any previous year the assessee has realised any amount in respect of such rent, the amount so realised shall be deemed to be income chargeable under the head "Income from house property" and accordingly charged to income-tax (without making any deduction under section 23 or section 24) as the income of that previous year, whether the assessee is the owner of that property in that year or not.]

Property owned by co-owners. 26. Property owned by co-owners 2 Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income. 3[Explanation.-For the purposes of this section, in applying the

provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.] --------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4- 1986 3 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

---------------------------------------------------------------------- 1.156

"Owner of house property", "annual charge", etc., defined. 27. "Owner of house property", "annual charge", etc., defined For the purposes of sections 22 to 26- (i) an individual who transfers otherwise than 'for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred; (ii) the holder of an impartable estate shall be deemed to be the individual owner of all the properties comprised in the estate; 1[(iii) a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof; (iiia) a person who is allowed to 'take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 2 (4 of 1882), shall be deemed to be the owner of that building or part thereof; (iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof;] (iv) "annual charge" means a charge to secure an annual liability, but does not include any tax in respect of property or income from property imposed by a local authority, or the Central or a State Government; (v) "capital charge" means a charge to secure the discharge of a liability of a capital nature; (vi) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property. ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, clause (iii) read as under: "(iii) a member of a co-operative society to whom a building or part thereof is allotted or leased under a house building scheme of the society shall be deemed to be the owner of that building or part thereof;" ---------------------------------------------------------------------- 1.157 D.-Profits and gains of business or profession

Profits and gains of business or profession. 28. Profits and gains of business or profession 1The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; (ii) any compensation or other payment due to or received by,- (a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; (b) any person by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto; (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto; 2[(d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business;] (iii) income derived by a trade, professional or similar association from specific services performed for its members; 3[(iiia)profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947);] 4[(iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;] 5[(iiic)any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971;] 6[(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;] ------------------------------------------------------------------- 2 Inserted by the Finance Act, 1973, w.r.e.f. 1-4-1972. 3 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962. 4 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1967. 5 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972. 6 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. ------------------------------------------------------------------------ 1.158 1[(v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm: Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted.] 2[Explanation 1.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989.] Explanation 2.-Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, clause (v) was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 2 Prior to the omission, it read as under: "Explanation 1.-The profits and gains of a business shall include the profits and gains of managing agency." ---------------------------------------------------------------------- 1.159

Income from profits and gains of business or profession, how computed. 29. Income from profits and gains of business or profession, how computed The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 1[43D].

Rent, rates, taxes, repairs and insurance for buildings. 30. Rent, rates, taxes, repairs and insurance for buildings In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed- (a) where the premises are occupied by the assessee- (i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; (ii)otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; (b) any sums paid on account of land revenue, local rates or municipal taxes; (c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.

Repairs and isurance of machinery, plant and furniture. 31. Repairs and insurance of machinery, plant and furniture In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed- (i) the amount paid on account of current repairs thereto; (ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof.

Depreciation. 32. Depreciation

(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed- 2[(i) * * *1 ------------------------------------------------------------------------ 1 Substituted for "(43C)" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Earlier, "(43C)" was substituted for "(43B)" by the Finance Act, 1988, w.e.f. 1-4-1988; "43B" for "43A" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and "43A" for "43" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 2 Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, clause (ii), as substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under: -> -> ------------------------------------------------------------------------ 1.160 (ii) 1[in the case of any block of assets, such percentage on the written down value thereof as may be prescribed']: 1[4[Provided that where the actual cost of any machinery or plant does not exceed 5[five thousand] rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession:] 6[Provided 7[further] that no deduction shall be allowed under this clause in respect of- (a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, unless it is used- 8(i) in a business of running it on hire for tourists; or (ii) outside India in his business or profession in another country; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42: Provided 8[also] that where any asset falling within a block of assets is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this clause in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed under this clause in the case of block of assets comprising such asset:] ---------------------------------------------------------------------- "(i) in the case of ships other than ships ordinarily plying on inland waters, such percentage on the actual cost thereof to the assesses as may, in any case or class of cases or in respect of any period or periods, be prescribed: Provided that different percentages may be prescribed for different periods having regard to the date of acquisition of the ship;" 1 Substituted for "in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 3 Being omitted by the Finance Act, 1995, w.e.f. 1-4-1996. 4 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. 5 Substituted for "seven hundred and fifty" by the Finance Act, 1983, w.e.f. 1-4-1984. 6 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to the substitution, the second proviso, as inserted by the Finance Act, 1975, w.e.f. 1-4-1975 and amended by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-41988, read as under: "Provided further that no deduction shall be allowed under this clause in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists:" 7 Being omitted by the Finance Act, 1995, w.e.f. 1-4-1996. 9 Being substituted by "further" by the Finance Act, 1995, w.e.f. 1- 4-1996. ----------------------------------------------------------------------- 1.161 1[Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991.] 2 [Explanation 1.-Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2.-For the purposes of this clause "written down value of the block of assets" shall have the same meaning as

in clause (c) of sub-section (6) of section 43;] 3[(iia) Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f 1-4-1988.] ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1991, w.e.f. 15-1-

2 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 3 Prior to its omission, clause (iia), as inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, read as under: "(iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980, but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) (exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year: Provided that no deduction shall be allowed under this clause in respect of,- (a)any machinery or plant installed in any office premises or any residential accommodation; (b)any office appliances or road transport vehicles; and (c)any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head 'Profits and gains of business or profession' of any one previous year. Explanation.-For the purposes of this clause;- (a) 'new machinery or plant' shall have the meaning

assigned to it in clause (2) of the Explanation below clause (vi) of this sub-section; (b) 'residential accommodation' includes accommodation in the nature of a guest house but does not include premises used as a hotel;' ----------------------------------------------------------------------- 1.162 1[(iii) Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.] 2[(iv) Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.] 3[(v) Omitted by the Taxation Laws (Amendment & Miscellaneous ---------------------------------------------------------------------- 1 Prior to its omission, clause (iii), as amended by the Finance Act, 1966, w.e.f. 1-4-1966 and the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967, read as under: "(iii) in the case of any building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof: Provided that such deficiency is actually written off in the books of the assessee. Explanation.-For the purposes of this clause,-

(1)'moneys payable' in respect of any building, machinery, plant or furniture includes- (a)any insurance, salvage or compensation moneys payable in respect thereof; (b)where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause

(1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso;

(2)'sold' includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company;" 2 Prior to the omission, clause (iv), as amended by the Finance Act, 1966, w.e.f. 1-4-1966; Finance Act, 1976, w.e.f. 1-4-1977, Finance Act, 1978, w.e.f. 1-4-1979 and Finance Act, 1983, w.e.f. 1-4- 1984, read as under: "(iv) in the case of any building which has been newly erected after the 31st day of March, 1961, where the building is used solely for the purpose of residence of persons employed in the business and the income of each such person chargeable under the head "Salaries" is ten thousand rupees or less, or where the building is used solely or mainly for the welfare of such persons as a hospital, creche, school, canteen, library, recreational centre, shelter, restroom, or lunch room, a sum equal to forty per cent of the actual cost of the building to the assessee in respect of the previous year of erection of the building.' 3 Prior to the omission, clause (v), as inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 and amended by the Finance Act, 1983, w.e.f. 1-4-1984, read as under: "(v) in the case of any new building, the erection of which is completed after the 31st day of March, 1967, where the building is owned by an Indian company and used by such company as a hotel and such hotel is for the time being approved in this behalf by the Central Government, a sum equal to ---------------------------------------------------------------------- 1.163 Provisions) Act, 1986, w.e.f. 1-4-1988.] 1[(vi) Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f 1-4-1988.] ------------------------------------------------------------------------ -> -> twenty-five per cent of the actual cost of erection of the building to the assessee, in respect of the previous year in which the erection of the building is completed or, if such building is first brought into use as a hotel in the immediately succeeding previous year, then in respect of that previous year;" 1 Prior to the omission, clause (vi), as inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1975 and amended by the Finance Act, 1976, w.e.f. 1-4-1976, read as under-. "(vi) in the case of a new ship or a new aircraft acquired after the 31st day of May, 1974, by an assessee engaged in the business of the operation of ships or aircraft or in the case of the new machinery or plant (other than the office appliances or road transport vehicles) installed after that date for the purpose' of business of generation or distribution of electricity or any other for-in of the power or of construction, manufacture or production of any one or more of the articles or things specified in items 1 to 24 (both inclusive) in the list in the Ninth Schedule or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date in a small scale industrial under-taking for the purposes of business of manufacture or production of any other articles or things, a sum equal to twenty per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee, in respect of the previous year in which the ship or aircraft is acquired or the machinery or plant is installed or if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year; but any such sum shall not deductible in determining the written down value for the purposes of clause (ii): Provided that the assessee may, before the expiry of the

time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income for the assessment year in respect of which he first becomes entitled to deduction under this clause, furnish to the Income-tax Officer a declaration in writing that the provisions of this clause, shall not apply to him, and if he does so, the provisions of this clause shall not apply to him for that assessment year and for every subsequent assessment year; so, however, that the assessee may, by notice in writing furnished to the Income- tax Officer before the expiry of the time allowed under sub-

section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income for any such subsequent assessment year, revoke his declaration and upon such revocation, the provisions of this clause shall apply to the assessee for that subsequent assessment year and for every assessment year thereafter: Provided further that no deduction shall be allowed under this clause in respect of- (a)any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house; (b)any ship, aircraft, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and (c)any ship or aircraft acquired after the 31st day of March, 1976, or any machinery or plant installed after that date. Explanation.-For the purposes of this clause,-

(1) "new ship" or 'new aircraft" includes a ship or aircraft which before the date of the acquisition by the assessee was used by any other person, if it was not at any time previous to the date -> -> ---------------------------------------------------------------------- 1.164 1[(1A) Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.]

(2) Where, in the assessment of the assessee 2[* * *1 full effect cannot -> -> of such acquisition owned by any person resident in India; ----------------------------------------------------------------------

(2)'new machinery or plant" includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely:- (a)such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India; (b)such machinery or plant is imported into India from any country outside India; and (c)no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee;

(3)an industrial undertaking shall be deemed to be a small scale industrial undertaking, if the aggregate value of the machinery and plant installed, as on the last day of the previous year, for the purposes of the business of the undertaking does not exceed seven hundred and fifty thousand rupees; and for this purpose the value of any machinery or plant shall be,- (a)in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and (b)in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant.' 1 Prior to the omission, sub-section (1A), as inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-197 1, read as under: "(1A) Where the business or profession is carried on in a building not owned by the assessee but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession after the 31st day of March, 1970, on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building then, in respect of depreciation of such structure or work, the following deductions shall, subject to the provisions of section 34, be allowed:- (i) such percentage on the written down value of the structure or work as may in any case or class of cases be prescribed; (ii) in the case of any such structure or work which is sold, discarded, demolished, destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building in the previous year (other than the previous year in which it is constructed or done) the amount by which the moneys payable in respect of such structure or work together with the amount of scrap value if any, fall short of the written down value thereof: Provided that such deficiency is actually written off in the books of the assessee. Explanation.-For the purposes of this clause,- , (i) "moneys payable", in respect of any structure or work, includes- (a) any insurance or compensation moneys payable in respect thereof; (b) where the structure or work is sold, the price for which it is sold; and (ii) "sold" shall have the meaning assigned to it in the

Explanation to clause (iii) of sub-section (1)." 2 The words "or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners" omitted by the Finance ---------------------------------------------------------------------- 1.165

be given to any allowance 1[under clause (ii) of sub-section (1)] in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-

section (2) of section 72 and sub-section (3) of section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. 1 Substituted for "under clause (i) or clause (ii) or clause (iia)

or clause (iv) or clause (v) or clause (vi) of sub-section (1) or under clause (i) of sub-section (1A)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.166 1[32A. Investment allowance 2

3(1) In respect of a ship or an aircraft or machinery or plant

specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee: 4 [Provided that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), this sub-section shall have effect as if for the words "twenty-five percent", the words "twenty per cent" had been substituted:] Provided 5[further] that no deduction shall be allowed under this section in respect of- (a) any machinery or plant installed in any office premises or an residential accommodation, including any accommodation in the nature of a guest house; (b) any office appliances or road transport vehicles; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head ------------------------------------------------------------------------ 1 Inserted by the Finance Act, 1976, w.e.f. 1-4-1976. 2 The allowance under this section will not be available in respect of any new ship or aircraft acquired or any new machinery or plant installed after 31 March, 1990. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 5 ibid. ----------------------------------------------------------------------- 1.167 "Profits and gains of business or profession" of any one previous year. 1[Explanation.-For the purposes of this sub-section, "actual cost" means the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been

met out of the amount released to the assessee under sub-section (6) of section 32AB.]

(2) The ship or aircraft or machinery or plant referred to in,

sub-section (1) shall be the following, namely:- (a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; (b) any new machinery or plant installed after the 31st day of March, 1976,- (i) for the purposes of business of generation or distribution of electricity or any other form of power; or 2[(ii) in a small scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule:] 3 [Provided that nothing contained in clauses (a) and (b) shall (i) a new ship or new aircraft acquired, or (ii) any new machinery or plant installed, after the 31st day of March, 1987 but before the 1st day of April, 1988, unless such ship or aircraft is acquired or such machinery or plant is installed in the circumstances specified in clause (a) of sub-section (8B) and the assessee furnishes evidence to the satisfaction of the Assessing Officer as specified in that clause;] 4[ (c) any new machinery or plant installed after the 31st day of March, 1983, but before the 5[1st day of April, 1987,] for the purposes of business of repairs to ocean-going vessels or other powered craft if the business is carried on by an Indian company and the business so carried on is for the time being approved' for the purposes of this clause by the Central Government.] ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 5 Substituted for "1st day of April, 1988" by the Finance Act, 1986, w.e.f. 1-4-1987. ----------------------------------------------------------------------- 1.168 Explanation.-For the purposes of this sub-section and 1[sub-

sections (2B), 2[, (2C) and (4)],-

3[(1) (a) 'new ship' or "new aircraft" includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India; (b) "new machinery or plant" includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely,- (i)such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India; (ii)such machinery or plant is imported into India from any country outside India; and (iii)no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee,)

(2) an industrial undertaking shall be deemed to be a small scale industrial undertaking, if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of the business of the under-taking 4 [does not exceed,- 5[(i)in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees; (ii) in a case where the previous year ends after the 31st day of July, 1980, but before the 18th day of March, 1985, twenty lakh rupees; and (iii)in a case where the previous year ends after the 17th day of March, 1985, thirty-five lakh rupees,]] and for this purpose the value of any machinery or plant shall be,- ---------------------------------------------------------------------

1 Substituted for 'sub-section (4), by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 2 Inserted by the Finance Act, 1983, w.e.f. 1-6-1983. 3 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, it read as under:

"(1) 'new ship' or "new aircraft" or "new machinery or plant' shall have the same meanings as in the Explanation to clause (vi) of

sub-section (1) of section 32;" 4 Substituted for "does not exceed ten lakh rupees" by the Finance Act, 1981, w.e.f. 1-4-1981. 5 Substituted for clauses (i) and (ii) by the Finance Act, 1986, w.r.e.f. 1-4-1985. Prior to the substitution, these clauses read as under: "(i) in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees; and (ii) in a case where the previous year ends after the 31st day of July, 1980, twenty lakh rupees;" ----------------------------------------------------------------------- 1.169 (a) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and (b) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant.

1[(2A) The deduction under sub-section (1) shall not be denied in respect of any machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule, by reason only that such machinery or plant is also used for the purposes of business of construction, manufacture or production of any article or thing specified in the said list.] 2[(2B) Where any new machinery or plant is installed after the 30th day of June, 1977, but before the 1st day of April, 3[1987], for the purposes of business of manufacture or production of any article or thing and such article or thing- (a) is manufactured or produced by using any technology (including any process) or other know-how developed in; or (b) is an article or thing invented in, a laboratory owned or financed by the Government, or a laboratory owned by a public sector company or a university or by an institution recognised in this behalf by the prescribed authority, 4

the provisions of sub-section (1) shall have effect in relation to such machinery or plant as if for the words "twenty-five per cent", the words "thirty-five per cent" had been substituted, if the following conditions are fulfilled, namely,- (i) the right to use such technology (including any process) or other know-how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from such owner; (ii) the assessee furnishes, along with his return of income for the assessment year for which the deduction is claimed, a certificate from the prescribed authority' to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory; and (iii) the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule. Explanation.-For the purposes of this sub-section,- (a) "laboratory financed by the Government" means a laboratory owned by any body [including a society registered under the ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 2 Ibid. 3 Substituted for "1982" by the Finance Act, 1982, w.e.f. 1-4-1982. 5 Ibid. ----------------------------------------------------------------------- 1.170 Societies Registration Act, 1860 (21 of 1860)], and financed wholly or mainly by the Government; 1[(b) Omitted by the Finance Act, 1987, w.e.f 1-4-1987.] (c) "University" means a university established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 19562 (3 of 1956), to be a university for the purposes of that Act.] 3[(2C) Where any new machinery or plant, being machinery or plant which would assist in control of pollution or protection of environment and which has been notified4 in this behalf by the Central Government in the Official Gazette, is installed after the 31st day of May, 1983 4[but before the 1st day of April, 1987] in any industrial undertaking referred to in sub-clause (i) or sub-clause (ii) or sub-

clause (iii) of clause (b) of sub-section (2), the provisions of sub-

section (1) shall have effect in relation to such machinery or plant as if for the words "twenty-five per cent", the words "thirty-five per cent" had been substituted.]

(3) Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year (the total income for this purpose being computed after deduction of the allowances under section 33 and section 33A, but without making any

deduction under sub-section (1) of this section or any deduction under Chapter VI-A) is nil or is less than the full amount of the investment allowance,- (i) the sum to be allowed by way of investment 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 investment allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment 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 investment allowance, if any, still outstanding shall be carried for-ward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship or aircraft was acquired or the ---------------------------------------------------------------------- 1 Prior to the omission, it read as under: "(b) "Public sector company" means any corporation established by or under any Central, State or Provincial Act, or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);" 3 Inserted by the Finance Act, 1983, w.e.f. 1-6-1983. 5 Inserted by Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

1.171 machinery or plant was installed or, as the case may be, the immediately succeeding previous year. Explanation.-Where for any assessment year, investment allowance is to be allowed in accordance with the provisions of this sub-section in respect of any ship or aircraft acquired or any machinery or plant installed in 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 deduction of the allowances under section 33 and section 33A, but without making any deduction under

sub-section (1) of this section or any deduction under Chapter VI-A] is less than the aggregate of the amounts due to be allowed in respect of the assets aforesaid for that assessment year, the following procedure shall be followed, namely,- (a) the allowance under clause (ii) shall be made before any allowance under clause (i) is made; and (b) where an allowance has to be made under clause (ii) 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.

(4) 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 in respect of the ship or aircraft or machinery or plant; (ii) an amount equal to seventy-five per cent of the investment allowance to be actually allowed is debited to the profit and loss account of 1[any previous year in respect of

which the deduction is to be allowed under sub-section (3) or any earlier previous year (being a previous year not earlier than the year in which the ship or aircraft was acquired or the machinery or plant was installed or the ship, aircraft, machinery or plant was first put to use)] and credited to a reserve account (to be called the "Investment Allowance Reserve Account") to be utilised,- (a) for the purposes of acquiring, before the expiry of a period of ten years next following the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in clauses (a), (b)

and (d) of the 2[second] proviso to sub-section (1)] for the purposes of the business of the undertaking; and (b) until the acquisition of a new ship or a new aircraft or new machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India: ----------------------------------------------------------------------- 1 Substituted for "the previous year in respect of which the deduction is to be allowed" by the Finance Act, 1990, w.r.e.f. 1-4-

2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.172 Provided that this clause shall have effect in respect of a ship as if for the word "seventy-five", the word "fifty" had been substituted. Explanation.-Where the amount debited to the profit and loss account and credited to the Investment Allowance Reserve Account under this subsection is not less than the amount required to be so credited on the basis of the amount of deduction in respect of investment allowance claimed in the return made by the assessee under section 139, but a higher deduction in respect of the investment allowance is admissible on the basis of the total income as proposed to be computed by the 3[Assessing] Officer under section 143, the 4[Assessing] Officer shall, by notice in writing in this behalf, allow the assessee an opportunity to credit within the time specified in the notice or within such further time as the 3[Assessing] Officer may allow, a further amount to the Investment Allowance Reserve Account out of the profits and gains of the previous year in which such notice is served on the assessee or of the immediately preceding previous year, if the accounts for that year have not been made up; and, if the assessee credits any further amount to such account within the time aforesaid, the amount so credited shall be deemed to have been credited to the Investment Allowance Reserve Account of the previous year in which the deduction is admissible and such amount shall not be taken into account in determining the adequacy of the reserve required to be created by the assessee in respect of the previous year in which such further credit is made: Provided that such opportunity shall not be allowed by the 4

[Assessing] Officer in a case where the difference in the total income

section (1) of section 145 or sub-section (2) of that section or the omission by the assessee to disclose his income fully and truly.

(5) Any allowance made under this section in respect of any ship, aircraft, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act,- (a) if the ship, aircraft, machinery or plant 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 it was acquired or installed; or (b) if at any time before the expiry of ten years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, the assessee does not utilise the amount credited to the reserve

account under sub-section (4) for the purposes of acquiring a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the 5[second] proviso to ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Ibid. 4 Ibid. 5 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.173

sub-section (1)] for the purposes of the business of the undertaking; or (c) if at any time before the expiry of the ten years aforesaid, the assessee utilises the amount credited to the

reserve account under sub-section (4) for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any assets outside India or for any other purpose which is not a purpose of the business of the undertaking, and the provisions of sub-section (4A) of section 155 shall apply accordingly: Provided that nothing in clause (a) shall apply,- (i) where the ship, aircraft, machinery or plant 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, 19561 (1 of 1956); or (ii) where the sale or transfer of the ship, aircraft, machinery or plant is made in connection with the

amalgamation or succession, referred to in sub-section (6) or

sub-section (7).

(6) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any ship, aircraft, machinery or plant, in respect of which investment allowance

has been allowed to the amalgamating company under sub-section (1),- (a) the amalgamated company shall continue to fulfil the

conditions mentioned in sub-section (4) in respect of the reserve created by the amalgamating company and in respect of the period within which such ship, aircraft, machinery or plant shall not be sold or otherwise transferred and in default of any of these conditions, the provisions of sub- section (4A) of section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and (b) the balance of investment allowance, if any, still outstanding to the amalgamating company in respect of such ship, aircraft, machinery or plant, shall be allowed to the amalgamated company in accordance with the provisions of sub-

section (3), so, however, that the total period for which the balance of investment allowance shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight

years specified in sub-section (3) and the amalgamated company shall be treated as the assessee in respect of such ship, aircraft, machinery or plant for the purposes of this section.

(7) Where a firm is succeeded to by a company in the business carried company any ship, aircraft, machinery or plant, the provisions

of clauses (a) and (b) of sub-section (6) shall, so far as may be, apply to the firm and the company. ----------------------------------------------------------------------- 1.174 Explanation.-The provisions of this sub-section shall apply only where- (i) all the property of the firm relating to the business immediately before the succession becomes the property of the company; (ii) all the liabilities of the firm relating to the business immediately before the succession become the liabilities of the company; and (iii) all the shareholders of the company were partners of the firm immediately before the succession.

(8) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed in respect of any ship or aircraft acquired or any machinery or plant installed after such date 1[* * *] as may be specified therein. 2[(8A) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, omit any article or thing from the list of articles or things specified in the Eleventh Schedule.]

3[(8B) Notwithstanding anything contained in sub-section (8) or the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. GSR 870(E), dated the 12th June, 1986, issued thereunder, the provisions of this section shall apply in respect of,- (a) (i) a new ship or new aircraft acquired after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that he had, before the 12th day of June, 1986, entered into a contract for the purchase of such ship or aircraft with the builder or manufacturer or owner thereof, as the case may be; (ii) any new machinery or plant installed after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that before the 12th day of June, 1986, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant: --------------------------------------------------------------------- 1 The words 'not being earlier than three years from the date of such notification' omitted by the Finance Act, 1986, w.e.f. 1-4-1986. 2 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Prior to the substitution, sub-section (8B), as inserted by the Finance Act, 1986, w.e.f. 1-4-1987, read as under: "(8B) Subject to the provisions of clause (ii) of sub-section

(3), no deduction shall be allowed under this section in the case of an assessee who has claimed the deduction allowable under section 32AB." ----------------------------------------------------------------------- 1.175

Provided that nothing contained in sub-section (1) shall entitle the assessee to claim deduction in respect of a ship or aircraft or machinery or plant referred to in this clause in any previous year except the previous year relevant to the assessment year commencing on the 1st day of April, 1989; (b) a new ship or new aircraft acquired or any new machinery or plant installed after the 31st day of March, 1988, but before such date as the Central Government, if it considers necessary or expedient so to do, may, by notification' in the Official Gazette, specify in this behalf.

(8C) Subject to the provisions of clause (ii) of sub-section (3), where a deduction has been allowed to an assessee under sub-section

(1) in any assessment year, no deduction shall be allowed to the assessee under section 32AB in the said assessment year (hereinafter referred to as the initial assessment year) and a block of further period of four years beginning with the assessment year immediately succeeding the initial assessment year.]

2[(9) Omitted by the Finance Act, 1990, w.r.e.f. 1-4-1976.]] 3[32AB. Investment deposit account4

(1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head "Profits and gains of business or profession", has, out of such income,- (a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or ----------------------------------------------------------------------- 1 A notification has been issued to provide that the allowance under this section will not be available in respect of any new ship or aircraft acquired or any new machinery or plant installed after 31 March, 1990:

2 Prior to the omission, sub-section (9) read as under:

"(9) For the removal of doubts, it is hereby declared that the

deduction under sub-section (1) shall not be denied by reason only that the amount debited to the profit and loss account of the relevant previous year and credited to the Investment Allowance Reserve Account exceeds the amount of the profit of such previous year (as arrived at without making the debit aforesaid), in accordance with the profit and loss account." 3 Inserted by the Finance Act, 1986, w.e.f. 1-4-1987. 4 The Finance Act, 1990, has declared that the allowance under this section will not be available from assessment year 1991-92 onwards:

see second proviso to sub-section (1). ----------------------------------------------------------------------- 1.176 (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) to be framed by the Central Government,' or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction 2[(such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72)] of- (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or (ii) a sum equal to twenty per cent of the profits of 3[* business or profession as computed in the accounts of the

assessee audited in accordance with sub-section (5), whichever is less: 4 [Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any 'Member, of such firm, association of persons or body of individuals:] 5[Provided further that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year.]

(2) For the purposes of this section,- 6[(i)Omitted by the Finance Act, 1989, w.e.f. 1-4-1991.] 7[(ii) "new ship" or "new aircraft" includes a ship or aircraft which before the date of acquisition by the assessee was used by any other ----------------------------------------------------------------------- 1 The Investment Deposit Account Scheme, 1986 has been framed under this section. 2 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 3 The word 'eligible' omitted by the Finance Act, 1989, w.e.f. 1-4-

4 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 5 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 6 Prior to the omission, clause (i) read as under: "(i) 'eligible business or profession" shall mean business or profession, other than- (a)the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking, which is not a small scale industrial undertaking as defined in section 80HHA; (b)the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small scale industrial undertaking as defined in section 80HHA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule;" 7 Substituted for clause (ii) by the Finance Act, 1987, w.e.f. 1-4- 1987. Prior to the substitution, clause (ii) read as under-. "(ii) 'new ship' or "new aircraft" or new machinery or plant' shall have the same meanings as in the Explanation to clause

(vi) of sub-section (1) of section 32." ---------------------------------------------------------------------- 1.177 person, if it was not at any time previous to the date of such acquisition owned by any person resident in India; (iii) 'new machinery or plant" includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely:- (a) such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee; (iv) "Tea Board" means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953).]

(3) 1[The profits of business or profession of an assessee for

the purposes of sub-section (1) shall] be an amount arrived at after deducting an amount equal to the depreciation computed in accordance

with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the 2[Schedule VI] to the Companies Act, 1956 (1 of 1956), 3[as increased by the aggregate of- (i) the amount of depreciation; (ii) the amount of income-tax paid or payable, and provision there for; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964); (iv) the amounts carried to any reserves, by whatever name called; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; (vi) the amount by way of provision for losses of subsidiary companies; and (vii) the amount or amounts of dividends paid or proposed, if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account; 4[* ----------------------------------------------------------------------- 1 Substituted for 'The profits of eligible business or profession

of an assessee for the purposes of sub-section (1) shall,- (a) in a case where separate accounts in respect of such eligible business or profession are maintained,' by the Finance Act, 1989, w.e.f. 1-4-1991. 2 Substituted for 'Sixth Schedule', ibid. 3 Substituted for 'as increased by an amount equal to the depreciation, if any, debited in the audited profit and loss account; and by the Finance Act, 1987, w.e.f. 1-4-1987. 4 The word "and" omitted by the Finance Act, 1989, w.e.f. 1-4-1991. ----------------------------------------------------------------------- 1.178 1[(b) Omitted by the Finance Act, 1989, w.e.f. 1-4-1991.]

(4) No deduction under sub-section (1) shall be allowed in respect of any amount utilised for the purchase of- (a) any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest house; (b) any office appliances (not being computers); (c) any road transport vehicles; (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year; 2[(e) any new machinery or plant to be installed in an industrial undertaking, other than a small scale industrial undertaking, as defined in section 80HHA, for the purposes of business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule.]

(5) The deduction under sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in

the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form3 duly signed and verified by such accountant: Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section. 4[(5A) Any amount standing to the credit of the assessee in the deposit account shall not be allowed to be withdrawn before the expiry of a period of five years from the date of deposit except for the purposes specified in the scheme 5[or] in the circumstances specified below:- (a) closure of business; (b) death of an assessee; ----------------------------------------------------------------------- 1 Prior to the omission, clause (b) read as under: "(b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the

provisions of sub-section (1) of section 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipt of the business or profession carried on by the assessee." 2 Inserted by the Finance Act, 1989, w.e.f. 1-4-1991. 4 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 5 Substituted for 'and' by the Finance Act, 1989, w.r.e.f. 1-4-

----------------------------------------------------------------------- 1.179 (c) partition of a Hindu undivided family; (d) dissolution of a firm; (e) liquidation of a company.] 1[Explanation.-For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall affect the operation

of the provisions of sub-section (5AA) or sub-section (6) in relation to any withdrawals made from the deposit account either before or after the expiry of a period of five years from the date of deposit.] 2[5AA) Where any amount, standing to the credit of the assessee in the deposit account, is withdrawn during any previous year by the assessee in the circumstance specified in clause (a) or clause (d) of sub-section (5A), the whole of such amount shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year, as if the business had not closed or, as the case may be, the firm had not been dissolved.] 3[(5B) Where any amount standing to the credit of the assessee in the deposit account is utilised by the assessee for the purposes of any expenditure in connection with the 4[* * *] business or profession in accordance with the scheme, such expenditure shall not be allowed in computing the income chargeable under the head "Profits and gains of business or profession".]

(6) Where any amount, standing to the credit of the assessee in the deposit account, released during any previous year by the Development Bank for being utilised by the assessee for the purposes specified in the scheme or at the closure of the account, 5[[in circumstances other than the circumstances specified in clauses (b), (c) and (e) of sub-section (5A)]], is not utilised in accordance with 6[, and within the time specified in,] the scheme, either wholly or in part, 7[* * *] the whole of such amount or as the case may be, part thereof which is not so utilised shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year.

(7) Where any asset acquired in accordance with the scheme is sold or other-wise transferred in any previous year by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired, such part of the cost of such asset as is relatable to the deductions allowed under sub-

section (1) shall be deemed to be the profits and gains of business or profession of the previous year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income- tax as the income of that previous year: Provided that nothing in this sub-section shall apply- ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1989, w.r.e.f. 1-4-1987. 2 Ibid. 3 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 4 The word 'eligible' omitted by the Finance Act, 1989, w.e.f. 1-4-

5 Inserted, ibid, w.r.e.f. 1-4-1987. 6 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 7 The words 'within that previous year,' omitted, ibid. ------------------------------------------------------------------------- 1.180 (i) where the asset is sold or otherwise transferred by the assessee to Government, a local authority, a corporation established by or under a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 1 (1 of 1956); or (ii) where the sale or transfer of the asset is made in connection with the succession of a firm by a company in the business or profession carried on by the firm as a result of which the firm sells or otherwise transfers to the company any asset and the scheme continues to apply to the company in the manner applicable to the firm. Explanation.-The provisions of clause (ii) of the proviso shall apply only where- (i) all the properties of the firm relating to the business or profession immediately before the succession become the properties of the company; (ii) all the liabilities of the firm relating to the business or profession immediately before the succession become the liabilities of the company; and (iii) all the shareholders of the company were partners of the firm immediately before the succession.

(8) The Central Government may, if it considers it necessary or expedient so to do, by notification in the Official Gazette, omit any article or thing from the list of articles or things specified in the Eleventh Schedule.

(9) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the provisions of this section shall not apply to any class of assessees, with effect from such date as it may specify in the notification.

2[(10) Where a deduction has been allowed to an assessee under this section in any assessment year, no deduction shall be allowed to

the assessee under sub-section (1) of section 32A in the said assessment year (hereinafter referred to as the initial assessment year) and a block of further period of four years beginning with the assessment year immediately succeeding the initial assessment year.] Explanation.-In this section,- (a) "computers" does not include calculating machines and calculating devices; (b) "Development Bank" means- (i)in the case of an assessee carrying on business of growing and manufacturing tea in India, the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981); ---------------------------------------------------------------------- 2 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f.

1-4-1989. Prior to the substitution, sub-section (10) read as under:

"(10) No deduction shall be allowed under this section in the case of an assessee who has claimed the deduction allowable under section 33AB." ---------------------------------------------------------------------- 1.181 (ii) in the case of other assessees, the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964) and includes such bank or institution as may be specified in the scheme in this behalf.]

Development rebate 2. 33. Development rebate 2

3[(1)(a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b). (b) The sum refer-red to in clause (a) shall be,- (A) in the case of a ship, forty per cent of the actual cost thereof to the assessee; (B) in the case of machinery or plant,- (i) where the machinery or plant is installed 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 machinery or plant to the assessee, where it is installed before the 1st day of April, 1970, and (b) twenty-five per cent of such cost, where it is installed after the 31st day of March, 1970; (ii) where the machinery or plant is installed after the 31st day of March, 1967, by an assessee being an Indian company in premises used by it as a hotel and such hotel is for the time being approved in this behalf by the Central Government,- (a) thirty-five per cent of the actual cost of the machinery or plant to the assessee, where it is installed before the 1st day of April, 1970, and (b) twenty-five per cent of such cost, where it is installed after the 31st day of March, 1970; (iii)where the machinery or plant is installed after the 31st day of March, 1967, being an asset representing expenditure of ---------------------------------------------------------------------- 1 The deduction in respect of development rebate has been discontinued in respect of ships acquired or machinery or plant installed after 31-5-1974. A special provision was made under section 16 of the Finance Act, 1974, as amended by section 30 of the Finance Act, 1975 allowing the deduction for the period 1-6-1974 to 31-5-1977 on the fulfilment of certain conditions. 3 Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. Earlier, it was amended by the Income-tax (Amendment) Act, 1963, w.e.f. 1-4-1963; the Finance Act, 1965 and the Finance (No. 2) Act, 1965, both with effect from 1-4-1965. ---------------------------------------------------------------------- 1.182 a capital nature on scientific research related to the business carried on by the assessee,- (a) thirty-five per cent of the actual cost of the machinery or plant to the assessee, where it is installed before the 1st day of April, 1970, and, (b) twenty-five per cent of such cost, where it is installed after the 31st day of March, 1970; (iv) in any other case,- (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, 1970, and (b) fifteen per cent of such cost, where it is installed after the 31st day of March, 1970.] 1[(1A)(a) An assessee who, after the 31st day of March, 1964, acquires any ship which before the date of acquisition by him was used by any other person shall, subject to the provisions of section 34, also be allowed as a deduction a sum by way of development rebate at such rate or rates as may be prescribed, provided that the following conditions are fulfilled, namely:- (i) such ship was not previous to the date of such acquisition owned at any time by any person resident in India; (ii) such ship is wholly used for the purposes of the business carried on by the assessee; and (iii) such other conditions as may be prescribed. (b) An assessee who installs any machinery or plant (other than office appliances or road transport vehicles) which before such installation by the assessee was used outside India by any other person shall, subject to the provisions of section 34, also be allowed as a deduction a sum by way of development rebate at such rate or rates as may be prescribed, provided that the following conditions are fulfilled, namely:- (i) such machinery or plant was not used in India at any time previous to the date of such installation by the assessee; (ii) it is imported in India by the assessee from any country outside India; (iii) no deduction on account of depreciation or development rebate in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee; (iv) such machinery or plant is wholly used for the purposes of the business carried on by the assessee; and (v) such other conditions as may be prescribed. (c) The development rebate under this sub-section shall be allowed as a deduction in respect of the previous year in which the ship was acquired ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. See rule 5B. ----------------------------------------------------------------------- 1.183 or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year.]

(2) In the case of a ship acquired or machinery or plant installed after the 31st day of December, 1957, where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be, (the total income for this purpose being computed without making

any allowance under sub-section (1) 1[or sub-section (1A)] 2[of this

section or sub-section (1) of section 33A] 3[or any deduction under Chapter VI-A 4[* * *]]) is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under

5[sub-section (1) or sub-section (1A), as the case may be],- (i) the sum to be allowed by way of development rebate for

that assessment year under sub-section (1) 6[or sub-section (1A)] shall be only such amount as is sufficient to reduce the said total income to nil; and (ii) the amount of the development rebate, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development rebate 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 rebate, if any, still outstanding shall be carried forward to the following assessment year and so on, so however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be. Explanation.-Where for any assessment year development rebate is

to be allowed in accordance with the provisions of sub-section (2) in respect of ships acquired or machinery or plant installed in 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

without making any allowance under sub-section (1) 7[or sub-section

(1A)] 8[of this section or sub-section (1) of section 33A] 9[or any deduction under Chapter VI-A 10[* * *]]) is less than the aggregate of the amounts ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 2 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 4 The words "or section 280-O" omitted by the Finance Act, 1988, w.e.f. 1-4-1988. 5 Substituted for 'that sub-section' by the Finance Act, 1964, w.e.f. 1-4-1964. 6 Inserted, ibid. 7 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 8 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 9 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 10 The words "or section 280-O" omitted by the Finance Act, 1988, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.184 due to be allowed in respect of the assets aforesaid for that assessment year, the following procedure shall be followed, namely--

(i) the allowance under clause (ii) of sub-section (2) 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)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.

1[(3) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any ship, machinery or plant in respect of which development rebate has

been allowed to the amalgamating company under sub-section (1) or sub- section (1A),- (a) the amalgamated company shall continue to fulfil the

conditions mentioned in sub-section (3) of section 34 in respect of the reserve created by the amalgamating company and in respect of the period within which such ship, machinery or plant shall not be sold or otherwise transfer- red and in default of any of these conditions, the provisions

of sub-section (5) of section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and (b) the balance of development rebate, if any, still outstanding to the amalgamating company in respect of such ship, machinery or plant shall be allowed to the amalgamated

company in accordance with the provisions of sub-section (2), so, however, that the total period for which the balance of development rebate shall be carried for-ward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified

in sub-section (2) and the amalgamated company shall be treated as the assessee in respect of such ship, machinery or plant for the purposes of this section and section 34.]

(4) 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 ship, machinery or plant, the provisions

of clauses (a) and (b) of sub-section (3) shall, so far as may be, apply to the firm and the company. Explanation.-The provisions of this clause shall apply only where- (i) all the property of the firm relating to the business immediately before the succession becomes the property of the company; (ii) all the liabilities of the firm relating to the business immediately before the succession become the liabilities of the company; and (iii) all the shareholders of the company were partners of the firm immediately before the succession. ---------------------------------------------------------------------- 1 Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. Earlier, it was amended by the Finance Act, 1964, w.e.f. 1-4-1964 and the Finance Act, 1966, w.e.f. 1-4-1966. ----------------------------------------------------------------------- 1.185

1[(5) The Central Government, if it considers it necessary or expedient so to do, may, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed in respect of a ship acquired or machinery or plant installed after such date, not being earlier than three years from the date of such notification, as may be specified therein.]

2[(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:] 3[Provided that the provisions of this sub-section shall not apply in the case of an assessee being an Indian company, in respect of any machinery or plant installed by it in premises used by it as a hotel, where the hotel is for the time being approved in this behalf by the Central Government.) 4 [33A. Development allowance 5

(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, 6[fifty] 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 , 7[thirty] per cent of the actual cost of planting, shall, subject to the provisions of this section, be allowed as a deduction 8[in the manner specified hereunder, namely- (a) the amount of the development allowance shall, in the first instance, be computed with reference to that portion of the actual cost of planting which is incurred during the previous year in which the land is prepared for planting or replanting, as the case may be, and in the previous year next following, and the amount so computed shall be allowed as a deduction in respect of such previous year next following; and (b) thereafter, the development allowance shall again be computed with reference to the actual cost of planting, and if the sum so computed exceeds the amount allowed as a deduction under clause ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 2 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 4 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 5 The allowance under this section will not be available in respect of planting not completed before 1 April, 1990: see first proviso to

sub-section (1). 6 Substituted for 'forty' by the Finance Act, 1966, w.e.f. 1-4-

7 Substituted for "twenty", ibid. 8 Substituted for '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', ibid. ----------------------------------------------------------------------- 1.186 (a), the amount of the excess shall be allowed as a deduction in respect of the third succeeding previous year next following the previous year in which the land has been prepared for planting or replanting, as the case may be:] 1[Provided that no deduction under clause (i) shall be allowed unless the planting has commenced after the 31st day of March, 1965, and been completed before the 1st day of April, 1990: Provided further that 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 2[the previous year in respect of which

the deduction is required to be allowed under sub-section (1)] 3[(the total income for this purpose being computed after deduction of the

allowance under sub-section (1) or sub-section (1A) or clause (ii) of

sub-section (2) of section 33, but without making any deduction under

sub-section (1) of this section or any deduction under Chapter VI-A 4[* * *])] is nil or less than the full amount of the development allowance calculated at the rates 5[and in the manner] 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 ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1990, w.e.f. 1-4-1990. Prior to the substitution, the proviso read as under: "Provided that no deduction under clause (i) shall be allowed unless the planting 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 Substituted for "the third succeeding previous year next following the previous year in which the land has been prepared" by the Finance Act, 1966, w,e.f. 1-4-1966. 3 Substituted for "(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)" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 4 The words "or section 280-0" omitted by the Finance Act, 1988, w.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. ----------------------------------------------------------------------- 1.187 respect of more than one previous year, and the total income of the assessee assessable for that assessment year 1[(the total income for this purpose being computed after deduction of the allowance under

sub-section (1) or sub-section (1A) or clause (ii) of sub-section (2)

of section 33, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A 2[* * *])] 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(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 the 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 ---------------------------------------------------------------------- 1 Substituted for (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)" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 2 The words "or section 280-O" omitted by the Finance Act, 1988, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.188 defined in section 617 of the Companies Act, 1956 1 (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).

2[(5) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any land in respect of which development allowance has been allowed to the

amalgamating company under sub-section (1),- (a) the amalgamated company shall continue to fulfil the

conditions mentioned in sub-section (3) in respect of the reserve created by the amalgamating company and in respect of the period within which such land shall not be sold or other- wise transferred and in default of any of these conditions, the provisions of sub-section (5A) of section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and (b) the balance of development allowance, if any, still outstanding to the amalgamating company in respect of such land shall be allowed to the amalgamated company 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 amalgamating company and the amalgamated company shall not exceed the period of eight years specified

in sub-section (2) and the amalgamated company shall be treated as the assessee in respect of such land for the purposes of this section.]

(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: ----------------------------------------------------------------------- 2 Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. ----------------------------------------------------------------------- 1.189 1[Provided that where such cost exceeds- (i) forty thousand rupees per hector in respect of land situated in a hilly area comprised in the district of Darjeeling; or (ii) thirty-five thousand rupees per hector in respect of land situated in a hilly area comprised in an area other than the district of Darjeeling; or (iii) thirty thousand rupees per hector in any other area, then, the excess shall be ignored. Explanation.-For the purposes of this proviso, "district of Darjeeling" means the district of Darjeeling as on the 28th day of February, 1981, being the date of introduction of the Finance Bill, 1981, in the House of the People.]

(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. 2[Explanation.-For the purposes of this section, an assessee having a leasehold or other right of occupancy in any land shall be deemed to own such land and where the assessee transfers such right, he shall be deemed to have sold or otherwise transferred such land.] 4 [33AB. Tea Development Account

(1) Where an assessee carrying on business of growing and ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1981, w.e.f. 1-4-1982. 3 Inserted by the Finance Act, 1975, w.r.e.f. 1-4-1965. 4 Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Prior to the substitution, section 33AB, as inserted by the Finance Act, 1985, w.e.f. 1-4-1986 and amended by the Finance Act, 1987, w.e.f. 1-4-1988, read as under:

"33AB. Tea development account.-(1) Where an assessee carrying on business of growing and manufacturing tea in India has, during the previous year, deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board, the assessee shall, subject to the provisions of this section, be allowed a deduction of- (a) a sum equal to the amount or the aggregate of the amounts so deposited during the previous year, or (b) a sum equal to twenty per cent of the profits of such business (computed under the head 'Profits and gains of business or profession' before making any deduction under this section), whichever is less. Explanation.-In this section,- (a) 'National Bank' means the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981); (b) 'Tea Board' means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953).

(2) Where the amount or the aggregate of the amounts deposited by the assessee in the special account during the previous year

exceeds the sum allowable as deduction under sub-section (1), the excess shall be treated, for the purposes of that sub- ---------------------------------------------------------------------- 1.190 manufacturing tea in India has, before the expiry of six months from the end of the previous year or before furnishing the return of his income, 1[whichever is earlier,- (a) deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board; or (b) deposited any amount in an account (hereafter in this section referred to as the Tea Deposit Account) opened by the assessee in accordance with, and for the purposes specified in, a scheme framed by the Tea Board (hereafter in this section referred to as the deposit scheme) with the previous approval of the Central Government, the assessee shall, subject to the provisions of this section,] be allowed a deduction (such deduction being allowed before the loss, if any, brought for-ward from earlier years is set off under section 72) of- (a) a sum equal to the amount or the aggregate of the amounts so deposited; or (b) a sum equal to twenty per cent of the profits of such business (computed under the head "Profits and gains of business or profession" before making any deduction under this section), whichever is less: Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the ---------------------------------------------------------------------- -> section, as a deposit made by the assessee in the next following previous year.

(3) Where any amount standing to the credit of the assessee in the special account is utilised by the assessee for the purposes of

the business referred to in sub-section (1) in accordance with the scheme,- (a) for acquiring any asset being building, machinery, plant or furniture, the actual cost of such asset as determined

under clause (1) of section 43, shall for the purposes of this Act, be reduced by the amount so utilised; (b) for incurring any expenditure for the purposes of such business, such expenditure shall be reduced by the amount so utilised and the resultant sum, if any, shall be taken into account for the purposes of this Act.

(4) Where any amount, standing to the credit of the assessee in the special account, which is released during any previous year by the National Bank for being utilised by the assessee for the purposes of

the business referred to in sub-section (1) in accordance with the scheme is not so utilised, either wholly or in part, within that previous year, the whole of such amount or, as the case may be, part thereof which is not so utilised shall be deemed to be profits and gains of business and accordingly chargeable to income-tax as the income of that previous year.

(5) The provisions of this section shall apply in relation to the assessment years commencing on the 1st day of April, 1986 and the 1st day of April, 1987." 1 Substituted for the following by the Finance Act, 1994, w.e.f. 1- 4-1995: whichever is earlier, deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board, the assessee shall, subject to the provisions of this section," ----------------------------------------------------------------------- 1.191 case may be, any member of such firm, association of persons or body of individuals: Provided further that where any deduction, in respect of any amount deposited in the special account 1[or in the Tea Deposit Account], has been allowed under this sub-section in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.

2(2) The deduction under sub-section (1) shall not be admissible unless the accounts of such business of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the

Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income the report of such audit in the prescribed form duly signed and verified by such accountant: Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section.

(3)Any amount standing to the credit of the assessee in the special account '(or the Tea Deposit Account shall not be allowed to be withdrawn except for the purposes specified in the scheme or, as the case may be, in the deposit scheme] or in the circumstances specified below:- (a) closure of business; (b) death of an assessee; (c) partition of a Hindu undivided family; (d) dissolution of a firm; (e) liquidation of a company.

(4) Notwithstanding anything contained in sub-section (3), no

deduction under sub-section (1) shall be allowed in respect of any amount utilised for the purchase of- (a) any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest-house; (b) any office appliances (not being computers); (c) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year; (d) any new machinery or plant to be installed in an industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 3 Substituted for 'shall not be allowed to be withdrawn except for the purposes specified in the scheme' by the Finance Act, 1994, w.e.f. 1-4-1995. ----------------------------------------------------------------------- 1.192

(5) Where any amount standing to the credit of the assessee in the special account 1[or in the Tea Deposit Account], is withdrawn during any previous year by the assessee in the circumstance specified

in clause (a) or clause (d) of sub-section (3), the whole of such amount shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year, as if the business had not closed or, as the case may be, the firm had not been dissolved.

(6) Where any amount standing to the credit of the assessee in the special account 2[or in the Tea Deposit Account] is utilised by the assessee for the purposes of any expenditure in connection with such business in accordance with the scheme 3[or the deposit scheme], such expenditure shall not be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

(7) Where any amount, standing to the credit of the assessee in the special account 4[or in the Tea Deposit Account], which is released during any previous year by the National Bank 5[or which is withdrawn by the assessee from the Tea Deposit Account] for being utilised by the assessee for the purposes of such business in accordance with the scheme 6[or the deposit scheme] is not so utilised, either wholly or in part, within that previous year, the whole of such amount or, as the case may be, part thereof which is not so utilised shall be deemed to be profits and gains of business and accordingly chargeable to income-tax as the income of that previous year: Provided that this sub-section shall not apply in a case where such amount is released during any previous year at the closure of the account in circumstances specified in clauses (b), (c) and (e) of sub-

section (3).

(8) Where any asset acquired in accordance with the scheme 7[or the deposit scheme] is sold or otherwise transferred in any previous year by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired, such part of the cost of such asset as is relatable to the

deduction allowed under sub-section (1) shall be deemed to be the profits and gains of business or profession of the previous year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income-tax as the income of that previous year: Provided that nothing in this sub-section shall apply- (i) where the asset is sold or other-wise transferred by the assessee to Government, a local authority, a corporation established by or under a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 8 (1 of 1956); or ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f 1-4-1995. 2 ]bid. ------------------------------------------------------------------------ 1.193 (ii) where the sale or transfer of the asset is made in connection with the succession of a firm by a company in the business or profession carried on by the firm as a result of which the firm sells or otherwise transfers to the company any asset and the scheme 8[or the deposit scheme] continues to apply to the company in the manner applicable to the firm. Explanation.-The provisions of clause (ii) of the proviso shall apply only where- (i) all the properties of the firm relating to the business or profession immediately before the succession become the properties of the company; (ii) all the liabilities of the firm relating to the business or profession immediately before the succession become the liabilities of the company; and (iii)all the shareholders of the company were partners of the firm immediately before the succession.

(9) The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed after such date as may be specified therein. Explanation.-In this section,- (a.) "National Bank" means the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981); (b) "Tea Board" means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953). 2[33AC. Reserves for shipping business

(1) 3[In the case of an assessee, being 4[a Government company or] a public company formed and registered in India with the main object of carrying on the business of operation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of' an amount, not exceeding the total income (computed before making any deduction under this section and Chapter VI-A), as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised in the manner laid down in sub-

section (2):] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995 2 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. 3 Being substituted by "In the case of an assessee, being a Government company or a public company formed and registered in India with the main object of carrying oil the business of operation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount not exceeding fifty per cent of profits derived from the business of operation of ships (computed under the head "Profits and gains of business or profession" and before making any deduction under this section), as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve

account, to be utilised in the manner laid down in subsection (2):" by the Finance Act, 1995, w.e.f. 1-4-1996. 4 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. ---------------------------------------------------------------------- 1.194 Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital (excluding the amounts capitalised from reserves) of the assessee, no allowance under this sub-section shall be made in respect of such excess.

(2) The amount credited to the reserve account under sub-section

(1) shall be utilised by the assessee before the expiry of a period of eight years next following the previous year in which the amount was credited- (a) for acquiring a new ship for the purposes of the business of the assessee; and (b) until the acquisition of a new ship, for the purposes of the business of the assessee other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India.

(3) Where any amount credited to the reserve account under sub-

section (1),- (a) has been utilised for any purpose other than that

referred to in clause (a) or clause (b) of sub-section (2), the amount so utilised; or (b) has not been utilised for the purpose specified in

clause (a) of sub-section (2), the amount not so utilised; or (c) has been utilised for the purpose of acquiring a new

ship as specified in clause (a) of sub-section (2), but such ship 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 it was acquired, the amount so utilised in acquiring the ship, shall be deemed to be the profits,- (i) in a case referred to in clause (a), in the year in which the amount was so utilised; or (ii) in a case referred to in clause (b), in the year immediately following the period of eight years specified in

sub-section (2); or (iii) in a case referred to in clause (c), in the year in which the sale or transfer took place, and shall be charged to tax accordingly. Explanation.-For the purposes of this section,- (a) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 1 (1 of 1956); 2[(aa) "Government company" shall have the meaning assigned to it in section 617 of the Companies Act, 19563;] (b) "new ship" shall have the same meaning as in clause

(ii) of sub-section (2) of section 32AB.] -------------------------------------------------------------------- 2 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. ---------------------------------------------------------------------- 1.195 1[33B. Rehabilitation allowance 2 Where the business of any industrial undertaking carried on in India is discontinued in any previous year by reason of extensive damage to, or destruction of, any building, machinery, plant or furniture owned by the assessee and used for the purposes of such business as a direct result of- (i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or (ii) riot or civil disturbance; or (iii) accidental fire or explosion; or (iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), and, thereafter, at any time before the expiry of three years from the end of such previous year, the business is re-established, reconstructed or revived by the assessee, he shall, in respect of the previous year in which the business is so re-established, reconstructed or revived be allowed a deduction of a sum by way of rehabilitation allowance equivalent to sixty per cent of the amount of

the deduction allowable to him under clause (iii) of sub-section (1) of section 32 in respect of the building, machinery, plant or furniture so damaged or destroyed: 3[Provided that no deduction under this section shall be allowed in relation to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year.] Explanation.-In this section, "industrial undertaking" means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining.]

Conditions for depreciation allowance and development rebate 4. 34.Conditions for depreciation allowance and development rebate4

5[(1) Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f 1-4-1988.]

6[(2) Omitted by the Taxation Laws (Amendment & Miscellaneous ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 2 The deduction under this section has been discontinued from assessment year 1985-86: see proviso to the section. 3 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985.

5 Prior to the omission, sub-section (1), as amended by the Taxation laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under:

"(1) The deductions referred to in sub-section (1) or subsection (1A) of section 32 shall be allowed only if the prescribed particulars have been furnished; and the deduction referred to in section 33 shall be allowed only if the particulars prescribed for the purpose of

clause (i) and clause (ii) of sub-section (1) of section 32 have been furnished by the assessee in respect of the ship or machinery or plant."

6 Prior to the omission, sub-section (2), as amended by the Finance Act, 1965, w.e.f. 1-4-1965; the Finance (No. 2) Act, 1967, w.e.f. 1-4- 1967; the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971; the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1975 and the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, read as under: ----------------------------------------------------------------------- 1.196 Provisions) Act, 1986, w.e.f. 1-4-1988.]

(3)(a) The deduction referred to in section 33 shall not be allowed unless an amount equal to seventy-five per cent of the development rebate to be actually allowed is debited to the profit and loss account of 1[any previous year in respect of which the deduction

is to be allowed under sub-section (2) of that section or any earlier previous year (being a previous year not earlier than the year in which the ship was acquired or the machinery or plant was installed or the ship, machinery or plant was first put to use)] and credited to a reserve account to be utilised by the assessee during the period of eight years next following for the purposes of the business of the undertaking, other than- (i) for distribution by way of dividends or profits; or (ii) for remittance outside India as profits or for the creation of any asset outside India: Provided that this clause shall not apply where the assessee is a company, being a licensee within the meaning of the Electricity (Supply) Act, 1948 (54 of 1948), or where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958: 2[Provided further that where a ship has been acquired after the 28th day of February, 1966, this clause shall have effect in respect of such ship as if for the words "seventy-five", the word "fifty" had been substituted.] ----------------------------------------------------------------------

"(2) For the purposes of section 32- (i)the aggregate of all deductions in respect of depreciation

made under sub-section (1) or sub-section (1A) of section 32 or under the Indian Income-tax Act, 1922 (11 of 1922), or under any Act repealed by that Act or under the Indian Income-tax Act, 1886 (2 of 1886), shall, in no case, exceed the actual cost to the assessee of the building, machinery, plant, furniture, structure or work, as the case may be. Explanation:Where a capital asset is transferred- (i)by a holding company to its subsidiary company or by a subsidiary company to its holding company, or (ii)by a company to another company in a scheme of amalgamation, and the conditions specified in clause (iv) or clause (v) or, as the case may be, clause (vi) of section 47 are satisfied, then, in determining the aggregate of all deductions in respect of depreciation under this clause, account shall also be taken of the deductions in respect of depreciation allowed in the case of the company from which the asset has been transferred; (ii)nothing in clause (i) or clause (ii) or clause (iia) or

clause (iv) or clause (v) or clause (vi) of sub-section (1) of section 32 shall be deemed to authorise the allowance for any previous year of any sum in respect of any building, machinery, plant or furniture sold, discarded, demolished or destroyed in that year; (iii)nothing in clause (i) of sub-section (1A) of section 32 shall be deemed to authorise the allowance for any previous year of any sum in respect of any structure or work in or in relation to a building referred to in that sub-section which is sold, discarded, demolished or destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building in that year." 1 Substituted for "the relevant previous year" by the Finance Act, 1990, w.r.e.f. 1-4-1962. 2 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. ------------------------------------------------------------------------ 1.197 1[Explanation.-Omitted by the Finance Act, 1990, w.r.e.f. 1-4- 1962.] (b)If any ship, machinery or plant 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 it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the-purposes of this Act, and the

provisions of subsection (5) of section 155 shall apply accordingly: Provided that this clause shall not apply,- (i) where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958; or (ii) where the ship, machinery or plant 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 2 ( 1 of 1956); or (iii) where the sale or transfer of the ship, machinery or plant is made in connection with the amalgamation or

succession, referred to in sub-section (3) or sub-section (4) of section 33. 3[34A. Restriction on unabsorbed depreciation and unabsorbed investment allowance for limited period in case of certain domestic companies

(1) In computing the profits and gains of the business of a domestic company in relation to the previous year relevant to the assessment year commencing on the 1st day of April, 1992, where effect is to be given to the unabsorbed depreciation allowance or unabsorbed investment allowance or both in relation to any previous year relevant to the assessment year commencing on or before the 1st day of April, 1991, the deduction shall be restricted to two-thirds of such allowance or allowances and the balance,- (a) where it relates to depreciation allowance, be added to the depreciation allowance for the previous year relevant to the assessment year commencing on the 1st day of April, 1993 and be deemed to be part of that allowance or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year and so on for the succeeding previous years; (b) where it relates to investment allowance, be carried forward to the assessment year commencing on the 1st day of April, 1993 and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and where the ----------------------------------------------------------------------- 1 Prior to the omission, the Explanation read as under: "Explanation.-For-the removal of doubts, it is hereby declared that the deduction referred to in section 33 shall not be denied by reason only that the amount debited to the profit and loss account of the relevant previous year and credited to the reserve account aforesaid exceeds the amount of the profit of such previous year (as arrived at without making the debit aforesaid) in accordance with the profit and loss account." 3 Inserted by the Finance Act, 1992, w.e.f. 1-4-1992. ----------------------------------------------------------------------- 1.198 period of eight years has expired before the portion of such balance is adjusted, the said period shall be extended beyond eight years till such time the portion of the said balance is absorbed in the profits and gains of the business of the domestic company.

(2) For the assessment year commencing on the 1st day of April,

1992, the provisions of sub-section (2) of section 32 and sub-section

(3) of section 32A shall apply to the extent such provisions are not

inconsistent with the provisions of sub-section (1) of this section.

(3)Nothing contained in sub-section (1) shall apply where the amount of unabsorbed depreciation allowance or of the unabsorbed investment allowance, as the case may be, or the aggregate amount of such allowances in the case of a domestic company is less than one lakh rupees.

(4)Nothing contained in sections 234B and 234C shall apply to any shortfall in the payment of any tax due on the assessed tax or, as the case may be, returned income where such shortfall is on account of restricting the amount of depreciation allowance or investment allowance under this section and the assessee has paid the amount of

shortfall before furnishing the return of income under sub-section (1) of section 139.]

Expenditure on scientific research 2. 1[35. Expenditure on scientific research 2.

(1)In respect of expenditure on scientific research, the following deductions shall be allowed- (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. 2[Explanation.-Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary [as defined in

Explanation 2 below sub-section (5) of section 40A] to an employee engaged in such scientific research or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced;] (ii) any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research: Provided that such association, university, college or institution is for the time being approved for the purposes of this ----------------------------------------------------------------------- 1 Reintroduced with modifications by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 3 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-

1.199 clause by the prescribed authority' 1[by notification in the Official Gazette]; 4[(iii)any sum paid to a university, college or other institution to be used for research in social science or statistical research: Provided that such university, college or institution is for the time being approved for the purposes of this clause by the prescribed authority' by notification' in the Official Gazette;] (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the

provisions of sub-section (2): 7[Provided that the scientific research association, university, college or other institution referred to in clause (ii) or clause (iii) shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of approval, or continuance thereof, under clause (ii) or, as the case may be, clause (iii): Provided further that the prescribed authority may, before granting approval under clause (ii) or clause (iii), call for such documents (including audited annual accounts) or information from the scientific research association, university, college or other institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the scientific research association, university, college or other institution and that authority may also make such inquiries as it may deem necessary in this behalf: Provided also that any notification issued by the prescribed authority under clause (ii) or clause (iii) shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification.]

(2) For the purposes of clause (iv) of sub-section (1),- ---------------------------------------------------------------------- 1 See rule 6 and Form No. 3CF. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to substitution, clause (iii) read as under: "(iii) any sum paid to a university, college or other institution to be used for research in social science or statistical research related to the class of business carried on, being a university, college or institution which is for the time being approved for the purposes of this clause by the prescribed authority by notification in the Official Gazette;" The italicised words were inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

1.200 1[(i) in a case where such capital expenditure is incurred before the 1st day of April, 1967, one-fifth of the capital expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal instalments for each of the four immediately succeeding previous years; (ia) in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year:] 2[Provided that no deduction shall be admissible under this clause in respect of any expenditure incurred on the acquisition of any land, whether the land is acquired as such or as part of any property, after the 29th day of February, 1984.] Explanation 3[1].-Where any capital expenditure has been incurred before the commencement of the business, the aggregate of the expenditure so incurred within the three years immediately preceding the commencement of the business shall be deemed to have been incurred in the previous year in which the business is commenced. 4[Explanation 2.-For the purposes of this clause,- (a) "land" includes any interest in land; and (b) the acquisition of any land shall be deemed to have been made by the assessee on the date on which the instrument of transfer of such land to him has been registered under the Registration Act, 1908 5 (16 of 1908), or where he has taken or retained the possession of such land or any part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 6 (4 of 1882), the date on which he has so taken or retained possession of such land or part;] (ii) notwithstanding anything contained in clause (i), where an asset representing expenditure of a capital nature 7[incurred before the 1st day of April, 1967,] ceases to be used in a previous year for scientific research related to the business and the value of the asset at the time of the cessation, together with the aggregate of deductions already allowed under clause (i) falls short of the said expenditure, then- (a) there shall be allowed a deduction for that previous year of an amount equal to such deficiency, and (b) no deduction shall be allowed under that clause for that previous year or for any subsequent previous year; (iii) if the asset mentioned in clause (ii) is sold, without having been ---------------------------------------------------------------------- 1 Substituted for clause (i) by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 2 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. 3 ibid. 4 Ibid. 6 Ibid. 7 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. ------------------------------------------------------------------------ 1.201 used for other purposes, in the year of cessation, the sale price shall be taken to be the value of the asset at the time of the cessation; and if the asset is sold, without having been used for other purposes, in a previous year subsequent to the year of cessation, and the sale price falls short of the value of the asset taken into account at the time of cessation, an amount equal to the deficiency shall be allowed as a deduction for the previous year in which the sale took place; (iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed

under 1[clause (ii) of sub-section (1)) of section 32 for the same 2[or any other] previous year in respect of that asset; (v) where the asset 3[mentioned in clause (ii)] is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be

admissible under 4[ clause (ii) of sub-section (1)] of section 32. 5[(2A) Where, 6[, before the 1st day of March, 1984,] the assessee pays any sum 7[being any sum paid with a specific direction that the sum shall not be used for the acquisition of any land or building or construction of any building] to a scientific research association or university or college or other institution referred to

in clause (ii) of sub-section (1) 8[or to a public sector company] to be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority' having regard to the social, economic and industrial needs of India, then,- (a) there shall be allowed a deduction of a sum equal to one and onethird times the sum so paid; and (b) no deduction in respect of such sum shall be allowed

under clause (ii) of sub-section (1) for the same or any other assessment year.] 10[Explanation.-For the purposes of this sub-section, "public sector company" shall have the same meaning as in clause (b) of the Explanation below sub-section (2B) of section 32A.] 11[(2AA) Where the assessee pays any sum to a National Laboratory 12[or a University or an Indian Institute of Technology] with a specific ---------------------------------------------------------------------- 1 Substituted for "clauses (i), (ii), (iia), (iii) and (vi) of sub-

section (1) or under sub-section (1A)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 2 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1962. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

4 Substituted for "clauses (i), (ii) and (iii) of sub-section (1)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 5 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-

6 Inserted by Finance Act, 1984, w.e.f. 1-4-1984. 7 Inserted by Finance (No. 2) Act, 1983, w.e.f. 1-4-1984. 8 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. 10 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. 11 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. 12 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ----------------------------------------------------------------------- 1.202 direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority, I then- (a) there shall be allowed a deduction of a sum equal to one and onefourth times the sum so paid; and (b) no deduction in respect of such sum shall be allowed under any other provision of this Act: Provided that every National Laboratory 2[or University or Indian Institute of Technology] desirous of obtaining approval under this subsection shall make an application in the prescribed form and manner to the prescribed authority: Provided further that the prescribed authority may, before granting approval, call for such documents or information from the National Laboratory 3[or the University or the Indian Institute of Technology] as it thinks necessary in order to satisfy itself about the genuineness of the activities relating to scientific research of such Laboratory 4 [or University or Institute, as the case may be]. 5[Explanation.-For the purposes of this section,- (a) "National Laboratory" means a scientific laboratory functioning at the national level under the aegis of the Indian Council of Agricultural Research, the Indian Council of Medical Research, the Council of Scientific and Industrial Research, the Defence Research and Development Organisation, the Department of Electronics, the Department of Bio- Technology or the Department of Atomic Energy and which is approved as a National Laboratory by the prescribed authority in such manner as may be prescribed; (b) "University" shall have the same meaning as in Explanation to clause (ix) of section 47; (c) "Indian Institute of Technology" shall have the same meaning as that of "Institute" in clause (g) of section 3 of the Institutes of Technology Act, 196 1 6 (59 of 1961).]] 7[(2B)(a) Where 8[, before the 1st day of March, 1984,] an assessee has incurred any expenditure (not being in the nature of capital expenditure incurred on the acquisition of any land or building or construction of any building) on scientific research undertaken under a programme approved in this behalf by the prescribed authority having ----------------------------------------------------------------------- 2 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 3 Ibid. 4 Ibid. 5 Substituted by the Finance Act, 1994, w.e.f. 1-4-1995 for the following: 'Explanation.-For the purposes of this sub-section, "National Laboratory" means a scientific laboratory functioning at the national level under the aegis of the Indian Council of Agricultural Research, the Indian Council of Medical Research or the Council of Scientific and Industrial Research and which is approved as a National Laboratory by the prescribed authority in such manner as may be prescribed.' 7 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. 8 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. ----------------------------------------------------------------------- 1.203 regard to the social, economic and industrial needs of India, he shall, subject to the provisions of this sub-section, be allowed a deduction of a sum equal to one and one-fourth times the amount. of the expenditure certified by the prescribed authority to have been so incurred during the previous year. (b)Where a deduction has been allowed under clause (a) for any previous year in respect of any expenditure, no deduction in respect of such expenditure shall be allowed under clause (i) of sub-section

(1) or clause (ia) of sub-section (2) for the same or any other previous year. (c)Where a deduction is allowed for any previous year under this subsection in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under

1[clause (ii) of sub-section (1)) of section 32 for the same or any subsequent previous year. (d)Any deduction made under this sub-section in respect of any expenditure on scientific research in excess of the expenditure actually incurred shall be deemed to have been wrongly made for the purposes of this Act if the assessee fails to furnish within one year of the period allowed by the prescribed authority for completion of the programme, a certificate of its completion obtained from that authority, and the provisions of sub-section (5B) of section 155 shall apply accordingly.]

(3)If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to the prescribed authority,2 whose decision shall be final.

(4)The provisions of sub-section (2) of section 32 shall apply in

relation to deductions allowable under clause (iv) of sub-section (1) as they apply in relation to deductions allowable in respect of depreciation.

3[(5) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing expenditure of a capital nature on scientific research,- (i) the amalgamating company shall not be allowed the deduction under clause (ii) or clause (iii) of sub-section

(2); and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the asset.]] ----------------------------------------------------------------------- 1 Substituted for 'clauses (i), (ii), (iia) and (iii) of sub-

section (1) or under sub-section (1A)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. ----------------------------------------------------------------------- 1.204 2. Before allowing the deduction under the section, the Income- tax Officer shall call for from the sponsor/contributor a certificate issued by the research association/ institution certifying inter alia the amount actually paid by the sponsor/contributor to the research programme as approved and mentioned in the notification and also certifying that the total contribution received from all the sponsors/contributors to the research programme as approved received from all the sponsors/contributors do not exceed the cost of the programme, as approved by the prescribed authority. [Circular No. 294, dated 27th February, 1981] 1[35A. Expenditure on acquisition of patent rights or copyrights

(1) In respect of any expenditure of a capital nature incurred after the 28th day of February, 1966, on the acquisition of patent rights or copyrights (hereafter, in this section, referred to as rights) used for the purposes of the business, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. Explanation.-For the purposes of this section,- (i) "relevant previous years" means the fourteen previous years beginning with the previous year in which such expenditure is incurred or, where such expenditure is incurred before the commencement of the business, the fourteen previous years beginning with the previous year in which the business commenced: Provided that where the rights commenced, that is to say, became effective, in any year prior to the previous year in which expenditure on the acquisition thereof was incurred by the assessee, this clause shall have effect with the substitution for the reference to fourteen years of a reference to fourteen years less the number of complete years which, when the rights are acquired by the assessee, have elapsed since the commencement thereof, and if fourteen years have elapsed as aforesaid, of a reference to one year; (ii) "appropriate fraction" means the fraction the numerator of which is one and the denominator of which is the number of the relevant previous years.

(2) Where the rights come to an end without being subsequently revived or where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) are not less than the cost of acquisition thereof remaining unallowed, no

deduction under sub-section (1) shall be allowed in respect of the previous year in which the rights come to an end or, as the case may be, the whole or any part of the rights is sold or in respect of any subsequent previous year.

(3)Where the rights either come to an end without being subsequently revived or are sold in their entirety and the proceeds of the sale (so far as they consist of capital sums) are less than the cost of acquisition thereof remaining unallowed, a deduction equal to such cost remaining unallowed, or, as the case may be, such cost remaining unallowed as reduced by the proceeds of the sale, shall be allowed in respect of the previous year in which the rights come to an end, or, as the case may be, are sold. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. ----------------------------------------------------------------------- 1.205

(4) Where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) exceed the amount of the cost of acquisition thereof remaining unallowed, so much of the excess, as does not exceed the difference between the cost of acquisition of the rights and the amount of such cost remaining unallowed shall be chargeable to income-tax as income of the business of the previous year in which the whole or any part of the rights is sold. Explanation.-Where the whole or any part of the rights is sold in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year.

(5) Where a part of the rights is sold and sub-section (4) does not apply, the amount of the deduction to be allowed under sub-section

(1) shall be arrived at by- (a) subtracting the proceeds of the sale (so far as they consist of capital sums) from the amount of the cost of acquisition of the rights remaining unallowed; and (b) dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the rights are sold.]

1[(6) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers the rights to the amalgamated company (being an Indian company),-

(i) the provisions of sub-sections (3) and (4) shall not apply in the case of the amalgamating company; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the rights.] 2[35AB. Expenditure on know-how

(1) Subject to the provisions of sub-section (2), where the assessee has paid in any previous year any lump sum consideration for acquiring any know-how for use for the purposes of his business, one- sixth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance amount shall be deducted in equal instalments for each of the five immediately succeeding previous years.

(2) Where the know-how referred to in sub-section (1) is developed in a laboratory, university or institution referred to in sub-section (2B) of section 32A, one-third of the said lump sum consideration paid in the previous year by the assessee shall be deducted in computing the profits and gains of the business for that year, and the balance amount shall be deducted in equal instalments for each of the two immediately succeeding previous years. ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 2 Inserted by the Finance Act, 1985, w.e.f. 1-4-1986. ---------------------------------------------------------------------- 1.206 Explanation.-For the purposes of this section, "know-how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto).] 1[35AC. Expenditure on eligible projects or schemes'

(1) Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee' for carrying out any eligible project or scheme, the assessee shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year: Provided that a company may, for claiming the deduction under this sub-section, incur expenditure either by way of payment of any sum as aforesaid or directly on the eligible project or scheme.

(2) The deduction under sub-section (1) shall not be allowed unless the assessee furnishes along with his return of income a certificate- (a ) 4 where the payment is to a public sector company or a local authority or an association or institution referred to

in subsection (1), from such public sector company or local authority or, as the case may be, association or institution; (b) 'in any other case, from an accountant, as defined in

the Explanation below sub-section (2) of section 288, in such form, manner and containing such particulars (including particulars relating to the progress in the work relating to the eligible project or scheme during the previous year) as may be prescribed.

(3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in

sub.section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. Explanation.-For the purposes of this section,- (a) "National Committee" means the Committee constituted by the Central Government, from amongst persons of eminence in public life, in accordance with the rules made under this Act; (b) "'eligible project or scheme" means such project or scheme for promoting the social and economic welfare of, or the uplift of, the public as the Central Government may, by notification7 in the Official Gazette, specify in this behalf on the recommendations of the National Committee.] ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. ---------------------------------------------------------------------- 1.207 1[35B. Export markets development allowance.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989. ] 2[35C. Agricultural development allowance.-Omitted by the Direct Tax ------------------------------------------------------------------------ 1 Prior to the omission, section 35B, as inserted by the Finance Act, 1968, w.e.f. 1-4-1968 and amended by the Finance Act, 1973, w.r.e.f. 1-4-1968; Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4- 1973; Finance Act, 1978, w.e.f. 1-4-1978; Finance Act, 1979, w.e.f. 1- 4-1980; Finance (No. 2) Act, 1980, w.e.f. 1-4-1981 and Finance Act, 1983, w.e.f. 1-4-1983, read as under:

"35B. Export markets development allowance.-(1)(a) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968 but before the 1st day of March, 1983, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year: Provided that in respect of the expenditure incurred after the 28th day of February, 1973, but before the 1st day of April, 1978, by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words 'one and one-third times", the words "one and one-half times" had been substituted. (b) The expenditure refer-red to in clause (a) is that incurred wholly and exclusively on- (i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business; [(ii) [(iii) (iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, services or facilities; [(V) [(vi) (vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, including travelling outward from, and return to, India;

[(viii) * * *]

meaning assigned to it in clause (2) of section 80B. Explanation 2.-For the removal of doubts, it is hereby declared that nothing in clause (b) shall be construed to include any expenditure which is in the nature of purchasing and manufacturing expenses ordinarily dubitable to the trading or manufacturing account and not to the profit and loss account.

[(1A) * * *]

(2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in

sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.' 2 Prior to the omission, section 35C, as inserted by the Finance Act, 1968, w.e.f. 1-4-1968 and amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976; Finance Act, 1983 and Finance Act, 1984, both w.e.f. 1-4-1984, read as under:

"35C. Agricultural development allowance.-(1)(a) Where any company or a cooperative society is engaged in the manufacture or processing of any article or thing which is made from, or uses in such manufacture or processing as raw material, any product of agriculture, animal husbandry, or dairy or poultry farming, and ---------------------------------------------------------------------- 1.208 Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] 1[35CC. Rural development allowance.-Omitted by the Direct Tax Laws ---------------------------------------------------------------------- -> -> has incurred, after the 29th day of February, 1968 but before the 1st day of March, 1984, whether directly or through an association or body which has been approved for the purposes of this section by the prescribed authority any expenditure in the provision of any goods, services or facilities specified in clause (b) to a person (not

being a person referred to in clause (b) of sub-section (2) of section 40A) who is a cultivator, grower or producer of such product in India, the company or co-operative society shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incur-red during the previous year. (b) The goods, services or facilities referred to in clause (a) are the following:- (i) fertilizers, seeds, pesticides, concentrates for cattle and poultry feed, tools or implements, for use by such cultivator, grower or producer; (ii) dissemination of information on, or demonstration of, modem techniques or methods of agriculture, animal husbandry, or dairy or poultry farming, or advice on such techniques or methods; (iii) such other goods, services or facilities as may be prescribed. Explanation.-In computing the expenditure which is to be allowed as deduction under this section, the amount, if any, received by the company or cooperative society in consideration of, or as compensation for, such goods, services or facilities shall be deducted.

(2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure of the nature

specified in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.' 1 Prior to the omission, section 35CC, as inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977 and amended by the Finance Act, 1983, w.e.f. 1-4-1983 and the Finance Act, 1985, w.e.f. 17-3-1985, read as under:

"35CC. Rural development allowance.-(1) Where the assessee, being a company or a co-operative society, incurs any expenditure on any programme of rural development, the assessee shall, in accordance with and subject to the provisions of this section be allowed a deduction of the amount of such expenditure incurred during the previous year: Provided that the approval of the prescribed authority has been obtained by the assessee in respect of such programme before incurring the expenditure: Provided further that the prescribed authority shall not approve any programme unless such programme is a programme falling within any such class or category of programmes of rural development as may be specified by the Central Government in this behalf: Provided also that no programme shall be approved under this section after the 16th day of March, 1985. Explanation.-For the purposes of this sub-section,- (a) "programme of rural development" includes any programme for promoting the social and economic welfare of, or the uplift of, the public in any rural area; (b) "rural area" means any area other than- (i)an area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (ii)an area within such distance, not being more than fifteen kilometres, from the local limits of any municipality or cantonment board referred to in sub- clause (i), as the Central Government may, having regard to the stage of development of such area (including the extent of, and ---------------------------------------------------------------------- 1.209 (Amendment) Act, 1987, w.e.f 1-4-1989.1 1[35CCA. Expenditure by way of payment to associations and institutions for carrying out rural development programmes'

3[(1)] Where an assessee incurs any expenditure by way of payment of any sum- (a) to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the prescribed authority;4 or (b) to an association or institution, which has as its object the training of persons for implementing programmes of rural development; 5[or] 6[(C) to a rural development fund set up and notified' by the Central Government in this behalf 8[; or] 9[(d) to the National Urban Poverty Eradication Fund set up and notified by the Central Government in this behalf,] ------------------------------------------------------------------------ -> -> scope for, urbanisation of such area) and other relevant considerations, specify in this behalf by notification in the Official Gazette.

(2) Where the expenditure referred to in sub-section (1) results in the acquisition or creation of an asset, being building, machinery, plant or furniture, and the assessee does not divest itself of the ownership of such asset before the end of the previous year, no deduction in respect of such expenditure shall be allowed under sub-

section (1) but the assessee shall be entitled to the allowance for depreciation in respect of the asset so acquired or created as if such asset was used for the purposes of the business and the provisions of sections 32, 34, 41 and 43 shall, so far as may be, apply accordingly.

(3) No deduction shall be allowed in respect of the expenditure

referred to in subsection (1) unless the assessee furnishes, along with the return of income for the assessment year for which the deduction is claimed, a statement of such expenditure in the prescribed form duly signed and verified by an accountant as defined

in the Explanation below sub-section (2) of section 288 and setting forth such particulars as may be prescribed.

(4) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in

sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.' 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. It was earlier omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 35CCA was originally inserted by the Finance Act, 1978, w.e.f. 1-6-1978. 3 Substituted by the Finance Act, 1979, w.e.f. 1-6-1979. 5 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 6 Ibid. 8 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 9 Ibid. ---------------------------------------------------------------------- 1.210

the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.)

1[(2) The deduction under clause (a) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution referred to in the said clause unless the assessee furnishes a certificate from such association or institution to the effect that- (a) the programme of rural development had been approved by the prescribed authority before the 1st day of March, 1983; and (b) where such payment is made after the 28th day of February, 1983, such programme involves work by way of construction of any building or other structure (whether for use as a dispensary, school, training or welfare centre, workshop or for any other purpose) or the laying of any road or the construction or boring of a well or tube-well or the installation of any plant or machinery, and such work has commenced before the 1st day of March, 1983.]

2[(2A) The deduction under clause (b) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution unless the assessee furnishes a certificate from such association or institution to the effect that- (a) the prescribed authority had approved the association or institution before the 1st day of March, 1983; and (b) the training of persons for implementing any programme of rural development had been started by the association or institution before the 1st day of March, 1983.] 3[(2B) No certificate of the nature referred to in sub-section

(2) or subsection (2A) shall be issued by any association or institution unless such association or institution has obtained from the prescribed authority authorisation in writing to issue certificates of such nature.] Explanation.-For the purposes of this section, "programme of rural development" shall have the meaning assigned to it in the

Explanation to sub-section (1) of section 35CC.

(3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in

subsection (1), deduction shall not be allowed in respect of such expenditure under section 35C or section 35CC or section 80G or any other provision of this Act for the same or any other assessment year.] ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. Prior to

substitution, sub-section (2), as amended by the Finance Act, 1979, w.e.f. 1-6-1979, read as under:

"(2) The deduction under sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such association or institution is for the time being approved in this behalf by the prescribed authority: Provided that the prescribed authority shall not grant such approval for more than three years at a time.' 2 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 3 Ibid. ----------------------------------------------------------------------- 1.211 1[35CCB. Expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources

2[(1) Where an assessee incurs any expenditure by way of payment of any sum- (a) to an association or institution, which has as its object the undertaking of any programme of conservation of natural resources or of afforestation, to be used for carrying out any programme of conservation of natural resources or afforestation approved by the prescribed authority4; or (b) to such fund for afforestation as may be notified5 by the Central Government,

the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.]

(2) The deduction -under 6[clause (a) of) sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such association or institution is for the time being approved in this behalf by the prescribed authority: Provided that the prescribed authority shall not grant such approval for more than three years at a time.

(3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in

subsection (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.] 7[35D. Amortisation of certain preliminary expenses

(1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section

(2),- ----------------------------------------------------------------------- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. It was earlier omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 35CCB was originally inserted by the Finance Act, 1982, w.e.f. 1-6-1982. 2 Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Prior to

the substitution, subsection (1) read as under:

'(1) Where an assessee incurs any expenditure by way of payment of any sum to an association or institution, which has as its object the undertaking of any programme of conservation of natural resources, to be used for carrying out any programme of conservation of natural resources approved by the prescribed authority, the assessee shall,

subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year. 5 The National Fund for Afforestation and Wastelands Development has been notified for this purpose. 6 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 7 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

1.212 (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one- tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation.

1(2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely:- (a) expenditure in connection with- (i) preparation of feasibility report; (ii) preparation of project report; (iii)conducting market survey or any other survey necessary for the business of the assessee; (iv) engineering services relating to the business of the assessee: Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services refer-red to in this clause is carried out by the assessee himself or by a concern which is for the time being approved in this behalf by the Board; (b) legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business of the assessee; (c) where the assessee is a company, also expenditure- (i) by way of legal charges for drafting the Memorandum and Articles of Association of the company; (ii) on printing of the Memorandum and Articles of Association; (iii)by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956); (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed.

(3) Where the aggregate amount of the expenditure referred to in

sub-section (2) exceeds an amount calculated at two and one-half per cent- ---------------------------------------------------------------------- 1.213 (a) of the cost of the project, or (b) where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company, the excess shall be ignored for the purpose of computing the deduction

allowable under sub-section (1). Explanation.-In this sub-section,- (a) "cost of the project" means- (i) in a case refer-red to in clause (i) of sub-

section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the business of the assessee commences; (ii) in a case referred to in clause (ii) of sub-

section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the extension of the industrial undertaking is completed or, as the case may be, the new industrial unit commences production or operation, in so far as such fixed assets have been acquired or developed in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the assessee; (b) "capital employed in the business of the company" means- (i) in a case referred to in clause (i) of sub-section

(1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the business of the company commences; (ii) in a case referred to in clause (ii) of sub-

section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the extension of the industrial undertaking is completed or, as the case may be, the new industrial unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the company; (c) "long-term borrowings" means- (i) any moneys borrowed by the company from Government or the Industrial Finance Corporation of India or the Industrial Credit and 'Investment Corporation of India or any other financial institution which is for the time being approved by the Central Government for the

purposes of clause (viii) of subsection (1) of section 36 or any banking institution (not being a financial institution referred to above), or (ii) any moneys borrowed or debt incurred by it in, a foreign country in respect of the purchase outside India of capital plant 1.214 and machinery, where the terms under which such moneys are borrowed or the debt is incurred provide for the repayment thereof during a period of not less than seven years.

(4) Where the assessee is a person other than a company or a co- operative society, no deduction shall be admissible under sub-section

(1) unless the accounts of the assessee for the year or years in which

the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-

section (2) of section 288, and the assessee. furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

(5) Where the undertaking of an Indian company which is entitled

to the deduction under sub-section (1) is transferred, before the

expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation,-

(i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place.

(6) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in

sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year. ---------------------------------------------------------------------- 1.215 1[35E. Deduction for expenditure on prospecting, etc., for certain minerals2

(1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, is engaged in any operations relating to prospecting for, or extraction or production of, any mineral and incurs, after the 31st day of March, 1970, any

expenditure specified in sub-section (2), the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each one of the relevant previous years a deduction of an amount equal to one-tenth of the amount of such expenditure.

(2) The expenditure referred to in sub-section (1) is that incurred by the assessee after the date specified in that sub-section at any time during the year of commercial production and any one or more of the four years immediately preceding that year, wholly and exclusively on any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals: Provided that there shall be excluded from such expenditure. any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure.

(3) Any expenditure- (i) on the acquisition of the site of the source of any mineral or group of associated minerals referred to in sub-

section (2) or of any rights in or over such site; (ii) on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or (iii) of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 32, shall not be deemed to be expenditure incur-red by the assessee for

any of the purposes specified in sub-section (2).

(4) The deduction to be allowed under sub-section (1) for any relevant previous year shall be- (a) an amount equal to one-tenth of the expenditure

specified in subsection (2) (such one-tenth being hereafter in this sub-section referred to as the instalment); or (b) such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that previous year arising from the commercial exploitation [whether or not such commercial exploitation is as a result of the operations or development referred to in

sub-section (2)] of any ----------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

----------------------------------------------------------------------- 1.216 mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals as aforesaid in respect of which the expenditure was incurred, whichever amount is less: Provided that the amount of the instalment relating to any relevant previous year, to the extent to which it remains unallowed, shall be carried forward and added to the instalment relating to the previous year next following and deemed to be part of that instalment, and so on, for succeeding previous years, so, however, that no part of any instalment shall be carried forward beyond the tenth previous year as reckoned from the year of commercial production.

(5) For the purposes of this section,- (a) "operation relating to prospecting" means any operation undertaken for the purpose of exploring, locating or proving deposits of any mineral, and includes any such operation which proves to be infructuous or abortive; (b) "Year of commercial production" means the previous year in which as a result of any operation relating to prospecting, commercial production of any mineral or any one or more of the minerals in a group _of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule, commences; (c) "relevant previous years" means the ten previous years beginning with the year of commercial production.

(6) Where the assessee is a person other than a company or a co- operative society, no deduction shall be admissible under sub-section

(1) unless the accounts of the assessee for the year or years in which

the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-

section (2) of section 288, and the assessee furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

(7) Where the undertaking of an Indian company which is entitled

to the deduction under sub-section (1) is transferred, before the

expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation-

(i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place.

(8) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in

sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year.] 1.217

Other deductions 36. Other deductions

(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) the amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of the business or profession; 1[(ia) the amount of any premium paid by a federal milk co-operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co-operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co- operative society;] 2[(ib) the amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insurance on the health of his employees under a scheme framed in this behalf by the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government;] 3(ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission: 4 [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] 4[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989.] 6 (iia) a sum equal to one and one-third times the amount of the expenditure incurred on payment of any salary 7[for any period of employment before the 1st day of March, 1984] to an employee who, as at the end of the previous year,- ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. 2 Inserted by the Income-tax (Amendment) Act, 1986, w.e.f. 1-4-

4 Prior to the omission, the first proviso, as inserted by the Payment of Bonus (Amendment) Act, 1976, w.r.e.f. 25-9-1975, read as under: 'Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (21 of 1965) apply shall not exceed the amount of bonus payable under that Act:" 5 Prior to the omission, the second proviso, as amended by the Payment of Bonus (Amendment) Act, 1976, w.r.e.f. 25-9-1975, read as under: "Provided further that the amount of the bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to- (a) the pay of the employee and the conditions of his service; (b) the profits of the business or profession for the previous year in question; and (c) the general practice in similar business or profession." 6 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 7 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. --------------------------------------------------------------------- 1.218 (a) is totally blind, or (b) is subject to or suffers from a permanent physical disability (other than blindness) which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation: Provided that the assessee produces before the 1[Assessing] Officer, in respect of the first assessment for which deduction is claimed in relation to each employee under this clause,- (i)in a case referred to in sub-clause (a), a certificate as to his total blindness from a registered medical practitioner being an oculist; and (ii)in a case referred to in sub-clause (b), a certificate as to the permanent physical disability referred to in the said sub-clause from a registered medical practitioner: Provided further that nothing contained in this clause shall apply in the case of an employee whose income in the previous year chargeable under the head "Salaries" exceeds twenty thousand rupees. Explanation 1.-In this clause, "salary" includes the pay, allowances, bonus or commission payable monthly or otherwise. Explanation 2.-For the removal of doubts, it is hereby declared that where a deduction under this clause is allowed for any assessment year in respect of any expenditure, deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year;] (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. Explanation.-Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause; 2(iv) any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual ---------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.219 contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund; 1(v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust; 2[(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause

(24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation. For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;] (vi) in respect of animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals;

3(Vii) subject to the provisions of sub-section (2), the amount of 4[any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: 5[Provided that in the case of a bank to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause;] 6(viia) 7[in respect of any provision for bad and doubtful debts made by- --------------------------------------------------------------------- 2 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 4 Substituted for 'any debt, or part thereof, which is established to have become a bad debt in the previous year' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 5 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. 6 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. See rule 6A BA. 7 Substituted for 'in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of clause (viiia) or a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank, an amount not exceeding ten per cent of the total income (income computed before making any deduction under this clause and Chapter ---------------------------------------------------------------------- 1.220 (a) a scheduled bank [not being 1[* * *] a bank incorporated by or under the laws of a country outside India] or a nonscheduled bank, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding 2[ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner; (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA)]. 3[(c)a public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA).] Explanation.-For the purposes of this clause,- 4[(i) "non-scheduled bank" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 19495 (10 of 1949), which is not a scheduled bank;] 6[(ia)]"rural branch" means a branch of a scheduled bank 7 [or a non-scheduled bank] situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; 8[(ii) "scheduled bank" means the State Bank of India ---------------------------------------------------------------------- VI-A) or an amount not exceeding two per- cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher' by the income-tax (Amendment) Act, 1986, w.e.f. 1-4-1987. Earlier, these words were substituted for "in respect of any provision for bad and doubtful debts made by a scheduled bank or, a non-scheduled bank in relation to the advances made by its rural branches, an amount not exceeding one and a half per cent of the aggregate average advances made by such branches, computed in the prescribed manner" by the Finance Act, 1985, w.e.f. 1-4-1985. The italicised words were inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 1 The words "a bank approved by the Central Government for the purposes of clause (viiia) or" omitted by the Finance Act, 1994, w.e.f. 1-4-199.5. 2 Substituted for 'four" by the Finance Act, 1994, w.e.f. 1-4- 199.5. Earlier, 'four' was substituted for 'two" by the Finance Act, 1993, w.e.f. 1-4-1994. 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 4 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 6 Relettered by the Finance Act, 1982, w.e.f. 1-4-1983. 7 Inserted, ibid. 8 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, clause (ii), as amended by the Finance Act, 1985, w.e.f. 1-4-1985, read as under: "(ii) 'scheduled bank" has the same meaning as in the

Explanation to clause (iii) of sub-section (5) of section 11, but does not include a co-operative bank;" 1.221 constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 1 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 19802 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank;] 3[(iii)"Public Financial Institution" shall have the meaning assigned to it in section 4A of the Companies Act, 19564 (1 of 1956); (iv)"State Financial Corporation" means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 19515 (63 of 1951); (v) "State Industrial Investment Corporation" means a Government company within the meaning of section 617 of the Companies Act, 19566 (1 of 1956), engaged in the business of providing long- term finance for industrial projects and approved by the Central Government under clause (viii) of this sub-section;] (Viii) 7[in respect of any special reserve created by a financial corporation which is engaged in providing long-term finance for 8[industrial or 9[agricultural development in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the total income (computed before making any deduction under 10[this ----------------------------------------------------------------------- 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 5 Ibid. 6 Ibid. 7 Substituted by the Finance Act, 1966, w.e.f. 1-4-1966 and amended by the Finance (No.-2) Act, 1967, w.e.f. 1-4-1968; the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972-and the Finance Act, 1974, w.e.f. 1-4-

8 Being substituted by "industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing longterm finance (computed under the head "Profits and gains of business or profession" before making any deduction under this section) carried to such reserve account" by the Finance Act, 1995, w.e.f. 1-4-1996. 5 Substituted by the Finance Act, 1979, w.e.f. 1-4-1980. 10 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. ---------------------------------------------------------------------- 1.222 clause and] Chapter VIA) carried to such reserve account:]]] Provided that the corporation 4[or, as the case may be, the company] is for the time being approved2 by the Central Government for the purposes of this clause: Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds 3(twice the amount of] the paid-up share capital (excluding the amounts capitalised from reserves) of the corporation 4(or, as the case may be, the company], no allowance under this clause shall be made in respect of such excess. 5[Explanation.-In this clause,- (a) "financial corporation" shall include a public company and a Government company; (b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 6 (1 of 1956); (c) "Government company" shall have the meaning assigned to it in section 617 of the Companies Act, 19567 (1 of 1956);] 8[(d)"infrastructure facility" shall have the meaning assigned to it in section 80-1A.] 9[(viiia) Omitted by the Finance Act, 1994, w.e.f. 1-4-1995.] ------------------------------------------------------------------------ 1 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. 3 Inserted by the Finance Act, 1981, w.e.f. 1-4-1982. 4 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. 5 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1987. Earlier, an Explanation was substituted by the Finance (No. 2) Act, 1991, also w.r.e.f. 1-4-1987. Prior to the substitution, the Explanation, as inserted by the Finance Act, 1979, w.e.f. 1-4-1980, read as under- 'Explanation.-In this clause, 'public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);" Originally, it was inserted by the Finance Act, 1970, w.r.e.f. 1- 4-1966 and omitted by the Finance Act, 1974, w.e.f. 1-4-1975. 7 Ibid. 8 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 9 Prior to the omission, clause (viiia), as amended by the Finance Act, 1982, w.e.f. 1-4-1983 and Finance Act, 1985, w.e.f. 1-4-1985, read as under: "(viiia)in respect of any special reserve created by a scheduled bank (other than a bank incorporated by or under the laws of a country outside India) which is engaged in banking operations outside India, an amount not exceeding forty per cent of the total income (computed before making any deduction under this clause and Chapter VIA) carried to such reserve account: Provided that, having regard to its capital structure, the extent of its banking operations outside India, its need for resources for such operations outside India and other relevant factors, the bank is, for the time being, approved by the Central Government for the purposes of this clause.* Explanation.-For the purposes of this clause, 'scheduled bank' has the same meaning as in clause (ii) of the Explanation to clause (viia);" ----------------------------------------------------------------------- 1.223 1[(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) 2[and sub-section (5)] 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;] 3[(X) any sum paid by a public financial institution by way of contribution towards any funds specified under clause (23E) of section 10. Explanation.-For the purposes of this clause, "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 4 (1 of 1956).]

(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- 5[(i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;] (ii) if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1965 w.e.f. 1-4-1965. 2 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 3 Inserted by the Finance Act, 1989, w.e.f. 1-4-1988. 5 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, clause (i) read as under: "(i) no such deduction shall be allowed unless such debt or part thereof- (a) has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee, and (b) has been written off as irrecoverable in the accounts of the assessee for that previous year;" ---------------------------------------------------------------------- 1.224 (iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year 1[(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)], but the 2 [Assessing] Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any- such debt or part of debt is written off as irrecoverable in the accounts of the previous year 3[(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the 4 [Assessing] Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is

written off, the provisions of sub-section (6) of section 155 shall apply; 5[(v) where such debt or part of debt relates to advances

made by a bank to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provisions for bad and doubtful debts account made under that clause.] ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Substituted for "Income-tax", ibid, w.e.f. 1-4-1988. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1989. 4 Substituted for "Income-tax", ibid, w.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. --------------------------------------------------------------------- 1.225 lie. The trust deeds containing such a provision should therefore not be refused recognition if the other conditions prescribed under the rules are satisfied. 6. Winding up of superannuation fund.-An approved superannuation fund cannot be wound up unless necessitated by the winding up or discontinuance of the employer's trade or under-taking. 7. A superannuation fund where rules provide for pension benefits in the form of 'annuity certain' is not entitled for approval, as the same is not covered under rule 89 of the Income-tax Rules. 8. The limit mentioned in rule 80 is in respect of the salary of each employee taken separately and also in respect of each year of his service taken separately. 9. Approval of superannuation funds which provide for payment of annuities to an employee or transfer of equitable interest to another approved superannuation fund when the employee leaves the services voluntarily before he attains the specified age of retirement may not be refused merely on the ground that he left the service voluntarily before he reached the age of normal retirement. 10. The words 'pay' and 'salary' should be interpreted alike for all purposes of the PF Rules since the word 'salary' has been defined in the Act and since contributions to the fund are also being made by the employee members on this basis, the word pay occurring in the Rules relating to withdrawals should also be interpreted to have the same meaning as salary. 11. Gratuity funds.-Initial contributions to approved gratuity funds may be permitted to be made in not more than five annual instalments commencing from the year in which the employee has been admitted to the benefits of the fund. An application for approval of Gratuity Fund may be made three years after the establishment of the gratuity fund. In order that the benefits of approval for the intervening period may not be denied to bona fide funds Commissioners may after considering all the relevant facts of the case accord approval with effect from the date from which it satisfies the conditions laid down in rule 3 of Part C of the Fourth Schedule. 12. Bad debts.-The suggestion of Chambers of Commerce and the Indian Banks Association that in the case of Banks the bad debts claimed should be automatically allowed in their entirety in the assessments of the banks was not acceptable. Where accounts are kept on mercantile basis, interest thereon is taxable irrespective of whether the interest is credited to suspense account or to interest account. The amount of such interest is therefore includible in the taxable income. [Instruction No. 1186, dated 20th June, 1978] 37 General2 1 37. General2

(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36, 3[* * *] and not being. in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession ---------------------------------------------------------------------- 3 The words 'and section 80VV" omitted by the Finance Act, 1985 w.e.f. 1-4-1986. Earlier, they were inserted by the Finance Act, 1985, w.e.f. 1-4-1986. ----------------------------------------------------------------------- 1.226 shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

1[(2) 'Notwithstanding anything contained in sub-section (1), any ----------------------------------------------------------------------

1 Substituted for sub-sections (2) and (2A) by the Finance Act,

1992, w.e.f. 1-4-1993. Prior to the substitution, sub-section (2), as originally enacted and amended by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962 and Finance Act, 1965, w.e.f. 1-4-1965, read as under:

"(2) Notwithstanding anything contained in sub-section (1), no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder:- (i) on the first Rs. 10,00,000 of the profits at the rate 1 per- and gains of the business (computed before cent or Rs. 5,0000, making any allowance under section 33 or whichever is higher; section 33A or in respect of entertainment expenditure) (ii) on the next Rs. 40,00,000 of the profits at the rate of 1/2 and gains of the business (computed in the per cent; manner aforesaid) (iii) on the next Rs. 1,20,00,000 of the pro- at the rate 1/4 fits and gains of the business (computed in per cent; the manner aforesaid) (iv) on the balance of the profits and gains nil." of the business (computed in the manner aforesaid). Sub-section 2(A), as inserted by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967 and amended by the Finance Act, 1968, w.e.f. 1-4-1968; Finance Act, 1970, w.e.f. 1-4-1970; Finance Act, 1976, w.e.f. 1-4-1976/1-4-1977 and Finance Act, 1983, w.r.e.f. 1-4- 1976/w.e.f. 1-4-1984, read as under:

"(2A) Notwithstanding anything contained in sub-section (1) or

sub-section (2), no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder:- (i) on the first Rs. 10,00,000 of the at the rate of 1/2 per profits and gains of the business or cent or Rs. 5,000, profession (computed before making any whichever is higher. allowance under section 32A or section 33 or section 33A or in respect of entertainment expenditure) (ii) on the next Rs. 40,00,000 of the at the rate of 1/4 per profits and gains of the business or cent; profession (computed in the manner aforesaid) (iii) on the balance of the profits and at the rate of 1/8 per gains of the business or profession cent. (computed in the manner aforesaid) so, however, that the allowance shall in no case exceed Rs. 50,000: Provided that where the previous year of any assessee falls partly before and partly after the 30th day of September, 1967, the allowance in respect of such expenditure incurred during the previous year shall not exceed- (a) in the case of a company- (i) in respect of such expenditure incurred before the 1st day of October, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified

in sub-section (2), the same proportion as the number of days comprised in the period commencing on the 1st day of such previous year and ending with the 30th day of September, 1967, bears to the total number of days in the previous year; (ii) in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub-section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to ---------------------------------------------------------------------- 1.227 expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year commencing on 1[or after] the 1st day of April, 1992 shall be allowed as follows:- (a) where the amount of such expenditure does not exceed ten thousand rupees, the whole of such amount; (b) in any other case, ten thousand rupees as increased by a sum equal to fifty per cent of such expenditure in excess of ten thousand rupees. Explanation.-For the purposes of this sub-section, "entertainment expenditure" includes- (i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person; (ii) the amount of any expenditure in the nature of entertainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in clause (i)] incurred for the purposes of the business or profession of the assessee by any employee or other person; (iii) expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include ----------------------------------------------------------------------- -> -> the total number of days in the previous year; (b) in any other case- (i)in respect of such expenditure incurred before the 1st day of October, 1967, the amount admissible under

sub-section (1); (ii)in respect of such expenditure incur-red after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub-section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year. Explanation I.-For the purposes of this sub-section, 'entertainment expenditure' includes- (i) the amount of any allowance in the nature of entertainment allowance paid by the assessee to any employee or other person after the 29th day of February, 1968; (ii) the amount of any expenditure in the nature of entertainment expenditure (not being expenditure incur-red out of an allowance of the nature referred to in clause (i)] incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person. Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this sub-section and sub-section (2B), as it stood before the 1st day of April, 1977, 'entertainment expenditure' includes- expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work.' 1 Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1993. ---------------------------------------------------------------------- 1.228 expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work.]

1[(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.]

2[(3) 3Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest-house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed.] 4[(3A) Omitted by the Finance Act, 1985, w.e.f 1-4-1986.] 5[(3B) Omitted by the Finance Act, 1985, w.e.f 1-4-1986.1 ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1978, w.e.f. 1-4- 1979. Earlier, the original sub-section (2B) was inserted by the Finance Act, 1970, w.e.f. 1-4-1970 and omitted by the Finance Act, 1976, w.e.f. 1-4-1977. 2 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 4 Prior to the omission, sub-section (3A), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, read as under:

"(3A) Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-section (3B) exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head 'Profits and gains of business or profession'.' Earlier, sub-section (3A) was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 5 Prior to the omission, sub-section (3B), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, read as under: "(3B) The expenditure, referred to in sub-section (3A) is that incurred on- (i) advertisement, publicity and sales promotion; or (ii) running and maintenance of aircraft and motor cars; or (iii)payments made to hotels. Explanation.-For the purposes of sub-sections (3A) and (3B)- (a) the expenditure specified in clause (i) to clause (iii) of sub-section (3B) shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expenditure as is not allowed under any other provision of this Act; (b) expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities; (c) expenditure on running and maintenance of aircraft and motor cars shall include,- (i) expenditure incurred on chartering any air-craft and expenditure on hire charges for engaging cars plied for hire; (ii)conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also.' Earlier, sub-section (3B) was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. ---------------------------------------------------------------------- 1.229 1[(3C) Omitted by the Finance Act, 1985, w.e.f 1-4-1986.] 2[(3D) Omitted by the Finance Act, 1985, w.e.f 1-4-1986.]

3[(4) Notwithstanding anything contained in sub-section (1) or

subsection (3),- (i) no allowance shall be made in respect of any expenditure incurred by the assessee after the 28th day of February, 1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section refer-red to as "guest-house'); (ii) in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any building used as a guesthouse or depreciation of any assets in a guest-house: Provided that the aggregate of the expenditure referred to in clause (i) and the amount of any depreciation referred to in clause (ii) shall, for the purposes of this sub-section, be reduced by the amount, if any, received from persons using the guest-house: Provided further that nothing in this sub-section shall apply in relation to any guest-house maintained as a holiday home if such guesthouse- (a) is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him; and (b) is intended for the exclusive use of such employees while on leave. Explanation.-For the purposes of this sub-section,- ----------------------------------------------------------------------- 1 Prior to the omission, sub-section (3C), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, read as under: "(3C) Nothing contained in sub-section (3A) shall apply in respect of expenditure incurred by an assessee, being a domestic

company as defined in clause (2) of section 80B, or a person (other than a company) who is resident in India in respect of expenditure incurred wholly and exclusively on- (i) advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities Which the assessee deals in or provides in the course of his business; (ii) running and maintenance of motor cars in any branch, office or agency maintained outside India, for the promotion of the sale outside India of such goods, services or facilities.' Earlier, it was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 2 Prior to the omission, sub-section (3D), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, read as under: "(3D) No disallowance under sub-section (3A) shall be made- (i) in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft; (ii) in the case of an assessee engaged in the business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars.' Earlier, sub-section (3D) was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and was omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 3 Inserted by the Finance Act, 1970, w.e.f. 1-4-1970. ------------------------------------------------------------------------ 1.230 (i) residential accommodation in the nature of a guest-house shall include accommodation hired or reserved by the assessee in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and (ii) the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such accommodation.]

1[(5) For the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (including any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the

nature of a guesthouse within the meaning of sub-section (4). ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979. ---------------------------------------------------------------------- 1.231 Assessing Officer is satisfied that the conditions laid down in

section 37(1) are satisfied. The withdrawal of the tax concession under section 35C would not affect this position. 5. Feature film production.-The cost of production of a feature film shall be reduced by the subsidy received by the film producer under any scheme framed by, Government where such amount of subsidy has not been included in computing the total income of the assessee for any assessment year. Conversely, the amount received by producers of regional feature films which has not been charged to tax, shall be reduced from the cost of production of the film for the purposes of rule 9A. 6. Security deposit for telex.-Since the deposit for telex connection does not earn any interest when the telex machine is installed at that stage, the amount may be treated as a revenue expenditure. When the amount is returned the refund will be treated as income. 7. Civil defence expenses.-Expenditure incurred by business concerns on civil defence measures, even when there is no emergency would be allowable to the extent reasonable. 8. Payment for telephone.-The deposit paid for obtaining phone connection under the 'Own your telephone' scheme will be allowed to be deducted in the year of payment and in case the telephone is not installed and the money is refunded the same will be charged to tax.

[Letter No. 204170175, dated 10th May, 1976]

employees may be treated as admissible deduction under section 37(1) though no gratuity fund has been set up under Part C of the Fourth Schedule. 12. Professional tax.-Professional tax paid by a person carrying on a business or trade can be allowed as deduction under section

37(1). 13. Customary payment.-As expenses incurred on the occasion of Diwali and Muhurat are in the nature of business expenditure it has been decided not to lay down any monetary limits for the purpose of their allowance in the income-tax assessment, subject to the Income- tax Officer being satisfied that the expenses are admissible as a deduction under the law and are not expenses of a personal or religious nature. [Letter No. 3 13A/20168-114 II, dated 3rd October, 1968] 14. Membership fees.-Expenditure by way of membership fee to the Indian Institute of Packaging, Bombay, Indian Institute of Foreign Trade, New Delhi are allowable as deduction. [Letter Nos. 9123167, dated 6th July, 1967 and 9156166, dated 17th January, 1967] 15. Dead rent and royalty for mining.-Under the Mineral Concession Rules, 1960, royalty is payable in respect of any mineral removed by the lessee from the leased area. The amount of royalty cannot be less than the amount of dead rent which is in the nature of minimum royalty. Hence the royalty and the dead rent will have to be allowed as revenue deduction in computing the business income. 1.232 16. Interest on deferred payments.-Expenditure by way of interest payable on the unpaid purchase price of plant and machinery should be allowed as revenue deduction. [Letter No. 10/92164, dated 13th September, 1965] 17. Annual listing fee.-Annual listing fee paid to stock exchange should be considered to be expenses laid out wholly and exclusively for the purposes of business and hence admissible as revenue deduction. [Letter No. 10167165, dated 26th August, 1965] 18. Commitment charges.-Applying the principles laid down by the Supreme Court in Bombay Steam Navigation Co. v CIT 56 ITR 52, the expenditure incurred by way of payment of commitment charges paid by a borrower with regard to the amount of loan has to be taken as an expenditure laid out wholly and exclusively for the purposes of business. 19. Registrar's fees.-Reasonable remuneration paid by a company to its registrar for performing various duties under the company law, should be regarded as revenue expenditure. (Letter No. 10/25163, dated 18th June, 1965] 20. Guarantee commission.-Commission payable to banks for furnishing guarantees regarding deferred payments for import of plant and machinery is in the nature of capital expenditure and cannot be allowed as deduction. It could however, be added to the cost of the plant and depreciation allowed thereon. [Letter No. 7133162, dated 28th August, 1963] 21. Customary contributions.-Customary fee (laga) collected by business/trade associations from their members, at usual customary rate prevalent in the market is allowable as deduction in full. The Income-tax Officers must however, satisfy that such contributions made are meant to be utilised for charitable purpose within the meaning of that term under the Income-tax Act.

22. Entertainment allowance.-(1) The expenditure on provision of food or beverages by an employer to such employees as are not hit by

the provisions of section 17(2)(iii) need not be treated as entertainment expenditure within the meaning of the Explanation under

section 37(2) substituted with effect from April 1, 1993, if such food or beverages are provided during working hours even in places other than the place of work, provided the expenditure is genuine and reasonable. Accordingly such expenditure on the following classes of employees will get the benefit of this circular: "employees whose income under the head 'Salaries' (whether due from or paid or allowed by one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment does not exceed Rs. 24,000; provided that, in the case of such employees of a company, they should be neither directors nor persons having substantial interest in the company." In respect of other high-paid employees, i.e., those mentioned in

section 17(2)(iii), however, such expenditure will continue to be treated as entertainment expenditure. [Circular No. 644, dated 15th March, 1993.]

(2) A distinction has to be made between an entertainment allowance paid by a company to its employee as forming part of his remuneration and an expenditure on entertainment incurred by the company itself through its employee. If the allowance does not form part of the employees remuneration but is spent by the employee on entertainment on behalf of the company direct, for the purpose of the

ceiling referred to in section 37(2). Similarly where an employee is allowed to operate an expense account for the purposes of entertainment of the customers of the company the expenses through such an account should be included in the entertainment expenses of the company for the purposes of applying the limits prescribed in

section 37(2). On the other hand where any entertainment allowances as such is paid as part of remunerations the amount should not be included in the entertainment expenses of the company for the purposes

of section 37(2). 1.233 23. Advertisement expenses.-A businessman can advertise in more than one newspapers or magazines and also in more than one issue of the same newspaper or magazine. Expenditure on such advertisements

will qualify for deduction under section 37(3). The provisions of weighted deduction under section 35B could not

once again be governed by section 37(1) and hence provisions of rule

6B read with section 37(3) would not apply to expenditure which qualified for weighted deduction. 24. A payment made by an assessee doing business cannot be claimed as deduction if the payment was made by way of penalty or akin to penalty for any breach or infraction of law or any public policy which was sought to be achieved by such law. But if such payment was made by the assessee without any breach or infraction of any law or any public policy sought to be achieved by it and in fact in obedience to provisions of such law as a measure of business expediency there could be no valid reason not to allow such payment as deductible expenditure of the assessee under section 37. What was required to be done by an assessing authority under the Income-tax Act in examining the claim of an assessee that the payment made by such assessee was a deductible expenditure under section 37 although called penalty, was to see whether the law or scheme under which the amount was paid required such payment to be made as penalty or as something akin to penalty that was imposed by way of punishment for breach or infraction of the law or the Statutory Scheme. If the amount paid was found to be not a penalty or something akin to penalty due to the fact that the amount paid was in exercise of the option conferred under the very law or scheme concerned such payment should be as business expenditure of the assessee allowable under section 37 as an incident of business laid out wholly and exclusively for the purposes of the business. CIT

v Ahmedabad Cotton Mfg. Co. (1994) 2 TCR Case No. 212 (SC): (1994) 205 ITR 163 (SC).

Building, etc., partly used for business, etc., or not exclusively so used 38. Building, etc., partly used for business, etc., or not exclusively so used

(1) Where a part of any premises is used as dwelling house by the assessee,- (a) the deduction under sub-clause (i) of clause (a) of section 30, in the case of rent, shall be such amount as the 1[Assessing] Officer may determine having regard to the proportionate annual value of the part used for the purpose of the business or profession, and in the case of any sum paid for repairs, such sum as is proportionate to the part of the premises used for the purpose of the business or profession; (b) the deduction under clause (b) of section 30 shall be such sum as the 1[Assessing] Officer may determine having regard to the part so used.

(2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and 3[clause (ii) of

sub-section (1)] of section 32 shall be restricted to a fair proportionate part thereof which ---------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid 3 Substituted for 'clauses (i), (ii), (iia) and (iii) of sub- section (1A)" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.234 the 1[Assessing] Officer may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession.

Managing agency commission.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989.1 5[39. Managing agency commission.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989.1

Amounts not deductible 3 40. Amounts not deductible Notwithstanding anything to the contrary in sections 30 to 4

[38], the following amounts shall not be deducted in computing the

Explanation 2 to clause (vi) of sub-section (1) of section 9; (B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-

section (1) of section 9;] ----------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Prior to the omission, section 39 read as under: "39. Managing agency commission.-Where a managing agent of a company is liable under an agreement in writing made for adequate consideration to share managing agency commission with a third party or third parties, the said agent and the said party or parties shall file a declaration showing the proportion in which such commission is shared between them under the agreement, and on proof to the satisfaction of the Income-tax Officer of the facts contained in such declaration, such agent and each such party shall be chargeable only on the share to which such agent or party is entitled under the agreement". 4 Substituted for "39" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 5 Substituted by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to the substitution, subclause (i) read as under: "(i) any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163;" ----------------------------------------------------------------------- 1.235 (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains; 1[(iia) any sum paid on account of wealth-tax. Explanation.-For the purposes of this sub-clause, "wealth-tax" means wealth-tax chargeable under the Wealth-tax Act, 1957 (27 of 1957), or any tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the assets of, or the capital employed in, a business or profession carried on by the assessee, whether or not the debts of the business or profession are allowed as a deduction in computing the amount with reference to which such tax is charged, but does not include any tax chargeable with reference to the value of any particular asset of the business or profession;] (iii) any payment which is chargeable under the head "Salaries", if it is payable outside India and if the tax has not been paid thereon nor deducted therefrom under Chapter XVII-B; (iv) any payment to a provident or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head "Salaries"; 2[(v) *] ---------------------------------------------------------------------- 1 Inserted by the Income-tax (Amendment) Act, 1972, w.r.e.f. 1-4- 1962. Section 4 of the Amendment Act extended the prohibition to assessment years governed by the 1922 Act and section 5 saved certain cases. These sections read as under: "4. Wealth-tax not deductible in computing the total income for certain assessment years.-Nothing contained in the Indian Income-tax Act, 1922 (11 of 1922), shall be deemed to authorise, or shall be deemed ever to have authorised, any deduction in the computation of the income of any assessee chargeable under the head 'Profits and gains of business, profession or vocation' or 'Income from other sources' for the assessment year commencing on the 1st day of April, 1957, or any subsequent assessment year, of any sum paid on account of wealth-tax. Explanation.-For the purposes of this section, 'wealth-tax' shall have the same meaning as is assigned to it in the Explanation to sub- clause (iia) of clause (a) of section 40 of the principal Act.' "5. Saving in certain cases.-Where, before the 15th day of July, 1972 (being the date on which the Income-tax (Amendment) Ordinance, 1972 (7 of 1972), came into force], the Supreme Court has, on an appeal in respect of the assessment of an assessee for any particular assessment year, held that wealth-tax paid by the assessee is deductible in computing the total income of that year, then, nothing contained in subclause (ii-a) of clause (a) of, section 40, or sub- section (1A) of section 58, of the principal Act, as amended by this Act, or, as the case may be, section 4 of this Act, shall apply to the assessment of such assessee for that particular year.' 2 Omitted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. Earlier, it was inserted by the Finance Act, 1968, w.e.f. 1-4-1969 and amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. ----------------------------------------------------------------------- 1.236 1[(b) in the case of any firm assessable as such,- (i) any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as remuneration) to any partner who is not a working partner; or (ii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or (iii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorised by, and is in accordance with, the terms of the partnership deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorised by, or is not in accordance with, any earlier partnership deed, so, however, that the period of authorisation for such payment by any earlier partnership deed does not cover any period prior to the date of such earlier partnership deed; or (iv) any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of eighteen per cent simple interest per annum; or (v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the ---------------------------------------------------------------------- 1 'Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, clause (b), as originally enacted and amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985; Direct Tax Laws (Amendment) Act, 1987 and Direct Tax Laws (Amendment) Act, 1989, both with effect from 1-4-1989, read as under: "(b) in the case of any firm, any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm; Explanation 1.-Where interest is paid by a firm to any partner of the firm who has also paid interest to the firm, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the firm to the partner exceeds the payment of interest by the partner to the firm. Explanation 2.-Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and the other person being hereinafter referred to as 'partner in a representative capacity' and 'person so represented' respectively),- (i) interest paid by the fir-in to such individual or by such individual to the firm other-wise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) interest paid by the firm to such individual or by such individual to the firm as partner in a representative capacity and interest paid by the firm to the person so represented or by the person so represented to the firm, shall be taken into account for the purposes of this clause. Explanation 3.-Where an individual is a partner in a firm other- wise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person;' ----------------------------------------------------------------------- 1.237 terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder:-

(1) in the case of a firm carrying on a profession referred to in section 44AA or which is notified for the purpose of that section- (a) on the first Rs. 1,00,000 Rs. 50,000 or at the rate of the book-profit or in of 90 per cent of the case of a loss book-profit, whichever is more; (b) on the next Rs. 1,00,000 at the rate of 60 per of the book-profit cent; (c) on the balance of the at the rate of 40 per bookprofit cent;

(2) in the case of any other firm- (a) on the first Rs. 75,000 Rs.5,000 or at the rate of the book-profit or in of 90 per cent of the case of a loss book-profit, whichever is more; (b) on the next Rs. 75,000 at the rate of 60 per of the book-profit cent; (c) on the balance of the at the rate of 40 per bookprofit cent; Provided that in relation to any payment under this clause to the partner during the previous year relevant to the assessment year commencing on the 1st day of April, 1993, the terms of the partnership deed may, at any time during the said previous year, provide for such payment. Explanation 1.-Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and the other person being hereinafter referred to as "partner in a representative capacity" and "person so represented", respectively),- (i) interest paid by the firm to such individual otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) interest paid by the firm to such individual as partner in a representative capacity and interest paid by the firm to the person so represented shall be taken into account for the purposes of this clause. Explanation 2.-Where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person. Explanation 3.-For the purposes of this clause, "book- profit" means the net profit, as shown in the profit and loss account for 1.238 the relevant previous year, computed in the manner laid down in Chapter IVD as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit. Explanation 4.-For the purposes of this clause, "working partner" means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner;] 1[(ba) in the case of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India), any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to a member of such association or body. Explanation 1.-Where interest is paid by an association or body to any member thereof who has also paid interest to the association or body, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the association or body to the member exceeds the payment of interest by the member to the association or body. Explanation 2.-Where an individual is a member of an association or body on behalf, or for the benefit, of any other person (such member and the other person being hereinafter referred to as "member in a representative capacity" and "person so represented", respectively),- (i)interest paid by the association or body to such individual or by such individual to the association or body otherwise than as member in a representative capacity, shall not be taken into account for the purposes of this clause; (ii)interest paid by the association or body to such individual or by such individual to the association or body as member in a representative capacity and interest paid by the association or body to the person so represented or by the person so represented to the association or body, shall be taken into account for the purposes of this clause. Explanation 3.-Where an individual is a member of an association or body otherwise than as member in a representative capacity, interest paid by the association or body to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.] 2[(c) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] --------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Prior to the omission, clause (c), as amended by the Finance Act, 1963, w.e.f. 1-4-1963; the Finance Act, 1964, w.e.f. 1-4-1964; the Finance Act, 1968, w.e.f. 1-4-1969; the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972; the Finance Act, 1984, w.e.f. 1-4-1985 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: ---------------------------------------------------------------------- 1.239 1[(d) Omitted by the Finance Act, 1988, w.e.f 1-4-1989.] 2 [40A. Expenses or payments not deductible in certain circumstances

(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession".

(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the 3[Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction: ---------------------------------------------------------------------- -> "(c) in the case of any company- (i)any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be, (ii)any expenditure or allowance in respect of any assets of the company used by any person referred to in sub-clause (i) either wholly or partly for his own purposes or benefit, if in the opinion of the Assessing Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub- clause (i) shall, in no case, exceed- (A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of one hundred and two thousand rupees; (B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of eight thousand five hundred rupees for each month or part thereof comprised in that period: Provided that in a case where such person is also an employee of the company for any period comprised in the previous year, expenditure of the nature referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to clause (a) of sub-

section (5) of section 40A shall not be taken into account for the purposes of sub-clause (A) or sub-clause (B), as the case may be. Explanation.-The provisions of this clause shall apply notwithstanding that any amount not to be allowed under this clause is included in the total income of any person refer- red to in sub-clause (i);" 1 Prior to the omission, clause (d) read as under: "(d) in the case of a banking company, the amounts which have been allowed as a deduction in computing its income chargeable to income-tax under the head 'Interest on

securities" under the provisions of sub-section (1) of section 20." 2 Inserted by the Finance Act, 1968, w.e.f. 1-4-1968. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. ------------------------------------------------------------------------ 1.240 1[Proviso omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] (b) The persons referred to in clause (a)are the following, namely:- (i) where the assessee is an individual any relative of the assessee; (ii) where the assessee is a company, any director of the firm, association of persons or company , partner of the Hindu undivided family firm, of member if the association or family, or family, or any relative of such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession,- (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. Explanation.-For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- (a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and (b) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession. ----------------------------------------------------------------------- 1 Prior to its omission, the proviso, as amended by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972, read as under: "Provided that the provisions of this sub-section shall not apply in the case of an assessee being a company in respect of any expenditure to which sub-clause (i) of clause (C) of section 40 applies.' ----------------------------------------------------------------------- 1.241

1(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification' in the Official Gazette, in a sum exceeding 3[ten thousand] rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, 4[twenty per cent of] such expenditure shall not be allowed as a deduction: Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment inrespect thereof in a sum exceeding 5[ten thousand] rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the 6[Assessing] Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply

thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made: Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding 7[ten thousand] rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed,8 having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.] 2 31-3-1969 has been notified for the purposes of this section: Notification No. 623, dated 14-2-1969. 3 Substituted for "two thousand five hundred" by the Direct Tax Laws (Amendment) Act 1987, w.e.f. 1-4-1989. 4 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 5 Substituted for 'two thousand five hundred" by the Direct Tax Laws (Amendment) Act 1987, w.e.f. 1-4-1989. 6 Substituted for "Income-tax", ibid, w.e.f. 1-4-1988. 7 Substituted for "two thousand five hundred" by the Direct Tax Laws (Amendment) Act 1987, w.e.f. 1-4-1989. 8 See rule 6DD. ----------------------------------------------------------------------- 1.242 (i) the purchaser is new to the sellers; or (ii) the transactions are made at a place where either the purchaser or the seller does not have a bank account; or (iii) the transactions and payments are made on a bank holiday; or (iv) the seller is refusing to accept the payment by way of a crossed cheque/draft and the purchaser's business interest would suffer due to nonavailability of goods otherwise then from this particular seller; or (v) the seller acting as a commission agent is required to pay cash in turn to persons from whom he has purchased the goods; or (vi) specific discount is given by the seller for payment to be made by way of cash. 3. The suspension of cheque clearing and banking operations consequent to the strike of bank employees will constitute unavoidable circumstances and accordingly payments for business expenditure made during this period and until clearance of cheques is resumed will be

expected from the operation of section 40A(3). [Letter No. 142(14)170, dated 28th September, 1970]

4. Section 40A(3) would not apply to repayment of loans or payment towards the purchase price of capital assets like plant and machinery not for resale. 5. Banks may return the paid cheques to their constituents after obtaining a formal undertaking from them to the effect that they shall retain the returned paid cheques for a period of eight years and produce them before the Income-tax Officer whenever called upon to do so. 6. Payments made in advancing loans and returning the principal amount of borrowed moneys are not covered by the provisions of section

40A(3). [Letter No. 21(22)169, dated 18th April, 1969]

1[(4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by a crossed cheque drawn on a bank or by a crossed bank draft in order that such expenditure may not be

disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner.]

2[(5) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1969, w.e.f. 1-4-1969.

2 Prior to the omission, sub-section (5), as amended by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974; the Finance Act, 1984; the Taxation Laws (Amendment) Act, 1984 and the Finance Act, 1985, the last three being w.e.f. 1-4-1985, read as under:

"(5)(a) Where the assessee- (i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or (ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit, then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction: ---------------------------------------------------------------------- 1.243 --------------------------------------------------------------------- ->-> Provided that where the assessee is a company, so much of the aggregate of- (a) the expenditure and allowance referred to in sub- clauses (i) and (ii) of this clause; and (b) the expenditure and allowance referred to in sub- clauses (i) and (ii) of clause (c) of section 40, in respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of one hundred and two thousand rupees, shall in no case be allowed as a deduction: Provided further that in computing the expenditure referred to in sub-clause (i) or the expenditure or allowance referred to in sub- clause (i) of this clause or the aggregate referred to in the foregoing proviso, the following shall not be taken into account, namely:- (i) the value of any travel concession or assistance

referred to in clause (5) of section 10; (ii) passage moneys or the value of any free or concessional

passage refer-red to in sub-clause (i) of clause (6) of section 10; (iii) any payment referred to in clause (iv) or clause (v) of

sub-section (1) of section 36; (iv) any expenditure referred to in clause (ix) of sub-

section (1) of section 36. (b) Nothing in clause (a) shall apply to any expenditure or allowance in relation to- (i) any employee in respect of any period of his employment outside India; (ii) any employee being an individual referred to in sub-

clause (vii) or sub-clause (viia) of clause (6) of section 10 in respect of any period during which he is entitled to the exemption under sub-clause (vii) or, as the case may be, subclause (viia) aforesaid; (iii) any employee whose income chargeable under the head 'Salaries' is seven thousand and five hundred rupees or less. (c) The limits refer-red to in clause (a) are the following, namely:- (i) in respect of the expenditure referred to in sub-clause (i) of clause (a), in the case of an employee, an amount calculated at the rate of seven thousand five hundred rupees for each month or part thereof comprised in the period of his employment in India during the previous year, and in the case of a former employee, being an individual who ceases or ceased to be the employee of the assessee during the previous year or any earlier previous year, ninety thousand rupees: Provided that where the expenditure is incurred on payment of any salary to an employee or a former employee engaged in scientific research during any one or more of the three years immediately preceding the commencement of the business and such expenditure is deemed under the Explanation to clause

(i) of sub-section (1) of section 35 to have been laid out or expended in the previous year in which the business is commenced, the limit referred to in this sub-clause shall, in relation to the previous year in which the business is commenced, be an amount calculated at the rate of five thousand rupees for each month or part thereof comprised in the period of his employment in India during the previous year in which such business is commenced and in the period of his employment in India during which he was engaged in scientific research during the three years immediately preceding that previous year: Provided further that in relation to any month or part thereof comprised in any such previous year as is relevant to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year, the reference to 'five thousand rupees' in the preceding proviso shall be construed as a reference to 'seven thousand five hundred rupees'; (ii) in respect of the aggregate of the expenditure and the allowance referred to in sub-clause (ii) of clause (a), one- fifth of the amount of the salary payable -> -> ---------------------------------------------------------------------- 1.244

1[(6) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

2[(7)(a) 'Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to- (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, ----------------------------------------------------------------------- -> -> to the employee or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of employment in India of the employee during the previous year, whichever is less. Explanation 1.-The provisions of this sub-section shall apply notwithstanding that any amount not to be allowed under this sub-section is included in the total income of the employee or, as the case may be, the former employee. Explanation 2.-In this sub-section,-

(a) salary' has the meaning assigned to it in clause (1)

read with clause (3) of section 17 subject to the following modifications, namely:-

(1) in the said clause (1), the word 'perquisites' occurring in sub-clause (iv) and the whole of sub-clause (vii) shall be omitted;

(2) in the said clause (3), the references to 'assessee' shall be construed as references to 'employee or former employee' and the references to 'his employer or former employer' and 'an employer or a former employer' shall be construed as references to 'the assessee'; (b) 'Perquisite' means- (i) rent-free accommodation provided to the employee by the assessee; (ii) any concession in the matter of rent respecting any accommodation provided to the employee by the assessee; (iii) any benefit or amenity granted or provided free of cost or at concessional rate to the employee by the assessee; (iv) payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee; and (v) payment by the assessee of any sum, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, to effect an assurance on the life of the employee or to effect a contract for an annuity."

1 Prior to the omission, sub-section (6), as amended by the Finance Act, 1984, w.e.f. 1-4-1985, read as under:

"(6) Where the assessee incurs any expenditure by way of fees for services rendered by a person who at any time during the twenty-four months immediately preceding the previous year was an employee of the assessee,- (a) such expenditure by way of fees, or (b) where the assessee has also incurred in relation to such person any expenditure by way of salary referred to in

sub- clause (i) of clause (a) of sub-section (5), the aggregate of such expenditure by way of fees and by way of salary, shall not be allowed as a deduction to the extent such expenditure by way of fees or, as the case may be, the aggregate of such expenditure by way of fees and by way of salary exceeds ninety thousand rupees." 2 Inserted by the Finance Act, 1975, w.r.e.f. 1-4-1973. 1.245 or for the purpose of payment of any gratuity, that has become payable during the previous year; (ii) any provision made by the assessee for the previous year relevant to any assessment year commencing on or after the 1st day of April, 1973, but before the 1st day of April, 1976, to the extent the amount of such provision does not exceed the admissible amount, if the following conditions are fulfilled, namely:-

(1) the provision is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason;

(2) the assessee creates an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust, the application for the approval of the fund having been made before the 1st day of January, 1976; and

(3) a sum equal to at least fifty per cent of the admissible amount, or where any amount has been utilised out of such provision for the purpose of payment of any gratuity before the creation of the approved gratuity fund, a sum equal to at least fifty per cent of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of contribution to the approved gratuity fund before the 1st day of April, 1976, and the balance of the admissible amount or, as the case may be, the balance of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of such contribution before the 1st day of April, 1977. Explanation 1.-For the purpose of sub-clause (ii) of clause (b) of this sub-section, "admissible amount" means the amount of the provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason, to the extent such amount does not exceed an amount calculated at the rate of eight and one-third per cent of the salary

[as defined in clause (h) of rule 2 of Part A of the Fourth Schedule]

1[(8) Omitted by the Finance Act, 1985 w.e.f 1-4-1986.] ----------------------------------------------------------------------

1 Prior to the omission, sub-section (8), as inserted by the Finance Act, 1975, w.e.f. 1-4-1976, read as under:

"(8) Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of -> -> ----------------------------------------------------------------------- 1.246 ---------------------------------------------------------------------- -> -> any deposit received by it, fifteen per cent of such expenditure shall not be allowed as a deduction. Explanation.- In this sub-section,- (a) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; (b) "deposit" means any deposit of money with, and includes any money borrowed by a company, but does not include any amount received by the company- (i) from the Central Government or any State Government or any local authority or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government; (ii) from the Government of a foreign State, or from a citizen of foreign State, or from any institution, association or body (whether incorporated or not) established outside India; (iii) as a loan from a banking company or from a co- operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); (iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the institution or body, by notification in the Official Gazette, specify in this behalf; (v) from any other company; (vi) from an employee of the company by way of security deposit; (vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of goods or for the rendering of any service; (viii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or a lien on the assets of the company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company; (ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan; (c) "financial company" means- (i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-purchase transactions or the financing of such transactions; or (ii) an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature; or (iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith; (iv) a loan company, that is to say, a company [not being a company referred to in sub-clauses (i) to (iii)] which carries on, as its principal business, the business of providing finance, whether by making loans or -> -> ----------------------------------------------------------------------- 1.247

1[(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) or clause (v) of sub-section

(1) of section 36, or as required by or under any other law for the time being in force.]

2[(10) Notwithstanding anything contained in sub-section (9), where the 3[Assessing] Officer is satisfied that the fund, trust, company, association of persons, body of individuals, society or other institution referred to in that sub-section has, before the 1st day of March, 1984, bona fide laid out or expended any expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee referred to in sub-section

(9) out of the sum referred to in that sub-section, the amount of such expenditure shall, in case no deduction has been allowed to the assessee in respect of such sum and subject to the other provisions of this Act, be deducted in computing the income referred to in section 28 of the assessee of the previous year in which such expenditure is so laid out or expended, as if such expenditure had been laid out or expended by the assessee.]

4[(11) Where the assessee has before the 1st day of March, 1984, paid any sum to any fund, trust, company, association of persons, body of individuals, society or other institution referred to in sub-

section (9), then, notwithstanding anything contained in any other law or in any instrument, he shall be entitled- (i) to claim that so much of the amount paid by him as has not been laid out or expended by such fund, trust, company, association of persons, body of individuals, society or other institution (such amount being hereinafter referred to as the unutilised amount) be repaid to him, and where any claim is so made, the unutilised amount shall be repaid, as soon as may be, to him; (ii) to claim that any asset, being land, building, machinery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individuals, society or other institution out of the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him.] ----------------------------------------------------------------------- -> -> advances or otherwise; (v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society; (vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses." 1 Inserted by the Finance Act, 1984, w.r.e.f. 1-4-1980. 2 Ibid. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance Act, 1984, w.r.e.f. 1-4-1980. ------------------------------------------------------------------------ 1.248

1[(12) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

Profits chargeable to tax2 41. Profits chargeable to tax2

3[(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the -----------------------------------------------------------------------

1 Prior to the omission, sub-section (12), as inserted by the Finance Act, 1985, w.e.f. 1-4-1986, read as under:

"(12) No deduction shall be allowed in excess of ten thousand rupees for any assessment year in respect of any expenditure incurred by the assessee by way of fees or other remuneration paid to any person (other than an employee of the assessee),- (a) for services (not being services by way of preparation of return of income) in connection with any proceeding under this Act before any income-tax authority or the commission constituted under section 245B or a competent authority within the meaning of clause (b) of section 269A or the Appellate Tribunal or any court; (b) for services in connection with any other proceeding before any court, being a proceeding relating to tax, penalty, interest or any other matter under this Act; and (c) for any advice in connection with tax, penalty, interest or any other matter under this Act." 3 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to

the substitution, subsection (1), as originally enacted, read as under:

"(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not." ----------------------------------------------------------------------- 1.249 successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to incometax as the income of that previous year. Explanation.-For the purposes of this sub-section, "successor in business" means- (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm.]

1[(2) Omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.1 2[(2A) Omitted by the Taxation Laws (Amendment and Miscellaneous ---------------------------------------------------------------------

1 Prior to the omission, sub-section (2), as amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, read as under:

"(2) Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due: Provided that where the building sold, discarded, demolished or destroyed is a building to which Explanation 5 to section 43 applies, and the moneys payable in respect of such building, together with the amount of scrap value, if any, exceed the actual cost as determined under that Explanation, so much of the excess as does not exceed the difference between the actual cost so determined and the written down value shall be chargeable to income-tax as income of the business or profession of such, previous year. Provided further that where an asset representing expenditure of a capital nature on scientific research within the meaning of clause

(c) of sub-section (2B) of section 35, read with clause (4) of section 43 owned by the assessee which was or has been used for the purposes of business after it ceased to be used for the purpose of scientific research related to the business is sold, discarded, demolished or destroyed, the provisions of this sub-section shall apply as if for the words "actual cost", at the first place where they occur, the words "actual cost as increased by twenty-five per cent thereof" had been substituted. Explanation.-Where the moneys payable in respect of the building, machinery, plant or furniture referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provisions of this sub-section shall apply as if the business or profession is in existence in that previous year." 2 Prior to the omission, sub-section (2A), as inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under: "(2A) Where any structure or work in or in connection with a building, being the structure or work referred to in sub-section (1A) of section 32, is sold, discarded, demolished, destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building and the moneys payable in respect of such structure or work together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference -> ->. ---------------------------------------------------------------------- 1.250 Provisions) Act, 1986, w.e.f. 1-4-1988.]

(3) Where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (iv) of sub-

section (1), 1[or clause (c) of sub-section (2B),] of section 35, read

with clause (4) of section 43, is sold, without having been used for other purposes, and the proceeds of the sale together with the total amount of the deductions made under clause (i) 2[or, as the case may

be, the amount of the deduction under clause (ia)] of sub-section (2), 2[or clause (c) of sub-section (2B),] of section 35 exceed the amount of the capital expenditure, the excess or the amount of the deductions so made, whichever is the less, shall be chargeable to income-tax as income of the business or profession of the previous year in which the sale took place. Explanation.-Where the moneys payable in respect of any asset referred to in this sub-section become due in a previous year in which the business is no longer in existence, the provisions of this sub- section shall apply as if the business is in existence in that previous year.

(4)Where a deduction has been allowed in respect of a bad debt or

part of debt under the provisions of clause (vii) of sub-section (1) of section36, then, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly chargeable to income-tax as the income of the previous year in which it is recovered, whether the business or profession in respect of which the deduction has been allowed is in existence in that year or not.

4 [Explanation.-For the purposes of sub-section (3),-

(1) "moneys payable" in respect of any building, machinery, plant or furniture includes- (a) any insurance, salvage or compensation moneys payable in respect thereof; (b) where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in ----------------------------------------------------------------------- -> between the actual cost of the structure or work and its written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the structure or work became due. Explanation ].-Where the moneys payable in respect of the structure or work referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the structure or work was constructed or done is no longer in existence, the provisions of this sub-section shall apply as if the business or profession were in existence in that previous year. Explanation 2.-For the purposes of this sub-section, the expression "moneys payable" and the expression "sold" shall have the same meanings as in sub-section (1A) of section 32." 1 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 2 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 3 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 4 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, the Explanation read as under: "Explanation.-The expression "moneys payable" and the expression

"sold" in subsections (2) and (3) shall have the same meanings as in

sub-section (1) of section 32." ----------------------------------------------------------------------- 1.251

accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso;

(2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company.]

(5) Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax

under sub-section (1), 1[* * *] sub-section (3) or sub-section (4) in respect of that business or profession, any loss, not being a loss sustained in speculation business 2[* * *], which arose in that business or profession during the previous year in which it ceased to exist and which could not be set off against any other income of that previous year shall, so far as may be, be set off against the income chargeable to tax under the sub-sections aforesaid.

3[(6) References in sub-section (3) to any other provision of this Act which has been amended or omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall, notwithstanding such amendment or omission, be construed, for the purposes of that sub- section, as if such amendment or omission had not been made.] ----------------------------------------------------------------------

1 The words "sub-section (2), sub-section (2A)" omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. The italicised words were inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 2 The words "or under the head 'Capital gains"' omitted by the Finance Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1.252

Special provision for deductions in the case of business for prospecting, etc., for mineral oil 42. Special provision for deductions in the case of business for prospecting, etc., for mineral oil For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation 1[of the Central Government or any person authorised by it in such business] (which agreement has been laid on the Table of each House of Parliament), there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement in relation- (a) to expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the assessee; (b) after the beginning of commercial production, to expenditure incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for depreciation is admissible under section 32: 2[* * *] 1[Provided that in relation to any agreement entered into after the 31st day of March, 1981, this clause shall have effect subject to the modification that the words and figures "except assets on which allowance for depreciation is admissible under section 32" had been omitted; and] (c) to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified in the agreement; and such allowances shall be computed and made in the manner specified in the agreement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement. 4[Explanation.-For the purposes of this section, "mineral oil" includes petroleum and natural gas.] _

Definitions of certain terms relevant to income from profits and gains of business or profession 43. Definitions of certain terms relevant to income from profits and gains of business or profession In sections 28 to 41 and in this section, unless the context otherwise requires-

5(1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: ---------------------------------------------------------------------- 1 Substituted for "in such business of the Central Government" by the Finance Act, 1981, w.e.f. 1-4-1981. 2 The word "and" omitted by the Finance Act, 1981, w.e.f. 1-4-1981. 3 Inserted by the Finance Act, 1981, w.e.f. 1-4-1981. 4 Ibid. 1.253 1[Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, 2[but before the 1st day of March, 1975,] and is used otherwise than in a business of running it on hire for tourists, exceeds twenty- five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees.] Explanation 1.-Where an asset is used in the business after it ceases to be used for scientific research related to that business and

a deduction has to be made under 3[clause (ii) of sub-section (1)] of section 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under clause (iv) of sub-section

(1) of section 35 or under any corresponding provision of the Indian Income-tax Act, 1922 (11 of 1922). 4 [Explanation 2.-Where an asset is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the actual cost to the previous owner, as reduced by- (a) the amount of depreciation actually allowed under this Act and the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after-the 1st day of April, 1988, as if the asset was the only asset in the relevant block of assets.] Explanation 3.-Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the 5[Assessing] Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the 6[Assessing] Officer may, with the previous approval of the 7 [Deputy] Commissioner, determine having regard to all the circumstances of the case. --------------------------------------------------------------------- 1 Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. Earlier, the proviso was inserted by the Finance Act, 1966, w.e.f. 1-4-1966. 2 Inserted by the Finance Act, 1975, w.e.f. 1-4-1975. 3 Substituted for "clause (i), clause (ii) or clause (iii) of sub-

section (1) or sub-section (IA)" by the 'Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. The italicised words were inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 4 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, Explanation 2 read as under: "Explanation 2.-Where an asset is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the written down value thereof as in the case of the previous owner for the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, which is the less." 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 ]bid. 7 Substituted for "Inspecting Assistant", ibid. ------------------------------------------------------------------------ 1.254 1[Explanation 4.-Where any asset which had once belonged to the assessee and had been used by him for the purposes of his business or profession and thereafter ceased to be his property by reason of transfer or otherwise, is re-acquired by him, the actual cost to the assessee shall be- (i) the actual cost to him when he first acquired the asset as reduced by- (a) the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988, as if the asset was the only asset in the relevant block of assets; or (ii) the actual price for which the asset is re-acquired by him, whichever is less.] Explanation 5.-Where a building previously the property of the assessee is brought into use for the purpose of the business or profession after the 28th day of February, 1946, the actual cost to the assessee shall be the actual cost of the building to the assessee, as reduced by an amount equal to the depreciation calculated at the rate in force on that date that would have been allowable had the building been used for the aforesaid purposes since the date of its acquisition by the assessee. 2[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.] 3[Explanation 7.-Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated ---------------------------------------------------------------------- 1 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, Explanation 4, as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under: "Explanation 4.-Where assets which had once belonged to the assessee and had been used by him for the purposes of his business or profession and thereafter ceased to be his property by reason of transfer or otherwise, are re-acquired by him, the actual cost to the assessee shall be the actual cost to him when he first acquired the assets less the depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), diminished by any loss deducted, or as the case may be, increased by any profit assessed, under the provisions of clause (iii)

of sub-section (1) or clause (ii) of sub-section (1A) of section 32 or

subsection (2) or sub-section (2A) of section 41 of this Act, or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), or the actual price for which the asset is re-acquired by him, whichever is the less." 2 Substituted by the Finance Act, 1965, w.e.f. 1-4-1965. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. --------------------------------------------------------------------- 1.255 company and the amalgamated company is an Indian company, the actual cost of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its own business.] 1[Explanation 8.-For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset;]

(2)"paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession";

(3)"plant" includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession 2 [but does not include tea bushes or livestock];

(4) 3[(i) "scientific research" means any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries;] (ii) references to expenditure incurred on scientific research include all expenditure incurred for the prosecution, or the provision of facilities for the prosecution, of scientific research, but do not include any expenditure incurred in the acquisition of rights in, or arising out of, scientific research; (iii) references to scientific research related to a business or class of business include- ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1986, w.r.e.f. 1-4-1974, 2 Inserted by the Finance Act, 1995, w.r.e.f. 1-4-1962. ---------------------------------------------------------------------- 1.256 (a) any scientific research which may lead to or facilitate an extension of that business or, as the case may be, all businesses of that class; (b) any scientific research of a medical nature which has a special relation to the welfare of workers employed in that business or, as the case may be, all businesses of that class;

1(5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; shall not be deemed to be a speculative transaction;

(6) "written down value" means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force: 2 [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);] 3[(c) in the case of any block of assets,- --------------------------------------------------------------------- 2 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962. 3 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.257 (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and (B) by the reduction of the moneys payable in respect of any asset failing within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i).] Explanation 1.-When in a case of succession in business or profession, an assessment is made on the successor under sub-section

(2) of section 170 the written down value of 1[any asset or any block of assets] shall be the amount which would have been taken as its written down value if the assessment had been made directly on the person succeeded to. 2 [Explanation 2.-Where in any previous year, any block of assets is transferred,- (a) by a holding company to its subsidiary company or by a subsidiary company to its holding company and the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied; or ----------------------------------------------------------------------- 1 Substituted for "any asset" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 2 Substituted for Explanations 2 and 2A by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, Explanation 2, as substituted by the Finance Act, 1965, w.e.f. 1-4-1965 and Explanation 2A, as inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967, read as under: "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. Explanation 2A.-Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company, and the amalgamated company is an Indian company, the written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its business.' ---------------------------------------------------------------------- 1.258 (b) by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company,

then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee-company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferor-company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year.) Explanation 3.-Any allowance in respect of any depreciation

carried forward under sub-section (2) of section 32 shall be deemed to be depreciation "actually allowed". 1[Explanation 4.-For the purposes of this clause, the expressions "moneys payable" and "sold" shall have the same meanings as in the

Explanation below sub-section (4) of section 41.] 2[43A. Special provisions consequential to changes in rate of exchange of currency3

(1) Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency for making payment towards the whole or a part of the cost of the asset or for repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset (being in either case the liability existing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during the previous year shall be added to, or, as the case may be, deducted from, the

actual cost of the asset as defined in clause (1) of section 43 or the amount of expenditure of a capital nature refer-red to 4[in clause

(iv) of sub-section (1) of section 35 or in section 35A] or in clause

(ix) of sub-section (1) of section 36, or, in the case of a capital asset (not being a capital asset referred to in section 50), the cost of acquisition thereof for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid. ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 2 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 4 Restored by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. ----------------------------------------------------------------------- 1.259 Explanation 1.-In this sub-section, unless the context otherwise requires,- (a) "rate of exchange" means the rate of exchange determined or recognised by the Central Government for the conversion of Indian currency into foreign currency or foreign currency into Indian currency; (b) "foreign currency" and "Indian currency" have the meanings respectively assigned to them in section 2 of the Foreign Exchange Regulation Act, 1947 1 (7 of 1947). Explanation 2.-Where the whole or any part of the liability aforesaid is met, not by the assessee, but, directly or indirectly, by any other person or authority, the liability so met shall not be taken into account for the purposes of this sub-section. Explanation 3.-Where the assessee has entered into a contract with an authorised dealer as defined in section 2 of the Foreign Exchange Regulation Act, 19472 (7 of 1947), for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the liability aforesaid, the amount, if any, to be added to, or deducted from, the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this sub- section shall, in respect of so much of the sum specified in the contract as is available for discharging the liability aforesaid, be computed with reference to the rate of exchange specified therein.

(2) The provisions of sub-section (1) shall not be taken into account in computing the actual cost of an asset for the purpose of the deduction on account of development rebate under section 33. 3 [43B. Certain deductions to be only on actual payment4 Notwithstanding anything contained in any other provision of this Act, a deduction other-wise allowable under this Act in respect of- --------------------------------------------------------------------- 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1987. ---------------------------------------------------------------------- 1.260 1[(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or] (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, 2[or]

3[(c) any sum referred to in clause (ii) of sub-section (1) of section 36,] 4 [or] 5[(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution 6[or a State financial corporation or a State industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing,] shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: 7 [Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) 8[or clause (c)] 9[or clause (d)] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income

under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return:] 10[Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or ,before the due date as defined in the Explanation below

clause (va) of subsection (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.]] --------------------------------------------------------------------- 1 Substituted by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to the substitution, clause (a) read as under: '(a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or" 2 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1989. 3 Ibid. 4 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 5 Ibid. 6 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 7 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 8 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 9 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 10 Substituted by the Finance Act, 1989, w.e.f. 1-4-1989. Prior to the substitution, the second proviso, as inserted by the Finance Act, 1987, w.e.f. 1-4-1988, read as under: `" Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid during the previous year on or before the due date as

defined in the Explanation below clause (va) of sub-section (1) of section 36." ----------------------------------------------------------------------- 1.261 Explanation 1[1].-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum refer-red to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983 or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] 2 [Explanation 2.-For the purposes of clause (a), as in force at all material times, "any sum payable" means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.] 6[Explanation 4 [3].-For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) 5[or clause (d)] of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.] 6 [Explanation 4.-For the purposes of this section,- (a) "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 19567 (1 of 1956); (b) "State financial corporation" means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 8 (63 of 1951); (c) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 9 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and approved by the Central Government under clause (viii) of

sub-section (1) of section 36.] ---------------------------------------------------------------------- 1 Inserted by the Direct Act Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Inserted by the Finance Act, 1989, w.r.e.f. 1-4-1984. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 4 Renumbered by the Finance Act, 1989, w.e.f. 1-4-1989. Explanations 3 and 4, since substituted should also have been renumbered w.r.e.f. 1-4-1984 as Explanation 2 was inserted with retrospective effect but section 9(c) of the Finance Act, 1989 provides otherwise. 5 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 6 Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Prior to the substitution, Explanation 4, as inserted by the Finance Act, 1989, w.e.f. 1-4-1988 and amended by the Finance Act, 1989, w.e.f. 1-4-1989, read as under: "Explanation 4.-For the purposes of this section, the expression "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956)." 8 Ibid. 9 Ibid. ----------------------------------------------------------------------- 1.262 1[43C. Special provision for computation of cost of acquisition of certain assets

(1) Where an asset [not being an asset referred to in sub-

section (2) of section 45] which becomes the property of an amalgamated company under a scheme of amalgamation, is sold after the 29th day of February, 1988, by the amalgamated company as stock-in- trade of the business carried on by it, the cost of acquisition of the said asset to the amalgamated company in computing the profits and gains from the sale of such asset shall be the cost of acquisition of the said asset to the amalgamating company, as increased by the cost, if any, of any improvement made thereto, and the expenditure, if any, incurred, wholly and exclusively in connection with such transfer by the amalgamating company.

(2) Where an asset [not being an asset refer-red to in sub-

section (2) of section 45] which becomes the property of the assessee on the total or partial partition of a Hindu undivided family or under a gift or will or an irrevocable trust, is sold after the 29th day of February, 1988, by the assessee as stock-in-trade of the business carried on by him, the cost of acquisition of the said asset to the assessee in computing the profits and gains from the sale of such asset shall be the cost of acquisition of the said asset to the transferor or the donor, as the case may be, as increased by the cost, if any, of any improvement made thereto, and the expenditure, if any, incurred, wholly and exclusively in connection with such transfer (by way of effecting the partition, acceptance of the gift, obtaining probate in respect of the will or the creation of the trust), including the payment of gift-tax, if any, incurred by the transferor or the donor, as the case may be.] 2[43D. Special provision in case of income of public financial institutions, etc.3 Notwithstanding anything to the contrary contained in any other provision of this Act, in the case of a public financial institution or a scheduled bank or a State financial corporation or a State industrial investment corporation, the income by way of interest in relation to such ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1988, w.e.f. 1-4-1988. 2 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. ---------------------------------------------------------------------- 1.263 categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or the State financial corporation or the State industrial investment corporation to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation, whichever is earlier. Explanation.-For the purposes of this section,- (a) "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 1 (1 of 1956); (b) "scheduled bank" shall have the meaning assigned to it in clause

(ii)of the Explanation to clause (viia) of sub-section (1) of section 36; (c) "State financial corporation" means a financial corporation. established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 19512 (63 of 1951); (d) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 3 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and approved- by the Central Government under clause (viii) of

sub-section (1) of section 36.]

Insurance business4 44. Insurance business4 Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head "Interest on securities"', "Income from house property", "Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 6[43B], the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a cooperative society, shall be computed in accordance with the rules contained in the First Schedule. 5 These words should have been omitted consequent on the deletion of this head of income. 6 Substituted for "43A" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, "43A" was substituted for "43" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. ---------------------------------------------------------------------- 1.264 taken into account in arriving at the assessable profits. 1[44A. Special provision for deduction in the case of trade, professional or similar association

(1) Notwithstanding anything to the contrary contained in this Act, where the amount received during a previous year by any trade, professional or similar association 2[(other than an association or institution referred to in clause (23A) of section 10)] from its members, whether by way of subscription or otherwise (not being remuneration received for rendering any specific services to such members) falls short of the expenditure incurred by such association during that previous year (not being expenditure deductible in computing the income under any other provision of this Act and not being in the nature of capital expenditure) solely for the purposes of protection or advancement of the common interests of its members, the amount so fallen short (hereinafter referred to as deficiency) shall, subject to the provisions of this section, be allowed as a deduction in computing the income of the association assessable for the relevant assessment year under the head "Profits and gains of business or profession" and if there is no income assessable under that head or the deficiency allowable exceeds such income, the whole or the balance of the deficiency, as the case may be, shall be allowed as a deduction in computing the income of the association assessable for the relevant assessment year under any other head.

(2) In computing the income of the association for the relevant

assessment year under sub-section (1), effect shall first be given to any other provision of this Act under which any allowance or loss in respect of any earlier assessment year is carried forward and set off against the income for the relevant assessment year.

(3) The amount of deficiency to be allowed as a deduction under this section shall in no case exceed one-half of the total income of the association as computed before making any allowance under this section.

(4) This section applies only to that trade, professional or similar association the income of which or any part thereof is not distributed to its members except as grants to any association or institution affiliated to it.] 3[44AA. Maintenance of accounts by certain persons carrying on profession or business'

(1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette' shall keep and maintain such books ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 2 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1964. 3 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

1.265 of account and other documents as may enable the 1[Assessing] Officer to compute his total income in accordance with the provisions of this Act.

(2) Every person carrying on business or profession [not being a

profession referred to in sub-section (1)] shall,- (i) if his income from business or profession exceeds 2[forty thousand] rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds 3[five hundred thousand] rupees in any one of the three years immediately preceding the previous year; or (ii) where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed 4[forty thousand] rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed 5[five hundred thousand] rupees, during such previous year, keep and maintain such books of account and other documents as may enable the 6[Assessing] Officer to compute his total income in accordance with the provisions of this Act.

(3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribed, by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-

section (1) or sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained.'

(4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-

section (1) or subsection (2) shall be retained.] 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "twenty-five thousand" by the Finance Act, 1992, w.e.f. 1-4-1993. 3 Substituted for "two hundred and fifty thousand", by the Finance Act, 1992, w.e.f. 1-4-1993. 4 Substituted for "twenty-five thousand", ibid. 5 Substituted for "two hundred and fifty thousand", ibid. 6 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.266 1[44AB. Audit of accounts of certain persons carrying on business or profession 2 3Every person,- (a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year 4[* * *]; or (b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year 5[* * *], get his accounts of such previous year 6[* * *] audited by an accountant before the specified date and 7 [furnish by] that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: 8[Provided that this section shall not apply to the person, who derives income of the nature referred to in 9[* * *] or section 44B or section 44BB or section 44BBA or section 44BBB, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later: Provided further that] in a case where such person is required by or under any other law to get his accounts audited 10[* * *], it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and 11[furnishes by] that date the report of the audit as required under such other law and a further report in the form prescribed under this section. Explanation.-For the purposes of this section,- (i) "accountant" shall have the same meaning as in the

Explanation below sub-section (2) of section 288; 12[(ii) "specified date", in relation to the accounts of the previous year ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1984, w.e.f. 1-4-1988, 4 The words 'or years relevant to the assessment year commencing on the first day of April, 1985, or any subsequent assessment year' omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 5 Ibid. 6 The words 'or years' omitted, ibid. 7 Substituted for obtain before' by the Finance Act, 1995, w.e.f. 1-7-1995. 8 Substituted for 'Provided that, by the Finance Act, 1992, w.r.e.f. 1-4-1985. 9 The words 'section 44AC or' omitted by the Finance Act, 1995, w.e.f. 1-7-1995. 10 The words 'by an accountant' omitted by the Finance Act, 1985, w.e.f. 1-4-1985. 11 Substituted for 'obtains before' by the Finance Act, 1995, w.e.f. 1-7-199.5. 12 Substituted by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to the substitution, clause (ii) read as under: "(ii) 'specified date', in relation to the accounts of the previous year or years relevant to an assessment year, means the date of the expiry of four months from the end of the previous year or, where there is more than one previous year, from the end of the previous year which expired last before -> ->. ------------------------------------------------------------------------ 1.267 relevant to an assessment year means,- (a) where the assessee is a company, the 1[30th day of November] of the assessment year; (b) in any other case, the 31st day of October of the assessment year.]] 2[44AC. Special provision for computing profits and gains from the business of trading in certain goods.-Omitted by the Finance Act, 1992, w.e.f 1-4-1993.] --------------------------------------------------------------------- -> -> the commencement of the assessment year, or the 30th day of June of the assessment year, whichever is later." 1 Substituted for "31st day of December' by the Finance Act, 1994, w.e.f. 1-4-1994. 2 Prior to the omission, section 44AC, as inserted by the Finance Act, 1988, w.e.f. 1-4-1989 and amended subsequently, read as under: ----------------------------------------------------------------------- 1.268 -> -> "44AC. Special provision for computing profits and gains from

the business of trading in certain goods*.-(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction, tender or any other mode, conducted by any other person or his agent (hereafter in this section referred to as the seller),- (a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor), a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head "Profits and gains of business or profession": [Provided that nothing contained in this clause shall apply to a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act;] [Explanation.-For the purposes of this clause, "purchase price" means any amount (by whatever name called) paid or payable by the buyer to obtain the goods referred to in this clause, but shall not include the amount paid or payable by him towards the bid money in an auction, or, as the case may be, the highest accepted offer in case of tender or any other mode;] (b) the right to receive any goods of the nature specified

in column (2) of the Table below, or such goods, as the case may be, a sum equal to the percentage, specified in the

corresponding entry in column (3) of the said Table, of the amount paid or payable by the buyer in respect of the sale of such light or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head "Profits and gains of business or profession". TABLE --------------------------------------------------------------------- S. No. Nature of goods Percentage ---------------------------------------------------------------------

(1) (2) (3) --------------------------------------------------------------------- (i) Timber obtained under a forest lease Thirty-five per cent (ii) Timber obtained by any mode other Fifteen per cent than under a forest lease (iii) Any other forest produce not being Thirty-five per cent timber ----------------------------------------------------------------------

(2) For the removal of doubts, it is hereby declared that the

provisions of subsection (1) shall not apply to a buyer (other than a buyer who obtains any goods, from any seller which is a public sector company) in the further sale of any goods obtained under or in

pursuance of the sale under sub-section (1).

(3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee. Explanation.-For the purposes of this section, "seller" means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm For co-operative society]."

Capital gains on distribution of assets by companies in liquidation 45. Capital gains 1

2 [(1)] Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 3[4[ * * * ] 54, 54B, 5[ * * * ] 6[7 [54D, 8[54E, 54F 9[, 54G and 54H]]]]], be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place.

10[(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in- trade of a business carried on by him shall be chargeable to income- tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.]

11 (3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the -------------------------------------------------------------------- 2 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 3 Substituted for "53, 54, 54B and 54C" by the Finance Act, 1973, w.e.f. 1-4-1974. Earlier, it was substituted for "53, 54 and 54B" by the Finance Act, 1972, w.e.f. 1-4-1973 which was substituted for "53 and 54" by the Finance Act, 1970, w.e.f. 1-4-1970. 4 The figure "53," omitted by the Finance Act, 1992, w.e.f. 1-4-

5 The figure "54C" omitted by the Finance Act, 1976, w.e.f. 1-4-

6 Substituted for "and 54D" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 7 Substituted for "54D and 54E" by the Finance Act, 1982, w.e.f. 1- 4-1983. 8 Substituted for "54E and 54F" by the Finance Act, 1987, w.e.f. 1- 4-1988. 9 Substituted for "and 54G" by the Finance (No. 2 Act), 1991, w.e.f. 1-4-1991. 10 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4- 1985. It was originally inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and omitted by the Finance Act, 1966, w.e.f. 1-4-1966. 11 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. Sub-sections

(3) and (4) were originally inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and omitted by the Finance Act, 1966, w.e.f. 1-4-1966. ------------------------------------------------------------------------ 1.277 said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.]

1[(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, tribunal or other authority, the capital gain shall be dealt with in the following manner, namely:- (a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head "Capital gains of the previous year 2[in which such compensation or part thereof, or such consideration or part thereof, was first received]; and (b) the amount by which the compensation or consideration is enhanced or further enhanced by the court, tribunal or other authority shall be deemed to be income chargeable under the head "Capital gains" of the previous year in which such amount is received by the assessee. Explanation.-For the purposes of this sub-section,- (i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil; (ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988; (iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head "Capital gains", of such other person.]

3[(6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in

subsection (2) of section 80CCB and the capital value of such units shall be deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that section is terminated and shall be taxed accordingly. Explanation.-For the purposes of this sub-section, "capital value of such units" means any amount invested by the assessee in the units

referred to in sub-section (2) of section 8OCCB.] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 2 Substituted for 'in which the transfer took place" by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. ------------------------------------------------------------------------- 1.278 DEPATMENTAL VIEW 1. For the purposes of section 54E the date of transfer in cases where the capital assets are converted into stock-in-trade, will be the date on which the capital assets are converted by the assessee into stock-in trade and not the date on which such stock-in-trade is sold or otherwise transferred. [Circular No. 560, dated 18th May,1990] 2. Even in all those cases where a business is converted into a limited company the question of charging capital gains as well as gift-tax wherever provisions of the relevant Acts are found to be applicable, should also be considered. [Circular No. 23D of 1965]. 3. Exchange of gold ornaments for gold bonds would not be regarded as transfer of capital assets.[Letter No. 34/11/65, dated 15th January, 1966]

46. Capital gains on distribution of assets by companies in liquidation

(1) Notwithstanding anything contained in section 45, where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45.

(2) Where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be chargeable to income-tax under the head "Capital gains", in respect of the money so received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the

meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48.

Transactions not regarded as transfer 47. Transactions not regarded as transfer Nothing contained in section 45 shall apply to the following transfers:- (i) any distribution of capital assets on the total or partial partition of a Hindu undivided family; 1[(ii) Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.1 (iii) any transfer of a capital asset under a gift or will or an irrevocable trust; (iv) any transfer of a capital asset by a company to its subsidiary company, if- (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian company; 2[(v) any transfer of a capital asset by a subsidiary company to the holding company, if- (a) the whole of the share capital of the subsidiary company is held by the holding company, and ----------------------------------------------------------------------- 1 Prior to the omission, clause (ii) read as under: "(ii) any distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons;" 2 Inserted by the Finance Act, 1965 , w.e.f. 1-4-1965. ------------------------------------------------------------------------ 1.279 (b) the holding company is an Indian company:] 1[Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade;] 2[(vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company; 3[(via) any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if- (a) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and (b) such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated;] (vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company if- (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company, and (b) the amalgamated company is an Indian company;] 4[ (viia) any transfer of a capital asset, being bonds

or shares referred to in sub-section (1) of section 115AC, made outside India by a non-resident to another non- resident;] 5[(viii) any transfer of agricultural land in India effected before the 1st day of March, 1970;] 6[(ix) any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution as may be notified 7 by the Central Government in the Official Gazette to be of national importance or to be of renown throughout any State or States. Explanation.-For the purposes of this clause, "University" means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution ------------------------------------------------------------------------- 1 Inserted by the Finance Act, 1988, w.e.f. 1-4-1988. 2 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 3 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 4 Inserted by the Finance Act, 1992, w.e.f. 1-6-1992. 5 Inserted by the Finance Act, 1970, w.e.f. 1-4-1970. 6 Inserted by the Finance Act, 1976, w.e.f. 1-4-1977. ------------------------------------------------------------------------ 1.280 declared under section 3 of the University Grants Commission Act, 1956 1 (3 of 1956), to be a University for the purposes of that Act;] 2[(x) any transfer by way of conversion of 3[bonds or] debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company.] 4 [47A. Withdrawal of exemption in certain cases Where at any time before the expiry of a period of eight years from the date of the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47,- (i) such capital asset is converted by the transferee company into, or is treated by it as, stock-in-trade of its business; or (ii) the parent company or its nominees or, as the case may be, the holding company ceases or cease to hold the whole of the share capital of the subsidiary company, the amount of profits and gains arising from the transfer of such capital asset not charged under section 45 by virtue of the provisions contained in clause (iv) or, as the case may be, clause (v) of section 47 shall, notwithstanding anything contained in the said clauses, be deemed to be income chargeable under the head "Capital gains" of the previous year in which such transfer took place.]

Mode of computation 6 5[48. Mode of computation 6 The income chargeable under the head "Capital gains" shall be ------------------------------------------------------------------------ 2 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1962. 3 Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1962. 4 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

5 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, section 48, as substituted by the Finance Act, 1987, w.e.f. 1-4-1988 and amended subsequently as annotated below, read as under:

"48. Mode of computation and deductions.-(1) The income chargeable under the head "Capital gains" shall be computed,- (a) by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii)the cost of acquisition of the asset and the cost of any improvement thereto: [Provided that in the case of an assessee, who is a non-resident Indian, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every re-investment thereafter in, and sale of, shares in, or debentures of, an Indian company. Explanation.-For the purposes of this clause,- ---------------------------------------------------------------------- 1.281 ---------------------------------------------------------------------- (i) 'non-resident Indian" shall have the same meaning as in clause (e) of section 115C; (ii)'foreign currency" and 'Indian currency' shall have the meanings respectively assigned to them in section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973); (iii)the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf;] (b) where the capital gain arises from the transfer of a long-term capital asset (hereafter in this section referred to, respectively, as long-term capital gain and long-term capital asset) by making the further deductions specified in

subsection (2).

(2) The deductions referred to in clause (b) of sub-section (1) are the following, namely:- (a) where the amount of long-term capital gain arrived at after making the deductions under clause (a) of sub-section

(1) does not exceed *[fifteen] thousand rupees, the whole of such amount; (b) in any other case, *[fifteen] thousand rupees as increased by a sum equal to,- (i) in respect of long-term capital gain so arrived at relating to capital assets, being buildings or lands or any tights in buildings or lands or gold, bullion or jewellery,- (A)in the case of a company, ten per cent of the amount of such gain in excess of *[fifteen] thousand rupees; (B)in the case of any other assessee, fifty per cent of the amount of such gain in excess of *[fifteen] thousand rupees; [(ia) in respect of long-term capital gain so arrived at relating to equity shares of venture capital undertakings,- (A) in the case of a company, other than venture capital company, thirty per cent of the amount of such gain in excess of *[fifteen] thousand rupees; (B) in the case of venture capital company, sixty per cent of the amount of such gain in excess of *[fifteen] thousand rupees; (C)in any other case, sixty per cent of the amount of such gain in excess of *[fifteen] thousand rupees;] (ii) in respect of long-term capital gain so arrived at relating to **[capital assets [other than capital assets referred to in sub-clauses (i) and (ia)]],- (A)in the case of a company, thirty per cent of the amount of such gain in excess of *[fifteen] thousand rupees; (B)in any other case, sixty per cent of the amount of such gain in excess of *[fifteen] thousand rupees: Provided that where the long-term capital gain relates to both categories of capital assets referred to in sub-clauses (i) and (ii), the deduction of *[fifteen] thousand rupees shall be allowed in the following order,' namely:-

(1)the deduction shall first be allowed against long-term capital gain relating to the assets mentioned in sub-clause (i);

(2)thereafter, the balance, if any, of the said *[fifteen] thousand rupees shall be allowed as deduction against long-term capital gain relating to the assets mentioned in sub-clause (ii), and the provisions of sub-clause (ii) shall apply as if references to *[fifteen] thousand rupees therein were references to the amount of

deduction allowed in accordance with clauses (1) and (2) of this proviso: Provided further that, in relation to the amount referred to in

clause (b) of subsection (5) of section 45, the initial deduction of *[fifteen] thousand rupees under clause (a) of this sub-section shall be reduced by the deduction already allowed under clause (a) of section 80T in the assessment for the assessment year commencing on the ----------------------------------------------------------------------- 1.282 computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the ---------------------------------------------------------------------- -> -> 1st day of April, 1987, or any earlier assessment year or, as the case may be, by the deduction allowed under clause (a) of this sub-section in relation to the amount of compensation or consideration

referred to in clause (a) of sub-section (5) of section 45 and references to *[fifteen] thousand rupees in clauses (a) and (b) of this sub-section shall be construed as references to such reduced amount, if any. [Explanation.-For the purposes of this section,- (a) "venture capital company" means such company as is engaged in providing finance to venture capital undertakings mainly by way of acquiring equity shares of such undertakings or, if the circumstances so require, by way of advancing loans to such undertakings, and is approved by the Central Government in this behalf; (b) "venture capital undertaking" means such company as the prescribed authority may, having regard to the following factors, approve for the purposes of subclause (ia) of clause

(b) of sub-section (2), namely:-

(1) the total investment in the company does not exceed ten crore rupees or such other higher amount as may be prescribed;

(2) the company does not have adequate financial resources to undertake projects for which it is otherwise professionally or technically equipped; and

(3) the company seeks to employ any technology which will result in significant improvement over the existing technology in India in any field and the investment in such technology involves high risk.]

(3) The deductions specified in sub-section (2) shall be made also for the purposes of computing any loss under the head "Capital gains" in so far as it pertains to any longterm capital asset and, for this purpose, any reference in that sub-section to the amount of long- term capital gain arrived at after making the deductions under clause

(a) of subsection (1) shall be construed as reference to the amount of loss arrived at after making the said deductions."

Cost with reference to certain modes of acquisition 49. Cost with reference to certain modes of acquisition

3[(1)] Where the capital asset became the property of the assessee- (i) on any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) under a gift or will; -------------------------------------------------------------------- 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. --------------------------------------------------------------------- 1.284 (iii) (a) by succession, inheritance or devolution, or 1[(b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 987, or] (c) on any distribution of assets on the liquidation of a company, or (d) under a transfer to a revocable or an irrevocable trust, or (e) under any such transfer as is referred to in clause (iV) 2[or clause (V)] 3[or clause (Vi)] 4[or clause (via)] of section 47; 5[(iv) such assessee being a Hindu undivided family, by the mode

referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969,] the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. 6[Explanation.-In this 7[sub-section] the expression "previous owner of the property" in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) 8[or clause (iv)] of this 9[sub-section].]

10[(2) Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company.] 11[(2A) Where the capital asset, being a share or debenture in a company, became the property of the assessee in consideration of a transfer referred to in clause (x) of section 47, the cost of acquisition of the asset to the assessee shall be deemed to be that part of the cost of debenture, debenture-stock or deposit certificates in relation to which such asset is acquired by the assessee.] ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, subclause (b) read as under. "(b) on any distribution of assets on the dissolution of a firm, body of individuals or other association of persons, or" 2 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 4 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 5 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

6 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 7 Substituted for "section' by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 8 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

9 Substituted for 'section" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 10 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 11 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1962. ------------------------------------------------------------------------ 1.285

1[(3) Notwithstanding anything contained in sub-section (1), where the capital gain arising from the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47 is deemed to be income chargeable under the head "Capital gains" by virtue of the provisions contained in section 47A, the cost of acquisition of such asset to the transferee company shall be the cost for which such asset was acquired by it.]

Special provision for computation of capital gains in case of depreciable assets 2[50. Special provision for computation of capital gains in case of depreciable assets Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:-

(1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;

(2) where any block of assets ceases to exist as such, for the reason ------------------------------------------------------------------------ 1 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

2 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, section 50 read as under: 50. Special provision for computing cost of acquisition in the case of depreciable assets.-Where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force, the provisions of sections 48 and 49 shall be subject to the following modifications:-

(1) The written down value, as defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.

(2) Where under any provision of section 49, read with sub-

section (2) of section 55, the fair market value of the asset on the 1st day of April, 1974 is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the said date, as reduced by the amount of depreciation, if any, allowed to the assessee after the said date, and as adjusted." The italicised words were substituted for "1st day of January, 1964" by the Finance Act, 1986, w.e.f. 1-4-1987 which was earlier substituted for "1st day of January, 1954" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. ---------------------------------------------------------------------- 1.286 that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset failing within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.]

Advance money received 51. Advance money received Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.

Consideration for transfer in cases of understatement.-Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.] 1[52. Consideration for transfer in cases of understatement.- Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]

Exemption of capital gains from a residential house.-Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.] 2[53. Exemption of capital gains from a residential house.- Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.] ---------------------------------------------------------------------- 1 Prior to the omission, section 52, as amended by the Finance Act, 1964, w.e.f. 1-4-1964; the Finance Act, 1975, w.r.e.f. 1-4-1974 and the Finance Act, 1978, w.r.e.f. 1-4-1974, read as under:

"52. Consideration for transfer in cases of understatement.-(1) Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45, the full value of the consideration for the transfer shall, with the previous approval of the inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer.

(2) Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer: Provided that this sub-section shall not apply in any case- (a) where the capital asset is transferred to the Government, or (b) where the full value of the consideration for the transfer of the capital asset is determined or approved by the Central Government or the Reserve Bank of India." 2 Prior to the omission, section 53, as substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985 and amended subsequently, as annotated below, read as under: "53. Exemption of capital gains from a residential house.- Notwithstanding anything contained in section 45, where in the case of an assessee being an individual *[or a Hindu undivided family], the capital gain arises from the transfer of [long-term capital asset], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property", the capital gain arising from such transfer shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) in a case where the full value of the consideration received or accruing as a result of the transfer of such capital asset does not exceed two ---------------------------------------------------------------------- 1.287

Profit on sale of property used for residence1 54. Profit on sale of property used for residence1

1[( 1)] 3[4 [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset 5[* * *], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of 6[one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date constructed, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,- ---------------------------------------------------------------------- -> -> hundred thousand rupees the whole of the capital gain shall not be charged under section 45; (b) in a case where the full value of such consideration exceeds two hundred thousand rupees, so much of the capital gain as bears to the whole of the capital gain the same proportion as the amount of two hundred thousand rupees bears to such consideration shall not be charged under section 45: Provided that nothing contained in this section shall apply to a case where the assessee owns on the date of such transfer any other residential house. [Explanation.-In this section and in sections 54, 54B, 54D, 54E, 54F and 54G, references to capital gain shall be construed as references to the amount of capital gain as computed under clause (a)

of sub-section (1) of section 48.]" * Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

Meaning of "adjusted", "cost of improvement" and "cost of acquisition" 55. Meaning of "adjusted", "cost of improvement" and "cost of acquisition"

(1) For the purposes of 1[sections 48 and 49],- 2[(a) Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.] 3[(b) "cost of any improvement",-

(1) in relation to a capital asset being goodwill of a business shall be taken to be nil; and

4 (2) in relation to any other capital asset,-] (i) where the capital asset became the property of the previous owner or the assessee before the 5[1st day of April, 6[1981]], 7[* * *] means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and (ii)in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes

specified in 8[sub-section (1) of] section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head "Interest on ---------------------------------------------------------------------- 1 Substituted for "sections 48, 49 and 50" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 2 Prior to the omission, clause (a), as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under: "(a)"adjusted", in relation to written down value or fair market value, means diminished by any loss deducted or increased by any profit assessed, under the provisions of

clause (iii) of sub-section (1) or clause (ii) of sub-section

(1A) of section 32 or sub-section (2) or sub-section (2A) of section 41, as the case may be, the computation for this purpose being made with reference to the period commencing

from 1st day of April, 1974 in cases to which clause (2) of section 50 applies;" Earlier,the italicised words were substituted for 'list day of January, 1964" by the Finance Act, 1986, w.e.f. 1-4-1987 which were substituted for "1st day of January, 1954" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978." 3 Substituted for "cost of any improvement", in relation to a capital asset,-' by the Finance Act, 1987, w.e.f. 1-4-1988. 5 Substituted for "1st day of January, 1964" by the Finance Act, 1986, w.e.f. 1-4-1987 which was earlier substituted for "1st day of January, 1954" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 6 Substituted for "1974" by the Finance Act, 1992, w.e.f. 1-4-1993. 7 The words "and the fair market value of the asset on that day is taken as the cost of acquisition at the option of the assessee," omitted by the Finance Act, 1992, w.e.f. 1-4-1993. 8 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. ------------------------------------------------------------------------- 1.307 securities",' "Income from house property", "Profits and gains of business or profession", or "Income from other sources", and the expression "Improvement" shall be construed accordingly.

(2) 2 [For the purposes of sections 48 and 49, "cost of acquisition",- 3 [(a) in relation to a capital asset, being goodwill of a business, tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by, purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case [not being a case falling under

sub-clauses (i) to (iv) of sub-section (1) of section 49], shall be taken to be nil; (aa) 4 [in a case where by virtue of holding a capital asset, being a share or any other security within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 5 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee becomes entitled to subscribe to any additional financial asset, then, subject to the provisions of sub-clauses (i) and (ii) of clause (b)],- (i) in relation to the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset; and (ii) in relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil ill the case of such assessee; (iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset; 6[ (iiia) in relation to the financial asset allotted to the assessee without ---------------------------------------------------------------------- 1 Omitted as a separate head of income by the Finance Act, 1988, w.e.f. 1-4-1989. The reference here should also have been omitted. 2 Substituted for "For the purposes of sections 48 and 49, "cost of acquisition", in relation to a capital asset,-" by the Finance Act, 1987, w.e.f. 1-4-1988. 3 Substituted by the Finance Act, 1994, w.e.f. 1-4-1995 for the following: "(a) in relation to a capital asset, being goodwill of a business,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case, shall be taken to be nil;" 4 Being substituted by the following by the Finance Act, 1995, w.e.f. 1-4-1996: "in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee- (A) becomes entitled to subscribe to any additional financial asset; or (B) is allotted any additional financial asset without any payment, then, subject to the provisions of sub- clauses (i) and (ii) of clause (b)" 6 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ---------------------------------------------------------------------- 1.308 any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee;] (iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of* the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset;] (b) in relation to any other capital asset,-] (i) where the capital asset became the property of the assessee before the 1[1st day of April, 2[1981]], means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 3[1st day of April ,4[ 1981]], at the option of the assessee; (ii) where the capital asset became the property of the assessee by any of the modes specified in 5[sub-section

(1) of] section 49, and the capital asset became the property of the previous owner before the 6[1st day of April, 7[1981]], means the cost of the capital asset to the previous owner or the fair market value of the asset on the 8[1st day of April, 9[1981]], at the option of the assessee; (iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution; 10[(iv) * * *] 11[(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on- ----------------------------------------------------------------------- 1 Substituted for "1st day of January, 1964" by the Finance Act, 1986, w.e.f. 1-4-1987 which was earlier substituted for 'list day of January, 1954" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 2 Substituted for "1974" by the Finance Act, 1992, w.e.f. 1-4-1993. 3 Substituted for "1st day of January, 1964" by the Finance Act, 1986, w.e.f. 1-4-1987 which was earlier substituted for 'list day of January, 1954" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 4 Substituted for "1974" by the Finance Act, 1992, w.e.f. 1-4-1993. 5 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 6 Substituted for "1st day of January, 1964" by the Finance Act, 1986, w.e.f. 1-4-1987 which was earlier substituted for 'list day of January, 1954" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 7 Substituted for "1974" by the Finance Act, 1992, w.e.f. 1-4-1993. 8 Substituted for list day of January, 1964" by the Finance Act, 1986, w.e.f. 1-4-1987 which was earlier substituted for 'list day of January, 1954" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 9 Substituted for "1974" by the Finance Act, 1992, w.e.f. 1-4-1993. 10 Omitted by the Finance Act, 1966, w.e.f. 1-4-1966. Earlier, clause (iv) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 11 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. ---------------------------------------------------------------------- 1.309 (a) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares, (b) the conversion of any shares of the company into stock, (c) the re-conversion of any stock of the company into shares, (d) the sub-division of any of the shares of the company into shares of smaller amount, or (e) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.]

(3) Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner. 1[55A. Reference to Valuation Officer 2 With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the 3[Assessing] Officer may refer the valuation of capital asset to a Valuation Officer-- (a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the 4 [Assessing] Officer is of opinion that the value so claimed is less than its fair market value; (b) in any other case, if the 5[Assessing] Officer is of opinion- (i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of sub-sections

(2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of

sub-section (1) and sub-sections (3A) and (4) of section 23, sub-

section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the 6[Assessing] Officer under sub-

section (1) of section 16A of that Act. ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1972, w.e.f. 1-1-

3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Ibid. 5 Ibid. 6 Ibid. ---------------------------------------------------------------------- 1.310 Explanation.--In this section, "Valuation Officer" has the same meaning, as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).] F.-Income from other sources

Income from other sources 1 56. Income from other sources 1

(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the

provisions of sub-section (1), the following income shall be chargeable to income-tax under the head "Income from other sources", namely:- (i)dividends;

2[(ia)income referred to in sub-clause (viii) of clause (24) of section 2;]

3[(ib)income referred to in sub-clause (ix) of clause (24) of section 2;]

4[(iC)income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head "Profits and gains of business or profession";] 5[(id)income by way of interest on securities, if the income is not chargeable to income-tax under the head "Profits and gains of business or profession";] (ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to incometax under the head "Profits and gains of business or profession"; (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery' plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession". 2 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. Clause

2(24)(viii) has since been omitted by the Finance Act, 1988, w.e.f. 1- 4-1988. This clause too should be omitted. 3 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 4 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.311 (ii) where separate figures as above are not available 33 1/2 per cent of the gross commission. In both cases the ad hoc deduction will be subject to a ceiling of Rs. 20,000. Gross commission will include first year as well as renewal commission, but will exclude bonus commission. Bonus commission is taxable and will be taken into account for purposes of computing the total income and no ad hoc deduction will be allowed from such bonus commission.

[Circular No. 648, dated 30th March, 1993]

Deductions1 57. Deductions 1 The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely:- (i) in the case of dividends, 2[or interest on securities], any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend 3[or interest] on behalf of the assessee; 4[(ia) in the case of income of the nature referred

to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-tax under the head "Income from other sources", deductions, so far as may be, in accordance with the provisions of clause (va) of sub-

section (1) of section 36;] (ii) in the case of income of the nature referred to in

clauses (ii) and (iii)of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause

(c) of section 30, section 31, 5[sub-sections (1) 6[* *

*] and (2)] of section 32 and subject to the provisions of 7[Section 38]; 8[(iia)in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or twelve thousand rupees, whichever is less. Explanation.-For the purposes of this clause, "family pension" means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death;] --------------------------------------------------------------------- 2 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 Ibid 4 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

5 substituted for "sub-sections (1) and (2)"by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 6 The figure "(1A)" omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 7 Substituted for "sections 34 and 38", ibid. 8 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. --------------------------------------------------------------------- 1.312 (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. 1[Omitted by the Finance Act, 1994, w.e.f. 1-4-1995.] 2[Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.] 1 Prior to the omission, the proviso read as under: "Provided that nothing contained in clause (i) or clause (iii) shall apply in computing the income referred to in clause (a) or

clause (aa) or clause (ab) of subsection (1) of section 115A in the case of an assessee, being a foreign company." Earlier, it was substituted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1989. Prior to the substitution the proviso, as inserted by the Finance Act, 1976, w.e.f. 1-6-1976, read as under: "Provided that nothing contained in clause (i) or clause (iii) shall apply in computing the income by way of dividends in the case of an assessee being a foreign company." 2 Prior to the omission, the Explanation read as under: "Explanation.-For the purposes of this section and section 58, "foreign company" shall have the same meaning as in section 80B." ---------------------------------------------------------------------- 1.313 5. The Foreign Exchange Entitlement Certificate fee charged under the Ceylon Exchange Control Law is not a deductible expense under section 57(iii) since interest on the blocked accounts has already been earned before the fee was deducted. [Circular No. 156, dated 23rd December, 1974] 6. Forty per cent of the gross receipts from the commission earned by the authorised agents on the deposits secured by them for the Post Office Time Deposits should be allowed as a deduction while assessing such commission. [Letter No. 16813172, dated 4th October, 1972]

Amounts not deductible 58. Amounts not deductible

1[(1)] Notwithstanding anything to the contrary contained in section 57, the following amounts shall not be deductible in computing the income chargeable under the head "Income from other sources", namely-- (a) in the case of any assessee,- (i) any personal expenses of the assessee; 2[(ia) any expenditure of the nature referred to in sub-

section (12) of section 40A;] (ii) any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B 3[* * *]; (iii) any payment which is chargeable under the head "Salaries", if it is payable outside India, unless tax has been paid thereon or deducted therefrom under Chapter XVII-B; 4[(iv ) * * *] 5[(b) Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.] 6[(1A) The provisions of sub-clause (iia) of clause (a) of section 40 shall, so far as may be, apply in computing the income chargeable under the head "Income from other sources" as they apply in computing the income chargeable under the head "Profits and gains of business or profession".]

7 [(2) The provisions of section 40A shall, so far as may be, apply in computing the income chargeable under the head "Income from other ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1968, w.e.f. 1-4-1968 and is deemed always to have been renumbered vide section 3 of the Income-tax (Amendment) Act, 1972. 2 Inserted by the Finance Act, 1985, w.e.f. 1-4-1986. 3 The words "and in respect of which there is no person in India who may be treated as an agent under section 163" omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 4 Omitted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. Sub- clause (iv) was inserted by the Finance Act, 1968, w.e.f. 1-4-1969. 5 Prior to the omission, clause (b), as amended by the Finance Act, 1963, w.e.f. 1-4-1963 and the Finance Act, 1968, w.e.f. 1-4-1969, read as under: "(b) in the case of a company, any expenditure or allowance of the nature referred to in clause (c) of section 40, notwithstanding that the amount thereof is included in the total income of any person refer-red to in sub-clause (i) of clause (c)of section 40." 6 Inserted by the Income-tax (Amendment) Act, 1972, w.r.e.f. 1-4- 1962 subject to savings under section 5 of the Amendment Act regarding certain cases decided by the Supreme Court. 7 Inserted by the Finance Act, 1968, w.e.f. 1-4-1968. ---------------------------------------------------------------------- 1.314 sources" as they apply in computing the income chargeable under the head "Profits and gains of business or profession".]

1[(3) In the case of an assessee, being a foreign company, the provisions of section 44D shall, so far as may be, apply in computing the income chargeable under the head "Income from other sources" as they apply in computing the income chargeable under the head "Profits and gains of business or profession".]

2[(4) In the case of an assessee having income chargeable under the head "Income from other sources", no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or form, gambling or betting of any form or nature, whatsoever: Provided that nothing contained in this sub-section shall apply in computing the income of an assessee, being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses. Explanation.-For the purposes of this sub-section, "horse race" means a horse race upon which wagering or betting may be lawfully made.]

Profits chargeable to tax 59. Profits chargeable to tax

(1) The provisions of sub-section (1) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head "Profits and gains of business or profession".

3[(2) Omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.]

4 [(3) Omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.] 5[Omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.] --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976. 2 Inserted by the Finance Act, 1986, w.e.f. 1-4-1987.

3 Prior to the omission, sub-section (2) read as under:

"(2) When any building, machinery, plant or furniture to which

clauses (ii) and (iii) of sub-section (2) of section 56 apply are sold, discarded, demolished or destroyed, the provisions of sub-

section (2) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56 as they apply in computing the income of an assessee under the head "Profits and gains of business or profession"."

4 Prior to the omission, sub-section (3), as inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under:

"(3) Where any structure or work referred to in sub-section (1A) of section 32 in or in relation to a building to which clause (iii) of

sub-section (2) of section 56 applies is sold, discarded, demolished or destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building, the provisions of sub-section (2A) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56 as they apply in computing the income of an assessee under the head "Profits and gains of business or profession"." 5 Prior to the omission, the Explanation read as under: "Explanation.-For the purpose of this section, the expression

"sold" shall have the same meaning as in sub-section (1) of section 32." ---------------------------------------------------------------------- CHAP INCOME OF OTHER PERSONS, INCLUDED INASSESSEE'S TOTAL INCOME CHAPTER V INCOME OF OTHER PERSONS, INCLUDED IN ASSESSEE'S TOTAL INCOME

Transfer of income where there is no transfer of assets 60. Transfer of income where there is no transfer of assets All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income.

Revocable transfer of assets 61. Revocable transfer of assets All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income.

Transfer irrevocable for a specified period 62. Transfer irrevocable for a specified period

(1) The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer-- (i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee; or (ii) made before the 1st day of April, 1961, which is not revocable for a period exceeding six years: Provided that the transferor derives no direct or indirect benefit from such income in either case.

(2) Notwithstanding anything contained in sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total income.

"Transfer" and "revocable transfer" defined 63. "Transfer" and "revocable transfer" defined For the purposes of sections 60, 61 and 62 and of this section,- (a) a transfer shall be deemed to be revocable if- (i) it contains any provision for the retransfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets; (b) "transfer" includes any settlement, trust, covenant, agreement or arrangement. 1.316

Income of individual to include income of spouse, minor child, etc. 1 64. Income of individual to include income of spouse, minor child, etc. 1

2[3[(1)] In computing the total income of any individual, there shall be included all such income as arises directly or indirectly- 4[(i) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;] (ii) to the spouse of such individual by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from a concern in which such individual has a substantial interest: 5 [Provided that nothing in this clause shall apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience;] 6[(iii) Omitted by the Finance Act, 1992, w.e.f. 1-4- 1993;] (iv) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart; 8[(v) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;] --------------------------------------------------------------------- 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. 3 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under: "(i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner;" Earlier,it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 5 Restored to its original version by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 6 Prior to the omission, clause (iii), as substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under: "(iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm;" Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 7 The words "in a case not falling under clause (i) of this sub- section" omitted by the Finance Act, 1992, w.e.f. 1-4-1993. 8 Prior to the omission, clause (v), as substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under: "(v)*subject to the provisions of clause (i) of section 27, in a case not falling under clause (iii) of this sub-section, to a minor child [* * *] of such individual, from assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration;" The words '(not being a married daughter)" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.317 (vi) to the son's wife, 1[* * *] of such individual, from assets transferred directly or indirectly on or after the 1st day of June, 1973, to the son's wife 2[* * *] by such individual otherwise than for adequate consideration; 3[* * *] (vii)to any person or association of persons from assets transferred directly or indirectly otherwise than for adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse 4[* * *] 5[; and] 6[(Viii)to any person or association of persons from assets transferred directly or indirectly on or after the 1st day of June, 1973, otherwise than for adequate consideration, to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his son's wife 7[* * *].] 8[Explanation 1.-For the purposes of clause (ii), the individual in computing whose total income the income referred to in that clause is to ---------------------------------------------------------------------- 1 The words 'or son's minor child," omitted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 The words "or son's minor child" omitted, ibid. 3 The word 'and' omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985. 4 The words "or minor child or both" omitted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, the words '(not being a married daughter)" occurring after "or minor child" were omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 5 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

6 Inserted, ibid. 7 The words "or son's minor child or both" omitted by the Finance Act, 1992, w.e.f. 1-4-1993. 8 Substituted for Explanations 1 and 1A by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, Explanation 1 (as substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4- 1976 and amended by the Finance Act, 1979, w.e.f. 1-4-1980 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988) and Explanation 1A (as inserted by the Finance Act, 1979, w.e.f. 1-4-1980) read as under: "Explanation 1.-For the purposes of clause (i) and clause (ii) the individual, in computing whose total income the income referred to in that clause is to be included, shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater; and, for the purposes of clause (iii), the income of the minor child from the partnership shall be included in the income of that parent whose total income (excluding the income referred to in that clause) is greater; and where any such income is once included in the total income of either spouse or parent, any such income arising in any succeeding year shall not be included in the total income of the other spouse or parent unless the Assessing Officer is satisfied, after giving that spouse or parent an opportunity of being heard, that it is necessary so to do. Explanation 1A.-For the purposes of clause (i), where the spouse of an individual is a beneficiary under a trust, the income arising to the trustee from the membership of the trustee in a firm carrying on a business in which such individual is a partner shall, to the extent such income is for the immediate or deferred benefit of the spouse of such individual, be deemed to be income arising indirectly to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner." Both these Explanations were omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. ---------------------------------------------------------------------- 1.318 be included, shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater; and where any such income is once included in the total income of either spouse, any such income arising in any succeeding year shall not be included in the total income of the other spouse unless the Assessing Officer is satisfied, after giving that spouse an opportunity of being heard, that it is necessary so to do. ] Explanation 2.--For the purposes of clause (ii), an individual shall be deemed to have a substantial interest in a concern- (i)in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of his relatives; (ii)in any other case, if such person is entitled, or such person and one or more of his relatives are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern. 1[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.] 2[Explanation 3.-For the purposes of clauses (iv) and (vi), where the assets transferred directly or indirectly by an individual to his spouse or ---------------------------------------------------------------------- 1 Prior to the omission, Explanation 2A, as inserted by the Finance Act, 1979, w.e.f. 1-4-1980, read as under: "Explanation 2A.-For the purposes of clause (iii), where the minor child of an individual is a beneficiary under a trust, the income arising to the trustee from the membership of the trustee in a firm shall, to the extent such income is for the benefit of the minor child, be deemed to be income arising indirectly to the minor child from the admission of the minor to the benefits of partnership in a firm." 2 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, Explanation 3, as substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, read as under: "Explanation 3.-For the purposes of clauses (iv), (v) and (vi), where the assets transferred directly or indirectly by an individual to his spouse or minor child or son's wife or son's minor child (hereafter in this Explanation referred to as "the transferee") are invested by the transferee in any business, that part of the income arising out of the business to the transferee in any previous year, which bears the same proportion to the income of the transferee from the business, as the value of the assets aforesaid as on the 1st day of the previous year bears to the total investment in the business by the transferee as on the said day, shall be included in the total income of the individual in that previous year." It was also substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date but that provision never came into effect. Explanation 3, as originally enacted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under: "Explanation 3.-For the purposes of clauses (iv) and (v), where the assets transferred directly or indirectly by an individual to his spouse or minor child are invested by the spouse or minor child in any business, that part of the income arising out of the business to the spouse or minor child in any previous year, which bears the same proportion to the income of the spouse or minor child from the business as the value of the assets aforesaid as on the first day of the previous year bears to the total investment in the business by the spouse or the minor child as on the said day, shall be included in the total income of individual in that previous year." ---------------------------------------------------------------------- 1.319 son's wife (hereafter in this Explanation referred to as "the transferee") are invested by the transferee,- (i)in any business, such investment being not in the nature of contribution of capital as a partner in a firm or, as the case may be, for being admitted to the benefits of partnership in a firm, that part of the income arising out of the business to the transferee in any previous year, which bears the same proportion to the income of the transferee from the business as the value of the assets aforesaid as on the first day of the previous year bears to the total investment in the business by the transferee as on the said day; (ii)in the nature of contribution of capital as a partner in a firm, that part of the interest receivable by the transferee from the firm in any previous year, which bears the same proportion to the interest receivable by the transferee from the firm as the value of investment aforesaid as on the first day of the previous year bears to the total investment by way of capital contribution as a partner in the firm as on the said day, shall be included in the total income of the individual in that previous year.] 1[(1A) In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child 2[, not being a minor child suffering from any disability of the nature specified in section 80U]: Provided that nothing contained in this sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any- (a) manual work done by him; or (b) activity involving application of his skill, talent or specialised knowledge and experience. Explanation.-For the purposes of this sub-section, the income of the minor child shall be included,- (a) where the marriage of his parents subsists, in the income of that parent whose total income (excluding the income includible under this sub-section) is greater; or (b) where the marriage of his parents does not subsist, in the income of that parent who maintains the minor child in the previous year, and where any such income is once included in the total income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.]

3[(2) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 3 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

---------------------------------------------------------------------- 1.320 converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it 1[into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property)], then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,- (a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly; (b) the income derived from the converted property or any part thereof 2[* * *] shall be deemed to arise to the individual and not to the family; 3[(c)where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse 4[* * *] on partition shall be deemed to arise to the spouse 5[* * *] from assets transferred indirectly by the individual to the spouse 6[* * *] and the

provisions of sub-section (1) shall, so far as may be, apply accordingly:] Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse of 7[* * *]] the individual.

Explanation 8[1].-For the purposes of sub-section (2),- 9[* * *1 "property" includes any interest in property movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property. 10[** * ]] ---------------------------------------------------------------------- 1 Substituted for 'into the common stock of the family (such property being hereinafter referred to as the converted property)" by the Finance Act, 1979, w.e.f. 1-4-1980. 2 The words 'in so far as it is attributable to the interest of the individual in the property of the family" omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 3 Substituted, ibid. 4 The words "or minor child" omitted by the Finance Act, 1992, w.e.f. 1-4-1993. 5 Ibid. 6 Ibid. 7 The words "or minor child" omitted, ibid. Earlier, the word "child" was substituted for "son" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 8 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.

9 The figure "(1)" omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

10 Clause (2) omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. ----------------------------------------------------------------------- 1.321 1[Explanation 2.--For the purposes of this section, "income" includes loss.]

Liability of person in respect of income included in the income of another person. 65. Liability of person in respect of income included in the income of another person Where, by reason of the provisions contained in this Chapter or in clause (i) of section 27, the income from any asset or from membership in a firm of a person other than the assessee is included in the total income of the assessee, the person in whose name such asset stands or who is a member of the firm shall, notwithstanding anything to the contrary contained in any other law for the time being in force, be liable, on the service of a notice of demand by the 2

[Assessing] Officer in this behalf, to pay that portion of the tax

Total income 66.Total income In computing the total income of an assessee, there shall be included all income on which no income-tax is payable under Chapter VII 1[* * *].

Method of computing a partner's share in the income of the firm. 2[67. Method of computing a partner's share in the income of the firm.-Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.] ---------------------------------------------------------------------- 1 The words 'and any amount in respect of which the assessee is entitled to a deduction from the amount of income-tax on his total income with which he is chargeable for any assessment year in accordance with, and to the extent provided in, sections 87, 87A and 88" omitted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. The italicised figure was inserted by the Finance Act, 1964, w.e.f. 1-4-

2 Prior to the omission, section 67, as amended by the Finance Act, 1968, w.e.f. 1-4-1969 and the Finance (No. 2) Act, 1971, w.e.f. 1-4- 1971, read as under: "67. Method of computing a partner's share in the income of the

firm.-(1) In computing the total income of an assessee who is a partner of a firm, whether the net result of the computation of total income of the firm is a profit or a loss, his share (whether a net profit or a net loss) shall be computed as follows:- (a)any interest, salary, commission or other remuneration paid to any partner in respect of the previous year, and, where the firm is a registered firm or an unregistered firm assessed as a registered firm under clause (b) of section 183, the income-tax, if any, payable by it in respect of the total income of the previous year, shall be deducted from the total income of the firm and the balance ascertained and apportioned among the partners; (b)where the amount apportioned to, the partner under clause (a) is a profit, any salary, interest, commission or other remuneration paid to the partner by the firm in respect of the previous year shall be aided to that amount, and the result shall be treated as the partner's share in the income of the firm; (c) where the amount apportioned to the partner under clause (a) is a loss, any salary, interest, commission or other remuneration paid to the partner by the firm in respect of the previous year shall be adjusted against that amount, and the result shall be treated as the partner's share in the income of the firm.

(2) The share of a partner in the income or loss of the firm, as

computed under sub-section (1), shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the firm has been deter-mined under each head of income.

(3)Any interest paid by a partner on capital borrowed by him for the purposes of investment in the firm shall, in computing his income chargeable under the head "Profits and gains of business or profession" in respect of his share in the income of the firm, be deducted from the share.

(4)If the share of a partner in the income of a registered firm or an unregistered firm assessed as a registered firm under clause (b) of section 183, as computed under this section, is a loss, such loss may be set off, or carried forward and set off, in accordance with the provisions of this Chapter. Explanation.-In this section, "paid" has the same meaning as is

assigned to it in clause (2) of section 43," Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was restored to its original version by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. ----------------------------------------------------------------------- 1.323 1[67A. Method of computing a member's share in income of association of persons or body of individuals

(1)In computing the total income of an assessee who is a member of an association of persons or a body of individuals wherein the shares of the members are determinate and known (other than a company or a cooperative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India), whether the net result of the computation of the total income of such association or body is a profit or a loss, his share (whether a net profit or net loss) shall be computed as follows, namely:- (a) any interest, salary, bonus, commission or remuneration by whatever name called, paid to any member in respect of the previous year shall be deducted from the total income of the association or body and the balance ascertained and apportioned among the members in the-proportions in which they are entitled to share in the income of the association or body; (b) where the amount apportioned to a member under clause (a) is a profit, any interest, salary, bonus, commission or remuneration aforesaid paid to the member by the association or body in respect of the previous year shall be added to that amount, and the result shall be treated as the member's share in the income of the association or body; (c) where the amount apportioned to a member under clause (a) is a loss, any interest, salary, bonus, commission or remuneration aforesaid paid to the member by the association or body in respect of the previous year shall be adjusted against that amount, and the result shall be treated as the member's share in the income of the association or body.

(2) The share of a member in the income or loss of the

association or body, as computed under sub-section (1), shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the association or body has been determined under each head of income.

(3) Any interest paid by a member on capital borrowed by him for the purposes of investment in the association or body shall, in computing his share chargeable under the head "Profits and gains of business or profession" in respect of his share in the income of the association or body, be deducted from his shire. Explanation.-In this section, "paid" has the same meaning as is

assigned to it in clause (2) of section 43.]

Cash credits 2 68. Cash credits 2 Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment). Act, 1989, w.e.f. 1-4-1989. 1.324 about the nature and source thereof or the explanation offered by him is not, in the opinion of the 1[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

Unexplained investments 69. Unexplained investments Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the 2[Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. 3[69A. Unexplained money, etc. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the 4[Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.] 5[69B. Amount of investments, etc, not fully disclosed in books of account Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the 6 [Assessing] Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee ---------------------------------------------------------------------- 1 Substituted for "Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 6 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.325 offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the 1[Assessing] Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.] 2[69C. Unexplained expenditure, etc. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the 3[Assessing] Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.] 4 [69D. Amount borrowed or repaid on hundi 5 Where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid, as the case may be: Provided that, if in any case any amount borrowed on a hundi has been deemed under the provisions of this section to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount. Explanation.-For the purposes of this section, the amount repaid shall include the amount of interest paid on the amount borrowed.] Set off or carry forward and set off

Set off of loss from one source against income from another source under the same head of income 7 6[70. Set off of loss from one source against income from another source under the same head of income 7 8[* * *] Save as otherwise provided in this Act, where the net result for ---------------------------------------------------------------------- 1Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Taxation Laws (Amendment) Act, 1975, w,e.f. 1-4-

6 Substituted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962.

8 The figure (1)" omitted by the Finance Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.326 any assessment year in respect of any source falling under any head of income 1[* * *] is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head.

2[(2) Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]

Set off of loss from one head against income from another 4 3[71. Set off of loss from one head against income from another 4

(1) Where in respect of any assessment year the net result of the ----------------------------------------------------------------------- 1 The words 'other than capital gains' omitted by the Finance Act, 1987, w.e.f. 1-4-1988.

2 Prior to the omission, sub-section (2) read as under:

"(2)(i) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset. (ii)Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset other than a short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset." 3 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to the substitution, section 71 read as under: "71. Set off of loss from one head against income from another.- Where in respect of any assessment year, the net result of the computation under any head of income is a loss, the assessee shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head." The above section was substituted for the following by the Finance Act, 1987, w.e.f. 1-4-1988: "71. Set off of loss from one head against income from another.-

(1) Where in respect of any assessment year the net result of the computation under any head of income other than "Capital gains" is a loss and the assessee has no income under the head 'Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.

(2)Where in respect of any assessment year, the net result of the computation under any head of income other than "Capital gains" is a loss and the assessee has income assessable under the head 'Capital gains', such loss may, subject to the provisions of this Chapter, be set off- (i)against the income, if any, of the assessee assessable for that assessment year under any head including income assessable under the head "Capital gains" (whether relating to short-term capital assets or any other capital assets), or (ii)if the assessee so desires, only against his income, if any, under the head 'Capital gains", in so far as such income relates to short-term capital assets, and income under any other head.

(3) Where in respect of any assessment year the net result of the computation under sections 48 to 55 in respect of capital gains relating to short-term capital assets is a loss and the assessee has income assessable under any head of income other than "Capital gains", the assessee shall, subject to the provisions of this Chapter, be entitled to have such loss set off against the income aforesaid." Earlier, section 71 was substituted by the Finance (No. 2) Act, 1962,

w.e.f. 1-4-1962 and sub-section (2) was substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 1.327 computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.

(2)Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital assets).

(3)Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.]

1[(4) Where the net result of the computation under the head "Income from house property" is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of

April, 1996, such loss shall be first set off under sub-sections (1)

and (2) and thereafter the loss referred to in section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section.] 2[71A. Transitional provisions for set off of loss under the head "income from house property" Where in respect of the assessment year commencing on the 1st day of April, 1993 or the 1st day of April, 1994, the net result of the computation ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1994, w.e.f. 1-4-1995. Prior to

the substitution, subsection (4), as inserted by the Finance Act, 1992, w.e.f. 1-4-1993, read as under:

"(4) Notwithstanding anything contained in sub-sections (1) and

(2), where in respect of any assessment year the net result of the computation, in relation to any property [other than the property

referred to in sub-clause (i) of clause (a) of sub-section (2) of section 23], under the head "Income from house property" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head." 2 Substituted by the Finance Act, 1994, w.e.f. 1-4-1995. Prior to the substitution, section 71A, as inserted by the Finance Act, 1992, w.e.f. 1-4-1993, read as under: "71A. Carry forward of losses under the head "Income from house property".-Where in respect of any assessment year, the net result of the computation under the head "income from house property" is a loss, the loss in so far as it relates to interest on borrowed capital

referred to in clause (vi) of sub-section (1) of section 24 shall be carried forward by the assessee to the following assessment year or years and set off against the income under that head." ---------------------------------------------------------------------- 1.328 under the head "Income from house property" is a loss, such loss in so far as it relates to interest on borrowed capital referred to in

clause (vi) of subsection (1) of section 24 and to the extent it has not been set off shall be carried forward and set off in the assessment year commencing on the 1st day of April, 1995, and the balance, if any, in the assessment year commencing on the 1st day of April, 1996, against the income under any head.]

Carry forward and set off of business losses 1 72. Carry forward and set off of business losses 1

2[(1) Where for any assessment year, the net result of the computation under the head "Profits and gains of business or profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, 3[* * *] where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i)it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year: Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year; and (ii)if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on:] 4 [Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and-- (a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re- established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding.] --------------------------------------------------------------------- 2 Substituted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962. 3 The words 'where the assessee has income only under the head "Capital gains" relating to capital assets other than short-term

capital assets and has exercised the option under subsection (2) of that section or' omitted by the Finance Act, 1987, w.e.f. 1-4-1988. The italicised words were inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 4 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. ----------------------------------------------------------------------- 1.329

(2)Where any allowance or part thereof is, under sub-section (2)

of section 32 or sub-section (4) of section 35, to be carried forward, effect shall first be given to the provisions of this section.

(3)No loss 1[(other than the loss referred to in the proviso to

subsection (1) of this section)] shall be carried for-ward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. 2[72A. Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in certain cases of amalgamation 3

(1)Where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company and the Central Government, on the recommendation of the specified authority, is satisfied that the following conditions are fulfilled, namely:- (a) the amalgamating company was not, immediately before such amalgamation, financially viable by reason of its liabilities, losses and other relevant factors; (b) the amalgamation was in the public interest; and (c) such other conditions as the Central Government may, by notification in the Official Gazette, specify, to ensure that the benefit under this section is restricted to amalgamations which would facilitate the rehabilitation or revival of the business of the amalgamating company, then, the Central Government may make a declaration to that effect, and, thereupon, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and the other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly.

(2)Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the --------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 2 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 1.330 amalgamated company unless the following conditions are fulfilled, namely:- (i)during the previous year relevant to the assessment year for which such set off or allowance is claimed, the business of the amalgamating company is carried on by the amalgamated company without any modification or reorganisation or with such modification or reorganisation as may be approved by the Central Government to enable the amalgamated company to carry on such business more economically or more efficiently; (ii) the amalgamated company furnishes, along with its return of income for the said assessment year, a certificate from the specified authority' to the effect that adequate steps have been taken by that company for the rehabilitation or revival of the business of the amalgamating company.

2[(3) Where a company owning an industrial undertaking or a ship proposes to amalgamate with any other company and such other company submits the proposed scheme of amalgamation to the specified authority and that authority is satisfied, after examining the scheme and taking into account all relevant facts, that the conditions referred to in

sub-section (1) would be fulfilled if such amalgamation is effected in accordance with such scheme or, as the case may be, in accordance with such scheme as modified in such manner as that authority may specify, it shall intimate such other company that, after the amalgamation is effected in accordance with such scheme or, as the case may be, such scheme as so modified, it would make (unless there is any material change in the relevant facts) a recommendation to the Central

Government under sub-section (1).] Explanation.-In this section,- (a) accumulated loss" means so much of the loss of the amalgamating company under the head "Profits and gains of business or profession" (not being a loss sustained in a speculation business) which the amalgamating company would have been entitled to carry forward and set off under the provisions of section 72 if the amalgamation had not been effected; 3(b)"specified authority" means such authority as the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; (c) "unabsorbed depreciation" means so much of the allowance for depreciation of the amalgamating company which remains to be allowed and which would have been allowed to the amalgamating company under the provisions of this Act if the amalgamation had not been effected.] 1.331 be necessary for all the years during which the revival scheme is implemented.

Losses in speculation business 73. Losses in speculation business

(1)Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and. gains, if any, of another speculation business.

(2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section

(1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i)it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii)if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.

(3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-

section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business.

(4) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. 1[Explanation.-Where any part of the business of a company (2[other than a company whose gross total income consists mainly of income which. is chargeable under the heads "Interest on securities"', "Income from house property", "Capital gains" and "Income from other sources"] or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.]

Losses under the head "Capital gains" 4[74. Losses under the head "Capital gains"

(1) Where in respect of any assessment year, the net result of the ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

2 Substituted for "other than an investment company, as defined in clause (ii) of section 109' by the Finance Act, 1987, w.e.f. 1-4-1988. 3 Since omitted as a separate head of income. 4 Substituted by the Finance Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 74, as substituted by the Finance (No. 2) Act, 1962, 1-4-1962 and amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 and the Finance Act, 1986, w.e.f. 1-4-1987, read as under:

"74. Losses under the head "Capital gains".-(1)(a) Where in respect of any assessment year, the net result of the computation under the head ": Capital gains" is a loss, such loss shall, subject to the other provisions of this Chapter, be dealt with as follows:- (i) such portion of the net loss relating to short-term capital assets as ---------------------------------------------------------------------- 1.332 computation under the head "Capital gains" is a loss to the assessee 1[* * *], the whole loss shall, subject to the other provisions of this chapter, be carried forward to the following assessment year, and- (a) it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year, and so on.

(2) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.

(3) Any loss computed under the head "Capital gains" in respect of the assessment year commencing on the 1st day of April, 1987, or any earlier ---------------------------------------------------------------------- -> -> cannot be or is not wholly set off against income under any head in accordance with the provisions of section 71 shall be carried forward to the following assessment year and set off against the capital gains, if any, relating to short-term capital assets assessable for that assessment year and, if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following assessment year and so on; (ii)such portion of the net loss as relates to capital assets other than short-term capital assets shall be carried forward to the following assessment year and set off against the capital gains, if any, relating to capital assets other than short-term capital assets assessable for that assessment year and, if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following assessment year and so on: Provided that where, in the case of any assessee not being a company, the net loss computed in respect of such capital assets for any assessment year does not exceed ten thousand rupees, it shall not be carried forward under this section. (b)Notwithstanding anything contained in the Indian Income-tax Act, 1922 (11 of 1922), any loss computed under the head "Capital gains' in respect of the assessment year commencing on the 1st day of April, 1961, or any earlier assessment year which is carried forward in accordance with the provisions of sub-section (2B) of section 24 of that Act, shall be dealt with in the assessment year commencing on the 1st day of April, 1962, or any subsequent assessment year as follows:- (i)in so far as it relates to short-term capital assets, it shall be carried forward and set off in accordance with the provisions of sub-clause (i) of clause (a) and sub-

section (2); and (ii)in so far as it relates to capital assets other than short-term capital assets, it shall be carried forward and set off in accordance with the provisions of subclause (ii)

of clause (a) and sub-section (2).

(2)(a) No loss referred to in sub-clause (i) of clause (a) of

sub-section (1) or subclause (i) or sub-clause (ii) of clause (b) of that sub-section shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed under this Act or, as the case may be, the Indian Income-tax Act, 1922 (11 of 1922). (b)No loss referred to in sub-clause (ii) of clause (a) of sub-

section (1) shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed under this Act." 1 The words "and such loss cannot be or is not wholly set off against income under any other head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. ---------------------------------------------------------------------- 1.333 assessment year which is carried forward in accordance with the provisions of this section as it stood before the 1st day of April, 1988, shall be dealt with in the assessment year commencing on the 1st day of April, 1988, or any subsequent "assessment year as follows:-- (a) in so far as such loss relates to short-term capital assets, it shall be carried forward and set off in accordance

with the provisions of sub-sections (1) and (2); (b) in so far as such loss relates to long-term capital assets, it shall be reduced by the deductions specified in

sub-section (2) of section 48 and the reduced amount shall be carried forward and set off in accordance with the provisions

of sub-section (1) but such carry forward shall not be allowed beyond the fourth assessment year immediately succeeding the assessment year for which the loss was first computed.] 1[74A. Losses from certain specified sources falling under the head "Income from other sources"

2[(1) Omitted by the Finance Act, 1986, w.e.f. 1-4-1987.]

3[(2) Omitted by the Finance Act, 1986, w.e.f. 1-4-1987.]

4[(3) 5[* * *] In the case of an assessee, being the owner of horses maintained by him for running in horse races (such horses being hereafter in this sub-section referred to as race horses), 6[the amount of loss incurred by the assessee in the activity of owning and maintaining race horses in any assessment year shall not be set off against income, if any, from any source other than the activity of owning and maintaining race horses in that year and] shall, subject to the other provisions of this chapter, be carried forward to the following assessment year and- ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.

2 Prior to the omission, sub-section (1), as amended by the Finance Act, 1974, w.e.f. 1-4-1975, read as under:

"(1) Where the net result of the computation made for any assessment year in respect of any source falling under the head "Income from other sources" and being a source specified in sub-

section (2), is a loss, such loss shall riot be set off against income, if any, from any other source under that head or against income under any other head.'

3 Prior to the omission, sub-section (2) read as under:

"(2) The sources referred to in sub-section (1) are- (a)lotteries; (b)crossword puzzles; (c)races including horse races; (d)card games; (e)other games of any sort; (f)gambling or betting of any form or nature whatsoever not falling under any of the foregoing clauses." 4 Inserted by the Finance Act, 1974, w.e.f. 1-4-1975. 5 The words "Where for any assessment year" omitted by the Finance Act, 1986, w.e.f. 1-4-1987. 6 Substituted for "the net result of the computation in respect of

the source, specified in clause (c) of sub-section (2) is a loss, then, so much of the amount of such loss as does not exceed the amount of loss incurred by the assessee in the activity of owning and maintaining race horses" ibid. ----------------------------------------------------------------------- 1.334 (a) it shall be set off against the income, if any, 1[from the activity of owning and maintaining race horses] assessable for that assessment year: Provided that the activity of owning and maintaining race horses is carried on by him in the previous year relevant for that assessment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on; so, however, that no portion of the loss shall be carried forward for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. Explanation.-For the purposes of this sub-section- (a) "amount of loss incurred by the assessee in the activity of owning and maintaining race horses" means- (i)in a case where the assessee has no income by way of stake money, the amount of expenditure (not being in the nature of capital expenditure) laid out or expended by him wholly and exclusively for the purposes of maintaining race horses; (ii)in a case where the assessee has income by way of stake money, the amount by which such income falls short of the amount of expenditure (not being in the nature of capital expenditure) laid out or expended by the assessee wholly and exclusively for the purposes of maintaining race horses; (b) "horse race" means a horse race upon which wagering or betting may be lawfully made; (c) "income by way of stake money" means the gross amount of prize money received on a race horse or race horses by the owner thereof on account of the horse or horses or any one or more of the horses winning or being placed second or in any lower position in horse races.]

Losses of firms 3[75. Losses of firms Where the assessee is a firm, any loss in relation to the assessment ---------------------------------------------------------------------- 1 Substituted for 'from the source specified in clause (c) of sub-

section (2)", ibid. 2 Substituted for the following sections 75, 76 and 77 by the Finance Act, 1992, w.e.f. 1-4-1993: Section 75: Prior to the substitution, section 75, as amended by the Finance Act, 1972, w.e.f. 1-4-1972; Finance Act, 1974, w.e.f. 1-4-1975 and the Finance Act, 1987, w.e.f. 1-4-1988, read as under:

"75. Losses of registered firms.-(1) Where the assessee is a registered firm, any loss which cannot be set off against any other income of the firm shall be apportioned between the partners of the firm, and they alone shall be entitled to have the amount of the loss set off and carried forward for set off under sections 70, 71, 72, 73, 74 and 74A.

(2)Nothing contained in sub-section (1) of section 72, sub-

section (2) of section 73, sub-section (1) or sub-section (3) of

section 74 or sub-section (3) of section 74A shall entitle any assessee, being a registered firm, to have its loss carried forward and set off under the provisions of the aforesaid sections." -> -> ----------------------------------------------------------------------- 1.335 year commencing on or before the 1st day of April, 1992, which could not be set off against any other income of the firm and which had been apportioned to a partner of the firm but could not be set off by such partner prior to the assessment year commencing on the 1st day of April, 1993, then, such loss shall be allowed to be set off against the income of the firm subject to the condition that the partner continues in the said firm and to be carried forward for set off under sections 70, 71, 72, 73, 74 and 74A.]

1[(1) Where a change has occurred in the constitution of a firm, ---------------------------------------------------------------------- -> -> Section 76: Prior to the substitution, section 76 read as under: "76. Losses of unregistered firms assessed as registered firms.- In the case of an unregistered firm assessed under the provisions of clause (b) of section 183 in respect of any assessment year, its losses for that assessment year shall be dealt with as if it were a registered firm.' Section 77: Prior to the substitution, section 77, as amended by the Finance Act, 1972, w.e.f. 1-4-1972; Finance Act, 1974, w.e.f. 1-4-1975 and Finance Act, 1987, w.e.f. 1-4-1988, read as under:

"77. Losses of unregistered firms or their partners.-(1) Where the assessee is an unregistered firm which has not been assessed as a registered firm under the provisions of clause (b) of section 183, any loss of the firm shall be set off or carried forward and set off only against the income of the firm.

(2)Where the assessee is a partner of an unregistered firm which has not been assessedas a registered firm under the provisions of clause (b) of section 183 and his share inthe income of the firm is a loss, then, whether the firm has already been assessed or not- (a)such loss shall not be set off under the provisions of

section 70, section 71, sub-section (1) of section 73 or section 74A;

(b)nothing contained in sub-section (1) of section 72 or

sub-section (2) of section 73 or sub-section (1) or sub-

section (3) of section 74 or sub-section (3) of section 74A shall entitle the assessee to have such loss carried forward and set off against his own income. " Earlier, all the three sections were omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but were reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 1 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to

the substitution, subsection (1), as originally enacted, read as under:

"(1) Where a change has occurred in the constitution of a firm, nothing -> -> ---------------------------------------------------------------------- 1.336 nothing in this Chapter shall entitle the firm to have carried forward and set off so much of the loss proportionate to the share of a retired or deceased partner as exceeds his share of profits, if any, in the firm in respect of the previous year.]

(2) Where any person carrying on any business or profession has been succeeded in such capacity by another person otherwise than by inheritance, nothing in this Chapter shall entitle any person other than the person incurring the loss to have it carried forward and set off against his income.

Carry forward and set off of losses in the case of certain companies 1 79. Carry forward and set off of losses in the case of certain companies 1 Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless- (a) on the last day of the previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred 2[* * *]: 3[Provided that nothing contained in this section shall apply to a case where a change in the said voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift.] 4[(b) Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]

Submission of return for losses5 80. Submission of return for losses5 Notwithstanding anything contained in this Chapter, no loss which ---------------------------------------------------------------------- -> -> in this Chapter shall entitle the firm to have carried forward and set off so much of the loss proportionate to the share of a retired or deceased partner computed in accordance with section 67 as exceeds his share of profits, if any, of the previous year in the firm, or entitle any partner to the benefit of any portion of the said loss which is not apportionable to him under section 67." Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was restored to its original version by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 2 The word "or" omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 Inserted ,ibid. 4 Prior to the omission, clause (b), as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "(b)the Assessing Officer is satisfied that the change in the shareholding was not effected with a view to avoiding or reducing any liability to tax." 1.337 has not been determined in pursuance of a return filed 1[in accordance

with the provisions of sub-section (3) of section 139], shall be

carried forward and set off under sub-section (1) of section 72 or

sub-section (2) of section 73 or sub-section (1) 2[or sub-section (3)]

of section 74 3[or subsection (3) of section 74A]. ----------------------------------------------------------------------

1 Substituted for 'within the time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income-tax Officer" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, these words were substituted for '.under section 139" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

2 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1974, w.e.f. 1-4-1975. ---------------------------------------------------------------------- CHAP DEDUCTIONS TO BE MADE IN COMPUTINGTOTAL INCOME 1[CHAPTER VIA DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME A.-General 80A. Deductions to be made in computing total income

(1)In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 2[80U].

(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.

3[(3) Where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under section 80G or section 80GGA or section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA or section 80J or section 80JJ, no deduction under the same section. shall be made. in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals.] ---------------------------------------------------------------------- 1 This Chapter, consisting of sections 80A, 80B, 80C, 80D, 80E, 80F, 80G, 80H, 80-1, 80J, 80K, 80L, 80M, 80N, 80-0, 80P, 80Q, 80R, 80S and 80T was substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4- 1968. Originally, Chapter VI-A, consisting of sections 80A, 80B, 80C and 80D was inserted by the Finance Act, 1965, w.e.f. 1-4-1965. In that chapter, section 80A was amended by the Finance Act, 1966, w.e.f. 1-4-1966 and section 80E was inserted by the Finance (No. 2) Act, 1966, w.e.f. 1-4-1966. 2 Substituted for "80VV" by the Finance Act, 1985, w.e.f. 1-4-1986. Earlier, "80VV" was substituted for "80U" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 which was substituted for "80T" by the Finance Act, 1968, w.e.f. 1-4-1969. 3 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to

the substitution, subsection (3), as originally enacted and amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971; Finance (No. 2) Act, 1971, w.e.f. 1-4-1972; Finance Act, 1972, w.e.f. 1-4-1972; Finance Act, 1974, w.e.f. 1-4-1975; Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974; Finance Act, 1975, w.e.f. 1-4-1976; Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976; Finance (No. 2) Act, 1977, w.e.f. 1-4-1978; Finance Act, 1979, w.e.f. 1-4-1980; Finance (No. 2) Act, 1980, w.e.f. 1-4-1981; Finance Act, 1982, w.e.f. 1-4- 1983; Finance Act, 1983, w.e.f. 1-4-1983/1-4-1984; Finance Act, 1985, w.e.f. 1-4-1986; Finance Act, 1986, w.e.f. 1-4-1987; Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989; Finance Act, 1989, w.e.f. 1-4- 1990, read as under:

"(3) Where, in computing the total income of a firm, association of persons or body of individuals, any deduction is admissible under section 80G or section 80GGA or section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80J or section 80JJ, no deduction under the same section shall be made in computing the total income of a partner of the firm or, as the case may be, of a member of the association of persons or body of individuals in relation to the share of such partner in the income of the firm or the share of such member in the income of the association of persons or body of individuals.' Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was restored to its original version by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. ---------------------------------------------------------------------- 1.339

1[(4) * * *] 2[80AA. Computation of deduction under section 80M Where any deduction is required to be allowed under section 80M in respect of any income by way of dividends from a domestic company which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends.] 3[80AB. Deductions to be made with reference to the income included in the gross total income Where any deduction is required to be made or allowed under any section (except section 80M) included in this Chapter under the heading "C.-Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.] 4[80B. Definitions In this Chapter-

5[(1) * * *]

6[(2) * * *]

7[(3) * * *] ---------------------------------------------------------------------- 1 Omitted by the Finance Act, 1978, w.e.f. 1-4-1979. it was inserted by the Finance Act, 1976, w.e.f. 1-4-1977. 2 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1968, subject to the savings in section 44 of the said Amendment Act, which read as under: "44. Savings in certain cases.-Where, before the 18th day of June, 1980 [being the date on which the Finance (No. 2) Bill, 1980 was introduced], the Supreme Court has, on an appeal or a reference in respect of the assessment of an assessee for any particular assessment year, held that the deduction under section 80M is to be allowed in a manner different from that provided in section 80AA of the Income-tax Act, as inserted by section 12 of this Act, then, nothing contained in the said section 80AA shall apply to the assessment of such assessee for that particular assessment year." 3 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 4 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 in place of original section 80D. 5 Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

6 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1989. Prior to the omission, sub-section (2) read as under:

"(2)"domestic company" means an Indian company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income;' 7 Omitted by the Finance Act, 1968, w.e.f. 1-4-1969. ----------------------------------------------------------------------- 1.340

1[(4)* * * ]

(5) "gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter 2[* * * ] 3[* * * ];

4[(6) * * *]

5[(7) * * *]

6[(8) * * *]

7[(9) * * *] B.-Deductions in respect of certain payments 8[80C. Deduction in respect of life insurance premia, contributions to provident fund, etc.-Omitted by the Finance Act, 1990, w.e.f. 1-4- 1991.] ---------------------------------------------------------------------- 1 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1989. Prior to the omission, sub-section (4) read as under:

"(4) "foreign company' means a company which is not a domestic

company as defined in clause (2);" 2 The words "or under section 280-O" omitted by the Finance Act, 1988, w.e.f. 1-4-1988. 3 The words "and without applying the provisions of section 64" omitted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1968. 4 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1989. Prior to the omission, sub-section (6) read as under:

"(6) "income', in relation to a handicapped dependent, means the aggregate income of such person from all sources;" 5 Omitted by the Finance Act, 1972, w.e.f. 1-4-1973. 6 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1989. Prior to the omission, sub-section (8) read as under:

(8) "relative', in relation to an individual, means- (a) the mother, father, husband or wife of the individual, or (b) a son, daughter, brother, sister, nephew or niece of the individual, or (c) a grand-son or grand-daughter of the individual, or (d) the spouse of any person referred to in sub-clause (b); 7 Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

8 Prior to the omission, section 80C, as amended by the Finance Act, 1968, w.e.f. 1-4-1969; Finance Act, 1969, w.e.f. 1-4-1970; Finance Act, 1970, w.e.f. 1-4-1971; Finance (No. 2) Act, 1971, w.e.f. 1-4-1972; Finance Act, 1972, w.e.f. 1-4-1973; Finance Act, 1973, w.e.f. 1-4-1974; Finance Act, 1975, w.e.f. 1-4-1976; Finance Act, 1976, w.e.f. 1-4-1977; Finance Act, 1978, w.e.f. 1-4-1979; Finance Act, 1979, w.e.f. 1-4-1980; Finance (No. 2) Act, 1980, w.e.f. 1-4- 1981; Finance Act, 1982, w.e.f. 1-4-1983; Finance Act, 1983, w.e.f. 1- 4-1984; Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1971; Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1983; Finance Act, 1987, w.e.f. 1-4-1988; Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989; Finance Act, 1989, w.e.f. 1-4-1990 and Direct Tax Laws (Second Amendment) Act, 1989, w.r.e.f. 1-4-1984, w.e.f. 1-4-1990, as under: "80C. Deduction in respect of life insurance premia,

contributions to provident fund, etc.-(1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, an amount calculated, with

reference to the aggregate of the sums specified in sub-section (2), at the following rates, namely:- (a) where such aggregate does not the whole such aggregate; exceed Rs. 6,000 (b) where such aggregate exceeds Rs. 6,000 plus 50 Per cent of Rs. 6,000 but does not exceed Rs. the amount by which such agg- 12,000 regate exceeds Rs. 6,000; -> ---------------------------------------------------------------------- 1.341 ---------------------------------------------------------------------- -> -> (c) where such aggregate exceeds Rs. 9,000 Plus 40 per Rs. 12,000 cent of the amount by which such aggregate exceeds Rs. 12,000.

(2) The sums referred to in sub-section (1) shall be the following, namely:- (a) where the assessee is an individual, any sums paid in the previous year by the assessee out of his income chargeable to tax- (i) to effect or to keep in force an insurance on the life of the assessee or on the life of the wife or husband or any child of the assessee; or (ii) to effect or to keep in force a contract for a deferred annuity, not being an annuity plan referred to in clause (ii)

of sub-section (1) of section 80CCA, on the life of the assessee or on the life of the wife or husband or any child of the assessee: Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity; or (iii) as a contribution to any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies; or (iv) as a contribution to any provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette; or (v) as a contribution for participation in the Unit-linked

Insurance Plan, 1971 made under section 19(1)(cc) of the Unit Trust of India Act, 1963 (52 of 1963); or (vi) as a contribution for participation in any such Unit- linked Insurance Plan of the LIC Mutual Fund notified under clause (23D) of section 10, as the Central Government may, by notification in the Official Gazette, specify in this behalf; (b) where the assessee is a Hindu undivided family,- (i) any sums paid in the previous year by the assessee out of its income chargeable to tax-

(1) to effect or to keep in force an insurance on the life of any member of the family; or

(2) as a contribution to any provident fund refer-red to in sub-clause (iv) of clause (a), where such contribution is to an account standing in the name of any member of the family; or (ii) any sums deposited in the previous year by the assessee out of its income chargeable to tax in a ten-year account or a fifteen-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to time, where such sums are deposited in an account standing in the name of any member of the family. Explanation.-For the purposes of sub-clause (i) of clause (a) and sub-clause (i) of clause (b) of this sub-section, an insurance on the life of any person referred to therein shall include- (i) a policy of insurance on the life of such person securing the payment of a specified sum on the stipulated date of maturity of the policy, if such person is alive on such date, notwithstanding that the policy of insurance provides only for the return of premiums paid (with or without any interest thereon) in the event of such person dying before the said stipulated date; (ii) a policy of insurance effected by a person for the benefit of a minor with the object of enabling the minor, after he has attained majority, to secure an insurance on his own life by adopting the policy and on his being alive on a date (after such adoption) specified in the policy in this behalf; (c) any sum deducted in the previous year from the salary payable by or on behalf of the Government to any individual being a sum deducted in accordance with the conditions of his service, for the purpose of securing to him a -> -> ---------------------------------------------------------------------- 1.342 --------------------------------------------------------------------- -> -> deferred annuity or making provision for his wife or children, in so far as the sum so deducted does not exceed one-fifth of the salary; (d) if the assessee is an employee participating in a recognised provident fund, his own contributions to his individual account in the fund in the previous year, in so far as the aggregate of such contributions does not exceed one-fifth of his salary in that previous year. Explanation.-In clause (d) of this sub-section 'salary" shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule; (e) if the assessee is an employee participating in an approved superannuation fund, any sum paid in the previous year by him by way of contribution towards the superannuation fund; (f) where the assessee is an individual, any sums deposited, in the previous year by the assessee out of his income chargeable to tax, in a ten-year account or a fifteen- year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to time; (g) where the assessee is an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu- (i) any sums paid in the previous year by the assessee out of its income chargeable to tax-

(1)to effect or to keep in force an insurance on the life of any member of such association or body or on the life of any child of any of the members of such association or body; or

(2)to effect or to keep in force a contract for a deferred annuity on the life of any member of such association or body or any child of any of the members of such association or body: Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity; or

(3) as a contribution to any provident fund referred to in sub-clause (iv) of clause (a); or

(4)as a contribution for participation by any one member of such association or body in the Unit-linked insurance Plan; (ii) any sums deposited in the previous year by such association or body out of its income chargeable to tax in a 10-year account or a 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to time; (h) where the assessee is an individual or a Hindu undivided family or where the assessee is an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu, any sums paid in the previous year by such assessee out of his or its income chargeable to tax,- (i) as subscription to any such security of the Central Government as that Government may, by notification in the Official Gazette, specify in this behalf; or (ia) as subscription to any such deposit scheme of the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987), as the Central Government may, by notification in the Official Gazette, specify in this behalf; (ib) as subscription to any such savings certificate as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), as the Central Government may, by notification in the Official Gazette, specify in this behalf; (ii) for the purposes of purchase or construction of a residential - > -> ---------------------------------------------------------------------- 1.343 -> -> house property the construction of which is completed after the 31st day of March, 1987, and the income from which is chargeable to tax under the head 'Income from house property' (or which would, if it had not been used for the assessee's own residence, have been chargeable to tax under that head), where such payments are made towards or by way of-- (a) any instalment or part payment of the amount due under any selffinancing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on owner-ship basis; or (b) any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or (c) re-payment of the amount borrowed by the assessee from-

(1) the Central Government or any State Government, or

(2) any bank, including a co-operative bank, or

(3) the Life Insurance Corporation, or (3A) the National Housing Bank, or

(4)any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is approved for the purposes of clause (viii) of sub-

section (1) of section 36, or

(5)any company, in which the public are substantially interested or any co-operative society, where such company or co-operative society, is engaged in the business of financing the construction of houses, or

(6)the assessee's employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority; (d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee, but shall not include any payment towards or by way of--- (A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co- operative society has to pay for becoming such shareholder or member; or (B) the cost of the land, except where the consideration for the purchase of the house properly is a composite amount and the cost of the land alone cannot be separately ascertained; or (C) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or (D) any expenditure in respect of which deduction is allowable under the provisions of section 24; (i) where the assessee is an individual or a Hindu undivided family or where the assessee is an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu, any sums paid in the previous year by such assessee out of his or its income chargeable to tax as subscription to the National Savings Certificates (VI Issue) and National Savings Certificates (VII Issue) issued under the Government Savings Certificates Act, 1959 (46 of 1959). ---------------------------------------------------------------------- 1.344

-> -> (3) The provisions of clauses (a), (b) and (g) of sub-section

(2) shall apply only to so much of any premium or other payment made on a policy other than a contract for a deferred annuity as is not in excess of ten per cent of the actual capital sum assured. Explanation.-In calculating any such capital sum, no account shall be taken- (i) of the value of any premiums agreed to be returned, or (ii) of any benefit by way of bonus or other-wise over and above the sum actually assured, which is to be or may be received under the policy by any person.

(4) The aggregate of the sums refer-red to in sub-section

(2), which qualifies for the purposes of computing the

deduction under sub-section (1), shall not exceed- (i) in the case of an individual, being an author, playwright, artist, musician, actor or sportsman (including an athlete), sixty thousand rupees; (ii) in the case of any other individual or a Hindu undivided family or any such association of persons or a body of individuals as is refer-red to in clause (g) or clause (h)

of sub-section (2), forty thousand rupees.

(5) If the assessee participating in any Unit-linked Insurance Plan referred to in sub-clause (v) or sub-clause (vi) of clause (a) of

sub-section (2), or in the case of an assessee being an association of persons or a body of individuals referred to in clause (g) of sub-

section (2), the member thereof participating in any such plan, terminates his participation in that plan (by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation) before contributions in respect of such participation have been paid for five years, then- (a) no deduction shall be allowed to the assessee under this section in respect of the contribution, if any, paid in the previous year in which the participation is so terminated; and (b) the deductions allowed in respect of the contributions paid in the previous years preceding the previous year referred to in clause (a) shall be deemed to be the income of the assessee of that previous year and shall be chargeable to tax accordingly. Explanation.-For the purposes of this sub-section, the deduction allowed under this section in respect of the contribution paid in any previous year shall be the amount by which the deduction allowed under this section for that year exceeds the deduction which would have been allowed for that year if no such contribution had been paid during that year.

(6) If the assessee, being- (a) an individual, has effected or kept in force an insurance on the life of the assessee or on the life of the wife or husband or any child of the assessee; or (b) a Hindu undivided family, has effected or kept in force an insurance on the life of any member of the family; or (c) an association of persons or a body of individuals

referred to in clause (g) of sub-section (2), has effected or kept in force an insurance on the life of any member of such association or body or on the life of any child of any of the members of such association or body, terminates the contract of insurance (by notice to that effect or where the contract ceases to be in force by reason of failure to pay any premiums, by not reviving the contract of insurance) before premiums have been paid for two years, then- (i) no deduction shall be allowed to the assessee under this section in respect of the premiums, if any, paid in the previous year in which the policy, is so terminated; and (ii) the deduction allowed in respect of the premiums paid in the previous year or years preceding the previous year referred to in clause (i) shall be deemed to be the income of the assessee of such previous year or years and shall be chargeable to tax accordingly. Explanation 1.-For the purposes of this sub-section, the deduction allowed under this section in respect of the premiums paid in any previous year shall be the amount by which the deduction allowed under this section for that year exceeds the deduction which would have been allowed for that year if no such premiums had been paid during that year. -> -> 1.345 -> -> Explanation 2.--In a case where an assessee terminates his participation in any Unit-linked Insurance Plan referred to in sub-

clause (v) or sub-clause (vi) of clause (a) of sub-section (2) in any previous year and also terminates a contract of insurance in that year, the deduction allowed under this section in respect of the contribution or premiums paid in any previous year shall, for the

purposes of the Explanation to subsection (5) and Explanation 1, be the amount by which the deduction allowed under this section for that year exceeds the deduction which would have been allowed for that year if no such contribution or premiums had been paid during that year.

(7) In the case of an assessee referred to in clause (h) of sub-

section (2),- (a) where any sums specified in sub-clause (ii) of that clause, with reference to which the deduction under sub-

section (1) has been allowed are refunded to or received back by the assessee in any previous year (hereinafter referred to as the relevant previous year), then,- (i) no deduction shall be allowed to the assessee under

sub-section (1) with reference to any of the sums, specified in that sub-clause, paid in the relevant previous year; and (ii) the aggregate amount of the deductions so allowed in respect of the previous year or previous years preceding the relevant previous year shall be deemed to be the income of the assessee of the relevant previous year and shall be chargeable to tax under the head "Income from other sources"; (b) where the house property referred to in sub-clause (ii) of that clause is transferred by the assessee before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, then- (i) no deduction shall be allowed to the assessee under

sub-section (1) with reference to any of the sums, specified in that sub-clause, paid in the previous year in which the transfer is so made; and (ii) the aggregate amount of the deductions allowed under

sub-section (1) with reference to the sums specified in that sub-clause in respect of the previous year or previous years preceding the previous year referred to in sub-clause (i) of this clause shall be deemed to be the income of the assessee of the previous year in which the transfer is made and shall be chargeable to tax under the head "Income from other sources"; (c) where the aggregate of any sums specified in sub-clause (ii) of that clause exceeds an amount of ten thousand rupees,

a deduction under sub-section (1) shall be allowed with reference to so much of the aggregate as does not exceed an amount of ten thousand rupees.

(8) In this section,- (a) "Life Insurance Corporation" means the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956); (b) "public company" shall have the same meaning as in section 3 of the Companies Act, 1956 (1 of 1956); (c) "transfer" shall be deemed to include also the transactions referred to in clause (f) of section 269UA; (d) "contribution" to any fund shall not include any sums in repayment of loan." 1.346 1[80cc. Deduction in respect of investment in certain new shares 2

(1) Where an assessee, being- (a) an individual, or (b) a Hindu undivided family, 3[* * *] 4[(C) Omitted by the Finance Act, 1994, w.e.f. 1-4-1978.] has acquired in the previous year (being a previous year relevant to the assessment year, commencing on the 1st day of April, 1979, or any subsequent assessment year), out of his income chargeable to tax, equity shares forming part of any eligible issue of capital, 5[or units of any Mutual Fund specified under clause (23D) of 6 [section 10 or units issued under any scheme of the Unit Trust of India established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963), if the amount of subscription to any units, issued by the Mutual Fund or, as the case may be, the Unit Trust of India under such scheme, is subscribed] only to eligible issue of capital,] he shall, in accordance with and subject to the provisions of this section, be allowed a deduction in the computation of his total income of an amount equal to fifty per cent of the cost of such shares to him. Explanation.-Where in any previous year the assessee has acquired any shares referred to in this sub-section and has, within a period of six months from the end of that previous year, paid the whole or a part of the amount, if any, remaining unpaid on such shares, the amount so paid shall be deemed to have been paid by the assessee towards the cost of such shares in that previous year.

(2) Where the aggregate cost to the assessee of the shares

referred to in sub-section (1) which are acquired by him in the previous year exceeds 7 [twenty] thousand rupees, the deduction under that sub-section shall be allowed only with reference to such of those shares (being shares the aggregate cost whereof to the assessee does not exceed 8[twenty] thousand rupees) as are specified by him in this behalf.

(3) For the purposes of this section, "eligible issue of capital" means an issue of equity shares which satisfies the following conditions, namely:- ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 2 The deduction under this section is available only for offers for subscriptions made by the company before 1-4-1990. 3 The word 'or' omitted by the Finance Act, 1994, w.r.e.f. 1-4-

4 Prior to the omission, clause (c) read as under: "(c) an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu," The italicised words and punctuation were inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 5 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 6 Substituted for 'section 10 if such fund subscribes' by the Finance Act, 1989, w.e.f. 1-4-1990. 7 Substituted for "ten" by the Finance Act, 1982, w.e.f. 1-4-1983. 8 Ibid. ---------------------------------------------------------------------- 1.347 (a) the issue is made by a public company formed and registered in India 1[and the issue is wholly and exclusively for the purposes] of carrying on the business of-- (i) construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule; or (ii) providing long-term finance for construction or purchase of houses in India for residential purposes: Provided that in the case of a public company 2[* carrying on the business referred to in sub-clause (ii), such company is approved' by the Central Government for the purposes of this section; 4[or] 5[(iia) a hospital; or] 6[(iii) a hotel approved by the prescribed7 8[authority; or]] 9[(iv) operation of ships;] (b) the issue is an issue of capital made by the company for the first time: 10[Provided that this clause shall not apply in the case of an issue of equity shares made by a public company formed and registered in India with the main object of carrying on the business of operation of ships;] (c) the shares forming part of the issue are offered for subscription to the public 11[and such offer for subscription is made by the company before the 1st day of April, 12[1990]]; (d) such other conditions as may be prescribed: Provided that in the case of a company which had originally been incorporated as a private company but has become a public company under the provisions of the Companies Act, 1956 (1 of 1956), an issue of equity shares made by it for the first time after it has become a public company shall not be regarded as an eligible issue of capital, if-- (i) such company had declared, distributed or paid any dividend when it was a private company; or ---------------------------------------------------------------------- 1 Substituted for 'with the main object" by the Finance Act, 1985, w.e.f. 1-4-1985. 2 The words 'formed and registered in India with the main object of' omitted by the Finance Act, 1985, w.e.f. 1-4-1985. 3 Dewan Housing Development Finance Ltd and Can Fin Homes Ltd, Bangalore have been notified. For text of notifications, see Bharat's Direct Taxes Circulars, 1991 edn., p. 652. 4 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. 5 Ibid. 6 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 8 Substituted for "authority' by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. 9 Inserted, ibid. 10 ibid. 11 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. 12 Substituted for '1987" by the Finance Act, 1987, w.e.f. 1-4-1987. ------------------------------------------------------------------------ 1.348 (ii) any of the shares forming part of such issue is offered for subscription at a premium. Explanation 1.-If any question arises as to whether any issue of equity shares would constitute an eligible issue of capital for the purposes of this section, the question shall be referred to the Central Government whose decision thereon shall be final.

Explanation 2.--In this sub-section and sub-section (4), "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 19561 (1 of 1956).

(4) The deduction under sub-section (1) shall not be allowed unless the assessee has- (i) subscribed to the shares in pursuance of an offer for subscription to the public made by the public company or in pursuance of a reservation or an option in his favour by reason of his being a promoter of the company; or (ii) purchased the shares from a person who is specified as an underwriter in respect of the issue of such shares in

pursuance of clause (11) of Part I of Schedule II to the Companies Act, 19562 (1 of 1956), and who has acquired such shares by virtue of his obligation as such underwriter.

(5) If any equity shares, with reference to the cost of which a

deduction is allowed under sub-section (1), are sold or otherwise transferred by the assessee to any person at any time within a period of 3[three] years from the date of their acquisition, an amount equal to fifty per cent of the cost to the assessee of the shares so sold or otherwise transferred shall be deemed to be the income of the assessee of the previous year in which the shares are so sold or transferred and shall be chargeable to tax accordingly. Explanation.-A person shall be treated as having acquired any shares on the date on which his name is entered in relation to those shares in the register of members of the company.

(6) Where a deduction is claimed and allowed under sub-section

(1) with reference to the cost of any equity shares, the cost of such shares shall not be taken into account for the purposes of section 54E.] 4[80CCA. Deduction in respect of deposits under National Savings Scheme or payment5 to a deferred annuity plan6

(1) Where an assessee, being- (a) an individual, or (b) a Hindu undivided family, ----------------------------------------------------------------------- 3 Substituted for "five" by the Finance Act, 1987, w.e.f. 1-4-1987. 4 Substituted by the Finance Act, 1988, w.e.f. 1-4-1988. It was originally inserted by the Finance Act, 1987, with effect from the same date. 5 The deduction under this section is available only on amounts deposited or paid before 1-4-1992. 7 The word "or" omitted by the Finance Act, 1994, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.349 1[(c) Omitted by the Finance Act, 1994, w.re.f. 1-4-1988.] has in the previous year- (i) deposited any amount in accordance with such scheme' as the Central Government may, by notification in the Official Gazette, specify in this behalf 3[* * *]; or (ii) paid any amount to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification 4 in the Official Gazette, specify, out of his income chargeable to tax, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income of the whole of the amount deposited or paid (excluding interest or bonus accrued or credited to the assessee's account, if any) as does not exceed the amount of twenty thousand rupees in the previous year: 5[Provided that in relation to- (a) the assessment years commencing on the 1st day of April, 1989 and the 1st day of April, 1990, this sub-section shall have effect as if for the words "twenty thousand rupees", the words "thirty thousand rupees" had been substituted; (b) the assessment year commencing on the 1st day of April, 1991 and subsequent assessment years, this sub-section shall have effect as if for the words "twenty thousand rupees", the words "forty thousand rupees" had been substituted:] 6[Provided further that no deduction under this sub-section shall be allowed in relation to any amount deposited or paid under clauses (i) and (ii) on or after the 1st day of April, 1992.]

(2) Where any amount- (a) standing to the credit of the assessee 7[under the

scheme referred to in clause (i) of sub-section (1)] in respect of which a deduction has been allowed under sub-

section (1) together with the interest ----------------------------------------------------------------------- 1 Prior to the omission, clause (c), as originally enacted, read as under: "(c) an association of persons or a body of individuals consisting in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu," 3 The words "(hereafter in this section referred to as the National Savings Scheme)" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 5 Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Prior to the substitution, the proviso read as under: "Provided that in relation to the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years, this sub- section shall have effect as if for the words "twenty thousand rupees", the words "thirty thousand rupees" had been substituted." 6 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 7 Substituted for "tinder the National Savings Scheme" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. ----------------------------------------------------------------------- 1.350 accrued on such amount is withdrawn in whole or in part in any previous year, or (b) is received on account of the surrender of the policy or as annuity or bonus in accordance with the annuity plan of the Life Insurance Corporation in any previous year, an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee of that previous year in which such withdrawal is made or, as the case may be, amount is received, and shall, accordingly, be chargeable to tax as the income of that previous year: 1[Provided that nothing contained in this sub-section shall apply to any amount received by the assessee on account of the surrender of the policy in accordance with the terms of the annuity plan of the Life Insurance Corporation where the assessee elects to surrender before the 1st day of October, 1992, the said annuity plan in respect

of which he had paid any amount under clause (ii) of sub-section (1) before the 1st day of April, 1992.]

2[(3) Notwithstanding anything contained in any other provision of this Act, where a partition has taken place among the members of a Hindu undivided family or where an association of persons has been

dissolved after a deduction has been allowed under sub-section (1),

the provisions of sub-section (2) shall apply as if the person in receipt of income referred to therein is the assessee.] Explanation 1.-For the removal of doubts-, it is hereby declared that interest on the deposits made 3[under the scheme referred to in

clause (i) of sub-section (1)] shall not be chargeable to tax except

in the manner and to the extent specified in sub-section (2). Explanation 2.-For the purposes of this section, "Life Insurance Corporation" shall have the same meaning as in clause (a) of sub-

section (8) of section 80. 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 3 Substituted for 'under the National Savings Scheme" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. ---------------------------------------------------------------------- 1.351 for deduction under section 80CCA eventhough such payments might have been made before the date notified by the Government. 1[80CCB. Deduction in respect of investment made under Equity Linked Savings Scheme2

(1) Where an assessee, being-- (a) an individual, or (b) a Hindu undivided family, 4[(C) Omitted by the Finance Act, 1994, w.e.f. 1-4-1991.] has acquired in the previous year, out of his income chargeable to tax, units of any Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), under any plan formulated in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf (hereafter in this section referred to as the Equity Linked Savings Scheme), he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income of so much of the amount invested as does not exceed the amount of ten thousand rupees in the previous year: 5[Provided that no deduction shall be allowed in relation to any amount invested under this sub-section on or after the 1st day of April, 1992.]

(2) Where any amount invested by the assessee in the units issued under a plan formulated under the Equity Linked Savings Scheme

in respect of which a deduction has been allowed under sub-section (1) is returned to him in whole or in part either by way of repurchase of such units or on the termination of the plan, by the Fund or the Trust, as the case may be, in any previous year, it shall be deemed to be the income of the assessee of that previous year and chargeable to tax accordingly.

(3) Notwithstanding anything contained in any other provision of this Act, where a partition has taken place among the members of a Hindu undivided family or where an association of persons has been

dissolved after a deduction has been allowed under sub-section (1),

the provisions of sub-section (2) shall apply as if the person in receipt of income referred to therein is the assessee.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 2 The deduction under this section is available only in relation to any amount invested before 1-4-1992. 3 The word 'or' omitted by the Finance Act, 1994, w.r.e.f. 1-4-

4 Prior to the omission, clause (c), as originally enacted, read as under: "(c) an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu," 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. ---------------------------------------------------------------------- 1.352 1[80D. Deduction in respect of medical insurance premia

(1) In computing the total income of an assessee, there shall be deducted, at the following rates, such sum as is specified in sub-

section (2) and paid by him by cheque in the previous year out of his income chargeable to tax, namely:- (i) in a case where such sum does not exceed in the aggregate 2[six thousand rupees], the whole of such sum; and (ii) in any other case, 3[six thousand rupees].

(2) The sum referred to in sub-section (1) shall be the following, namely:- (a) where the assessee is an individual, any sum paid to effect or to keep in force an insurance on the health of the assessee or on the health of the wife or husband, dependent parents or dependent children of the assessee; (b) where the assessee is a Hindu undivided family, any sum paid to effect or to keep in force an insurance on the health of any member of the family: ---------------------------------------------------------------------- 1 Inserted by the income-tax (Amendment) Act, 1986, w.e.f. 1-4- 1987. Original section 80D was introduced by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 replacing old section 80B which was inserted by the Finance Act, 1965, w.e.f. 1-4-1965. It was amended by the Finance Act, 1968, w.e.f. 1-4-1969 and the Finance Act, 1981, w.e.f. 1-4-1982 and was omitted by the Finance Act, 1984, w.e.f. 1-4-1985. Prior to the omission, it read as under: "80D. Deduction in respect of medical treatment, etc., of

handicapped dependents.(1) Where an assessee who is resident in India, being an individual or Hindu undivided family, who has, during the previous year, incurred out of his or its income chargeable to income- tax, any expenditure for the medical treatment (including nursing) of a person who- (a) is a relative of the individual or, as the case may be, is a member of the Hindu undivided family and is not dependent on any person other than such individual or Hindu undivided family for his support or maintenance, and (b) is suffering from a physical or mental disability which is certified by a registered medical practitioner to have the effect of reducing considerably such person's capacity for normal work or engaging in a gainful employment (hereafter in this section referred to as handicapped dependent), the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of the amount specified in

sub-section (2) in the computation of his total income in respect of the previous year.

(2) The deduction under sub-section (1) shall be- (i) in a case where the handicapped dependant has, for a period of one hundred and eighty-two days or more during the previous year, been admitted in a hospital or a nursing home or a medical institution or in such other institution as may be notified by the Central Government in the Official Gazette to be an institution for the care of handicapped persons, and fees and charges for his medical treatment (including nursing) are payable to such hospital or nursing home or medical or other institution, as the case may be, a sum of four thousand eight hundred rupees, or (ii) in any other case, a sum of one thousand two hundred rupees." 2 Substituted for "three thousand rupees" by the Finance Act, 1992, w.e.f. 1-4-1993. 3 Ibid. ---------------------------------------------------------------------- 1.353 1[(c) Omitted by the Finance Act, 1994, w.r.e.f 1-4-1987.] Provided that such insurance shall be in accordance with a scheme framed 2 in this behalf by the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government in this behalf.] 3[80DD. Deduction in respect of medical treatment, etc., of handicapped dependantS4 5 [* * *] Where an assessee who is resident in India, being an individual or a Hindu undivided family has, during the previous year, incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a person who- (a) is a relative of the individual or, as the case may be, is a member of the Hindu undivided family and is not dependant on any person other than such individual or Hindu undivided family for his support or maintenance, and (b) is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent physical disability or mental retardation specified in the rules made in this behalf by the Board, which is certified by a physician, a surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital, and which has the effect of reducing considerably such person's capacity for normal work or engaging in a gainful employment or occupation, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of a SLIM of 6[fifteen] thousand rupees in respect of the previous year.

7[(2) Omitted by the Finance Act, 1992, w.e.f 1-4-1993.] Explanation.-For the purposes of this section, the expression "Government hospital" includes a departmental dispensary whether full- time or part-time established and run by a Department of the Government --------------------------------------------------------------------- 1 Prior to the omission, clause (c), as originally enacted, read as under: (c) where the assessee is an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, any sum paid to effect or to keep in force an insurance on the health of any member of such association or body or on the health of the dependent children of the members of such an association or body:" 2 The scheme of Hospitalisation and Domiciliary Benefit Policy has been framed under this section. For full text of the scheme, refer Bharat's Income Tax Rules, 1995 edn. 3 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991.

5 The figure "(1)" omitted by the Finance Act, 1992, w.e.f. 1-4-

6 Substituted for "twelve" by the Finance Act, 1993, w.e.f. 1-4- 1994. Earlier, "twelve" was substituted for "six" by the Finance Act, 1992, w.e.f. 1-4-1993.

7 Prior to the omission, sub-section (2), as originally enacted, read as under:

"(2) Nothing contained in this section shall apply in a case, where the assessee's total income in respect of the previous year as computed before making any deduction under this section exceeds one lakh rupees." ----------------------------------------------------------------------- 1.354 for the medical attendance and treatment of a class or classes of Government servants and members of their families, a hospital maintained by a local authority and any other hospital with which arrangements have been made by the Government for the treatment of Government servants. 1[80DDA. Deduction in respect of deposit made for maintenance of handicapped dependant

(1) In computing the total income of an assessee who is resident in India, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, an amount not exceeding twenty thousand rupees paid or deposited by him in the previous year, out of his income chargeable to tax, under any scheme framed in this behalf by the Life Insurance Corporation or the Unit Trust of India subject to the conditions

specified in sub-section (2) and approved by the Board in this behalf.

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

(a) the scheme referred to in sub-section (1) provides for payment of annuity or lump sum amount for the benefit of- a handicapped dependant in the event of the death of the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made; (b) the assessee nominates either the handicapped dependant or any other person or a trust to receive the payment on his behalf, for the benefit of the handicapped dependant.

(3) If the handicapped dependant predeceases the individual or the member of the Hindu undivided family referred to in sub-section

(2), an amount equal to the amount paid or deposited under sub-section

(1) shall be deemed to be the income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the income of that previous year.

(4) In this section,- (a) "Government hospital" shall. have the meaning assigned to it in the Explanation to section 8ODD; ----------------------------------------------------------------------- 1 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ----------------------------------------------------------------------- 1.355 (b) "handicapped dependent" shall mean a person who- (i) is a relative of the individual or, as the case may be, is a member of the Hindu undivided family and is not dependant on any person other than such individual or Hindu undivided family for his support or maintenance; and (ii) is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent physical disability or mental retardation specified in the rules made by the Board for the purposes of section 8ODD, which is certified by a physician, a surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital, and which has the effect of reducing considerably such person's capacity for normal work or engaging in a gainful employment or occupation; (c) "Life Insurance Corporation" shall have the same

meaning as in clause (iii) of sub-section (8) of section 88; (d) "Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).] 1[80E. Deduction in respect of repayment of loan taken for higher education2

(1) In computing the total income of an assessee, being an individual, ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. Section 80E originally numbered section 80C was inserted by the Finance Act, 1965, w.e.f. 1-4-1965 and omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the omission, section 80E, as substituted by the Finance (No. 2) Act, 1967 and amended by the Finance Act, 1968, w.e.f. 1-4-1969 and the Finance Act, 1984, w.e.f. 1-4-1984, read as under: "80E. Deduction in respect of payment for securing retirement

annuities.-(1) Where, in the case of an assessee, being an individual who is a citizen of India and is resident in India, his share in the income of a registered firm which renders professional service as chartered accountant, solicitor, lawyer, architect or such other professional service as may be notified in this behalf by the Central Government in the Official Gazette, is chargeable to tax and he has paid, before the 1st day of March, 1984, out of his income chargeable to tax a premium (by whatever name called) in any previous year under an annuity contract for the time being approved by the Chief Commissioner or Commissioner as having for its main object the provision for the individual of a life annuity in old age (hereafter in this section referred to as qualifying premium), then the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of the amount of the qualifying premium in the computation of his total income in respect of the previous year: Provided that the amount which may be so deducted shall not exceed the sum of five thousand rupees, or one-tenth of his gross total income, whichever is less.

(2) Subject to sub-section (3) and any rules made by the Board in this behalf, the Chief Commissioner or Commissioner shall not approve a contract unless he is satisfied that it does not- (a) provide for the payment during the life of the individual of any sums except sums payable by way of annuity to the individual; or (b) provide for the annuity payable to the individual to commence before he attains the age of fifty-eight or after he attains the age of sixty-eight; or (c) provide for the payment of any other sums except sums payable by way of annuity to the individual's widow or widower and any sums which, in the event of no annuity becoming payable either to the individual or to a -> -> ----------------------------------------------------------------------- 1.356 -> -> widow or widower of the individual, are payable to the individual's legal representative by way of return of premiums, by way of reasonable interest on premiums and by way of bonus out of profits; or (d) provide for the payment of annuity, if any, payable to a widow or widower of the individual to be of a greater annual amount than that paid or payable to the individual; or (e) provide for the payment of any annuity otherwise than for the life of the annuitant, and that it does include a provision that no annuity payable under it shall be capable in whole or in part of surrender, commutation or assignment.

(3) The Chief Commissioner or Commissioner may, if he thinks fit, and subject to any conditions the Board may, by rules, prescribe and subject to any conditions he thinks proper to impose, approve a contract, notwithstanding that the contract provides for one or more of the following matters, that is to say,- (a) for the payment after the individual's death of an annuity to a dependant other than the widow or widower of the individual; (b) for the payment to the individual of an annuity commencing before he attains the age of fifty-eight, if the annuity is payable on his becoming incapable through infirmity of mind or body of being actively engaged in his profession or any profession of a similar nature for which he is trained or fitted; (c) for the annuity payable to any person to continue for a specified term (not exceeding ten years), notwithstanding his death within that term; (d) in the case of an annuity which is to continue for such specified term, for the annuity to be assignable by will.

(4) The foregoing provisions of this section shall apply in relation to a contribution (by whatever name called) to a fund approved by the Chief Commissioner or Commissioner as they apply in relation to any premium under an annuity contract so approved, provided the fund satisfies also the conditions set out below and any other conditions which the Board may, by rules, prescribe, namely:- (a) the fund shall be a fund established in India under an irrevocable trust for the benefit of individuals engaged in

any profession referred to in sub-section (1); (b) the fund shall have for its sole purpose the provision of annuities for individuals engaged in such profession on attaining a specified age or on their becoming incapacitated prior to attaining such age, or for the widow, children or dependants of such persons on their death; (c) all annuities, pensions and other benefits granted from the fund shall be payable only in India.

(5) The Chief Commissioner or Commissioner may, at any time, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the persons by and to whom premiums are payable under any contract for the time being approved under this section, or to the trustees of any fund so approved, withdraw the approval.

(6) Notwithstanding anything contained in sub-sections (1) and

(4), no deduction under this section shall be allowed in the case of any individual- (i) whose gross total income includes income which is chargeable under the head "Interest on securities", or "Income from house property", or "Capital gains", or any income chargeable under the head "Income from other sources" in so far as it is not immediately derived from personal exertion of the individual, and the aggregate amount of all such income is more than ten thousand rupees; or (ii) who is entitled to any pension or is participating in any pension or superannuation scheme.

(7) The amount of deduction under this section shall not in any case exceed the amount of the income computed under the head "Profits and gains of business or profession" included in the gross total income.

[(8) * * *]

(2) The deduction specified in subsection (1) shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial

assessment year or until the loan referred to in subsection (1) together with interest thereon is paid by the assessee in full, whichever is earlier.

(3) For the purposes of- this section,- (a) "approved charitable institution" means an institution specified in, or, as the case "may be, an institution established for charitable purposes and notified by the Central Government under clause (23C) of section 10 or an

institution referred to in clause (a) of subsection (2) of section 80G; -----------------------------------------------------------------------

-> -> (9) Where any payment by way of annuity or otherwise is made by a person to whom premiums or contributions are payable under sub-

section (1) or sub-section (4), such person shall, subject to any rules made by the Board in this behalf, deduct from the total amount so paid during any financial year, tax at such rate or rates in force in that year as would be applicable to such amount, if it were the total income and shall pay the amount so deducted to the credit of the Central Government within the prescribed time and in such manner as the Board may direct and the provisions of section 201 shall, so far as may be, apply to such person if he does not deduct, or after deducting fails to pay, such tax.

(10) Where a deduction under this section is claimed and allowed for any assessment year in respect of any payment, relief shall not be given in respect of it under any other provision of this Act for the same or a later assessment year nor (in the case of a payment under an annuity contract) in respect of any other premium or consideration for an annuity under the same contract.

(11)(a) The Board may, by notification in the Official Gazette, make rules for carrying out the purposes of this section. (b) In particular and without prejudice to the generality of the foregoing power, such rules may- (i) prescribe the statements and other information to be submitted along with an application for approval; (ii) prescribe the returns, statements, particulars or information which the Income-tax Officer may require from a person by and to whom premiums or contributions are payable tinder this section; (iii) provide for the assessment by way of penalty of any consideration received by an individual for an assignment of, or creation of a charge upon, any annuity or other sum receivable by him under any contract or from any fund approved for the time being under this section; and (iv) provide for securing such further control over the approval granted under this section and administration of funds approved under this section as it may deem requisite." 1.358 (b) "financial institution" means a banking company to which the Banking Regulation Act, 1949 1 (10 of 1949) applies (including any batik or banking institution referred to in section 51 of that Act); 0r any other financial institution which the Central Government "may by notification in the Official Gazette, specify in this behalf'; (c) "higher education" means full-time studies for any graduate or postgraduate course in engineering, medicine, management or for postgraduate course in applied sciences or pure sciences including mathematics and statistics; (d) "initial assessment year" means the assessment year relevant to the previous year, in which the assessee starts repaving the loan or interest thereon.] 1[80F. Deduction in respect of educational expenses in certain cases. Omitted by the Finance Act, 1985, w.e.f. 1-4-1986.] [80FF. Deduction in respect of expenses on higher education in certain cases.--Omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4- 1981. It was inserted by the Finance Act, 1975, w.e.f. 1-4-1976.] 3[80G. Deduction in respect of donations to certain funds, charitable institutions, etc .4

5[(1) In computing the total income of an assessee, there shall be ---------------------------------------------------------------------- 2 Section 8OF was inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 in place of section 87A which was inserted by the Finance Act, 1964, w.e.f. 1-4-1964. Prior to the omission, section 80F, as amended by the Finance Act, 1968, w.e.f. 1-4-1968, read as under: "80F. Deduction in respect of educational expenses in certain

cases.-(1) Where an individual, being a resident, who is not a citizen of India, has expended any sum in the previous year out of his income chargeable to tax for the full time education of his child wholly or mainly dependant on him and who is not more than twenty-one years of age, at any university, college, school or other educational institution situate in a country outside India, he shall, in accordance with and subject to the provisions of this section, be

allowed a deduction of the amount specified in sub-section (2) in the computation of his total income.

(2) The amount referred to in sub-section (1) shall be- (i) in the case of an individual who has one such child, one thousand five hundred rupees; and (ii) in the case of an individual who has more than one such child, three thousand rupees." A new section 80F, dealing with deduction in respect of amounts applied for charitable or religious purposes, etc. was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 3 Inserted in place of section 88 by the Finance (No. 2) Act, 1967, w.e.f. 1.359 deducted, in accordance with and subject to the provisions of this section,-- 1[(i) in a case where the aggregate of the sums

specified in subsection (2) includes any sum or sums of the nature specified in 2[sub-clause (iiia ) 3 [or in sub-clause (iiiaa) 4[or in sub-clause (iiiab)] 4[or in sub-clause (iiie)] 5[or in sub-clause (iiif)] 6[or in sub-clause (iiig)] or 8[sub-clause (iiih) or] in] sub-clause (vii) of clause (a) thereof, an amount equal to the whole of the sum or, as the case may be, sums of such nature plus fifty per cent of the balance of such aggregate; and] (ii) in any other case, an amount equal to fifty per cent of

the aggregate of the sums specified in sub-section (2).]

(2) The sums referred to in sub-section (1) shall be the following, namely:- (a) any sums paid by the assessee in the previous year as donations to- (i) The National Defence Fund set up by the Central Government; or (ii) the Jawaharlal Nehru Memorial Fund referred to in the Deed of Declaration of Trust adopted by the National Committee at its meeting held on the 17th day of August, 1964; or (iii)the Prime Minister's Drought Relief-Fund; or 9[(iiia)the Prime Minister's National Relief Fund; or] 10[(iiiaa)the Prime Minister's Armenia Earthquake Relief Fund; or] ----------------------------------------------------------------------- 5 Substituted by the Finance Act, 1976, w.e.f. 1-4-1977. -Earlier, it was also substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 1 Substituted by the Finance Act, 1985, w.e.f. 1-4-1986. Prior to the substitution, clause (i) read as under: "(i) in a case where the aggregate of the sums specified in

sub-section (2) includes any sum specified in sub-clause (vii) of clause (a) thereof, an amount equal to the whole of such sum plus fifty per cent of the balance of such aggregate; and" 2 Restored to its original version by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 3 Inserted by the Income-tax (Amendment) Act, 1989, w.e.f. 24-1-

4 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 5 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. 6 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. 7 Inserted by the Finance Act, 1994, w.e.f. 1-4-1994. 8 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 9 Inserted by the Income-tax (Amendment) Act, 1976, w.r.e.f. 9-9-

10 Inserted by the Income-tax (Amendment) Act, 1989, w.e.f. 24-1-

1.360 1[(iiiab)the Africa (Public Contributions-India) Fund; or] 2[ (iiib)the National Children's Fund; or] 3[(iiic)the Indira Gandhi Memorial Trust, the deed of declaration in respect whereof was registered at New Delhi on the 21st day of February, 1985; or] 4[(iiid)the Rajiv Gandhi Foundation, the deed of declaration in respect whereof was registered at New Delhi on the 21st day of June, 1991; or] 5[(iiie)the National Foundation for Communal Harmony; or] 6[(iiif)a University or any educational institution of national eminence as may be approved by the prescribed authority 7 in this behalf; or] 8[(iiig)the Maharashtra Chief Minister's Relief Fund during the period beginning on the 1st day of October, 1993 and ending on the 6th day of October, 1993 or to the Chief Minister's Earthquake Relief Fund, Maharashtra; or] 9[(iiih)any Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district for the purposes of improvement of primary education in villages and towns in such district and for literacy and post-literacy activities. Explanation.-For the purposes of this sub-clause, "town" means a town which has a population not exceeding one lakh according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or] (iv) any other fund or any institution to which this section applies; or (v) the Government or any local authority, to be utilised for any charitable purpose 10[other than the- purpose of promoting family planning; or] 11[(vi) any authority referred to in clause (20A) of section 10; or ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 2 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 3 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Earlier clause (iiia) was inserted by the Direct Tax Laws (Amendment) Act, 1987 and omitted by the Direct Tax Laws (Amendment) Act, 1989, both w.e.f. 1-4-1989. 5 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. Earlier, a new sub-clause (iiie) was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but it was omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 6 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. 9 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 10 Inserted by the Finance Act, 1976, w.e.f. 1-4-1977. 11 Ibid. ----------------------------------------------------------------------- 1.361 1[(via) any corporation referred to in clause (26BB) of section 10 ; or] (vii) the Government or to any such local authority, institution or association as may be approved' in this behalf by the Central Government, to be utilised for the purpose of promoting family planning;] (b) any sums paid by the assessee in the previous year as donations for the renovation or repair of an), such temple, mosque, gurdwara, church or other place as is notified' by the Central Government in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States.

4 [(3) Omitted by, the Finance Act, 1994, w.e.f. 1-4-1994.]

5[(4) Where the aggregate of the sums refer-red to in sub- clauses (iv), (v), (vi) 6[(via)] and (vii) of clause (a) and in clause

(b) of sub-section (2) exceeds ten per cent of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of ten per cent of the gross total income shall be ignored for the purpose of computing the aggregate of the sums in respect of which deduction is to be allowed

under sub-section (1)].

(5)This section applies to donations to any institution or fund

referred to in sub-clause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely:-- ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1995, w.e.f. 1-4-199

4 Prior to the omission, sub-section (3) read as under:

"(3) No deduction shall be allowed under sub-section (1) if the

aggregate of the sums referred to in sub-section (2) is less than two hundred and fifty rupees." 5 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (4), as substituted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, read as under:

"(4) Where the aggregate of the sums referred to in sub-clauses (iv), (v), (vi) and (vii) of clause (a) and in clause (b) of sub-

section (2) exceeds the smaller of the following amounts, that is to say, (i) ten per cent of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), and (ii) five hundred thousand rupees, then, the amount by which such aggregate exceeds such smaller amount shall be ignored for the purpose of computing the aggregate of the sun-is in respect of which deduction is to be allowed under sub-

section (1)."

Earlier, the original sub-section (4) was amended by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1968 and the Finance (No. 2) Act, 1977, w.e.f. 1-4-1981. 6 Inserted by the Finance Act, 1995, w.e.f. 1-4-1995. ---------------------------------------------------------------------- 1.362 1[(i)where the institution or fund derives any income, such income would not be liable to inclusion in its total income

under the provisions of sections 11 and 12 or clause (22)

3[or clause (22A)] 3[or clause (23)] 4[or clause (23AA)] 5[or clause (23C)] of section 10: 6[Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 1 1 shall not apply in relation to such income, if,- (a) the institution or fund maintains separate books of account in respect of such business; (b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and (c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;]] (ii) the instrument under which the institution or fund is constituted -does not, or the rules governing the institution or fund do not, contain any provision for the transfer of application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose; (iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste; (iv) the institution or fund maintains regular accounts of its receipts and expenditure; 7[* * *] (v) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 18608 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under section 25 of the Companies Act, 19569 (1 of 1956), or is a university established by law, or is any other educational institution recognised by the Government or by a university established by law, or affiliated to any university established by law, 10[or is an institution approved by the Central ----------------------------------------------------------------------- 1 Restored to its original provision by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987 with effect from the same date. 2 Inserted by the Finance Act, 1970, w.e.f. 1-4-1970. 3 Inserted by the Finance Act, 1973, w.e.f. 1-4-1974. 4 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

6 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 7 The word "and" omitted by the Finance Act, 1994, w.e.f. 1-4-1994. 9 Ibid. 10 Restored to its original version by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. It was inserted by the Finance Act, 1973, w.e.f. 1-4-1974. ----------------------------------------------------------------------- 1.363

Government for the purposes of clause (23) of section 10,] or is an institution financed wholly or in part by the Government or a local authority; 1[and] 2[(vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commissioner in accordance with the rules 3 made in this behalf: Provided that any approval shall have effect for such assessment year or years, not exceeding 4 [five] assessment years, as may be specified in the approval.] 5[(5A) Where a deduction under this section is claimed and allowed for any assessment year in respect of any sum specified in

sub-section (2), the sum in respect of which deduction is so allowed shall not qualify for deduction under any other provisions of this Act for the same or any other assessment year.] Explanation ].-An institution or fund established for the benefit of scheduled castes, backward classes, scheduled tribes or of women and children shall not be deemed to be an institution or fund expressed to be for the benefit of a religious community or caste

within the meaning of clause (iii) of sub-section (5). 6[Explanation 2.-For the removal of doubts, it is hereby declared that a deduction to which the assessee is entitled in respect of any

donation made to an institution or fund to which sub-section (5) applies shall not be denied merely on either or both of the following grounds, namely:- 7[(i)that, subsequent to the donation, any part of the income of the institution or fund has become chargeable to tax due to noncompliance with any of the provisions of section 1 1, 8[section 12 or section 12A];

(ii) that, under clause (c) of sub-section (1) of section 13, the exemption' under section 11 9[or section 12] is denied to the institution or fund in relation to any income arising to it from any investment referred to in clause (h)

of sub-section (2) of section 13 where the ';aggregate of the funds invested by it in a concern referred to in the said clause (h) does not exceed five per cent of the capital of that concern.]] Explanation 3.-In this section, "charitable purpose" does not include any purpose the whole or substantially the whole of which is of a religious nature,. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1994. 2 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 4 Substituted for "three" by the Finance Act, 1993, w.e.f. 1-4-

5 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1968. 6 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 7 Restored to its original provisions by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, they were substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 8 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 9 Ibid. ----------------------------------------------------------------------- 1.364 1[Explanation 4.-For the purposes of this section, an association

approved by the Central Government for the purposes of clause (23) of section 10 shall also be deemed to be an institution, and every association or institution approved by the Central Government for the purposes of the said clause shall be deemed to be an institution established in India for a charitable purpose.] 2[Explanation 5.-For the removal of doubts, it is hereby declared that no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of money.]

3[(6) * * 4[80GG. Deduction in respect of rents paid 5 In computing the total income of an assessee, not being an assessee having any income falling within clause (13A) of section 10, there shall be deducted any expenditure incurred by him in excess of ten per cent of his total income towards payment of rent (by whatever name called) in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence, 6[to the extent to which such excess expenditure does not exceed one thousand rupees per month or twenty-five per cent of his total income for the year, whichever is less], and subject to such other conditions or limitations as may be prescribed having regard to the area or place in which such accommodation is situated and other relevant considerations: ---------------------------------------------------------------------- 1 Restored to its original provision by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Explanation 4 was inserted by the Finance Act, 1973, w.e.f. 1-4-1974. 2 Inserted by the Finance Act, 1976, w.e.f. 1-4-1976. 3 Omitted by the Finance Act, 1968, w.e.f. 1-4-1969. 4 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

6 Substituted for "to the extent to which such excess expenditure does not exceed four hundred rupees per month or fifteen per cent of his total income for the year, whichever is less" by the Finance Act, 1986, w.e.f. 1-4-1987. Earlier, "four" was substituted for "three" by the Finance Act, 1982, w.e.f. 1-4-1983. ----------------------------------------------------------------------- 1.365 1[Provided that nothing in this section shall apply to an assessee in any case where any residential accommodation is,- (i) owned by the assessee or by his spouse or minor child or, where such assessee is a member of a Hindu undivided family, by such family, at the place where he ordinarily resides or performs duties of his office or employment or carries on his business or profession; or (ii) owned by the assessee at any other place, being accommodation in the occupation of the assessee, the value of which is to be determined 2[under sub-clause (i) of clause

(a) or, as the case may be, clause (b) of sub-section (2)] of section 23.] Explanation.-In this section, the expressions "ten per cent of his total income" and " 3[twenty-five per cent] of his total income" shall mean ten per cent or 4[twenty-five per cent], as the case may be, of the assessee's total income before allowing deduction for any expenditure under this section.] 5[80GGA. Deduction in respect of certain donations for scientific research or rural development

(1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this

section, the sums specified in sub-section (2).

(2) The sums referred to in sub-section (1) shall be the following, namely:- (a) any sum paid by the assessee in the previous year to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research: Provided that such association, university, college or institution is for the time being approved for the purposes

of clause (ii) of sub-section (1) of section 35; ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1983, w.e.f. 1-4-1984. Prior to the omission, the proviso read as under: "Provided that nothing in this section shall apply to an assessee in any case where any residential accommodation is owned by him or by his spouse or minor child, or, where such assessee is a member of a Hindu undivided family, by such family." 2 Substituted for "under" clause (i) or, as the case may be, clause

(ii) of sub-section (2)" by the Finance Act, 1986, w.e.f. 1-4-1987. 3 Substituted for "fifteen per cent" by the Finance Act, 1986, w.e.f. 1-4-1987. 4 Ibid. 5 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 80GGA was originally inserted by the Finance Act, 1979, w.e.f. 1-4-1980. ---------------------------------------------------------------------- 1.366 1[(aa)any sum paid by the assessee in the previous year to a university, college or other institution to be used for research in social science or statistical research: Provided that such university, college or institution is for the time being approved for the purposes of clause (iii) of

sub-section (1) of section 35;] (b) any sum paid by the assessee in the previous year- (i) to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved for the purposes of section 35CCA; or (ii) to an association or institution which has as its object the training of persons for implementing programmes of rural development: 2 [Provided that the assessee furnishes the certificate

referred to in sub-section (2) or, as the case may be, sub- section (2A) of section 35CCA from such association or institution;] 3[(bb) any sum paid by the assessee in the previous year to a public sector company or a local authority or to an association or institution approved by the National Committee, for carrying out any eligible project or scheme: Provided that the assessee furnishes the certificate

referred to in clause (a) of sub-section (2) of section 35AC from such public sector company or local authority or, as the case may be, association or institution. Explanation.-For the purposes of this clause, the expressions "National Committee" and "eligible project or scheme" shall have the meanings respectively assigned to them in the Explanation to section 35AC.] 4[(C any sum paid by the assessee in the previous year to an association or institution, which has as its object the undertaking of any programme of conservation of natural resources 5[or of afforestation], to be used for carrying out any programme of conservation of natural resources 6[or of afforestation] approved for the purposes of section 35CCB: Provided that the association or institution is for the time

being approved for the purposes of sub-section (2) of section 35CCB;] ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 2 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. Prior to the substitution, the proviso read as under: "Provided that the association or institution is for the time

being approved for the purposes of sub-section (2) of section 35CCA." 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 4 Inserted by the Finance Act, 1982, w.e.f. 1-6-1982. 5 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 6 Ibid. ----------------------------------------------------------------------- 1.367 1[(cc) any sum paid by the assessee in the previous year to such fund for afforestation as is notified by the Central

Government under clause (b)of sub-section (1) of section 35CCB;] 2[(d)any sum paid by the assessee in the previous year to a rural development fund set up and notified by the Central

Government for the purposes of clause (c) of sub-section (1) of section 35CCA;] 3[(e) any sum paid by the assessee in the previous year to the National Urban Poverty Eradication Fund set tip and notified by the Central Government for the purposes of'

clause (d) of sub-section (1) of section 35CCA.]

(3) Notwithstanding anything contained in sub-section (1), no deduction under this section shall be allowed in the case of an assessee whose gross total income includes income which is chargeable under the head "Profits and gains of business or profession".

(4) Where a deduction under this section is claimed and allowed for any assessment year in respect of any payments of the nature

specified in sub-section (2), deduction shall not be allowed in respect of such payments under any other provision of this Act for the same or any other assessment year.] C.-Deductions in respect of certain incomes [80H. Deduction in case of new industrial undertakings employing displaced persons, etc.-Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. Originally, it was inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.] 4[80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas5

(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof.

(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970 6[but before the 1st day of April, 1990], in any backward area; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence in any backward area: ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 2 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 3 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 4 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4- 1974. The deduction under this section is available only upon the fulfilment of certain conditions before 1-4-1990. 6 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. ------------------------------------------------------------------------ 1.368 Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii)it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area; (iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. Explanation.-Where any machinery or plant or any part thereof previously used for any purpose in any backward area is transferred to a new business in that area or in any other backward area and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (iii) of this sub-section, the condition specified therein shall be deemed to have been fulfilled.

(3) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely:- (i) the business of the hotel has started or starts functioning after the 31st day of December, 1970 1[but before the 1st day of April, 1990], in any backward area; (ii) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence; (iii)the hotel is for the time being approved for the purposes of this sub-section by the Central Government.

(4) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or the business of the hotel starts functioning: Provided that,- (i) in the case of an industrial undertaking which has begun to manufacture or produce articles, and (ii) in the case of the business of a hotel which has started functioning, after the 31st day of December, 1970, but before the 1st day of April, 1973, this sub-section shall have effect as if the reference to ten assessment years were a reference to ten assessment years as reduced by the number of assessment years which expired before the 1st day of April, 1974.

(5) Where the assessee is a person other than a company or a co-

operative society, the deduction under sub-section (1) shall not be admissible unless the accounts of the industrial undertaking or the business of the hotel for the previous year relevant to the assessment year ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. ---------------------------------------------------------------------- 1.369 for which the deduction is claimed have been audited by an accountant

as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.1

(6) Where any goods held for the purposes of the business of the industrial under-taking or the hotel are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carried on by the assessee are transferred to the business of the industrial under-taking or the hotel and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the business of the industrial undertaking or the hotel does not correspond to the market value of such goods as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of the industrial undertaking or the business of the hotel shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date: Provided that where, in the opinion of the 2 [Assessing] Officer, the computation of the profits and gains of the industrial undertaking or the business of the hotel in the manner hereinbefore specified presents exceptional difficulties, the 3 [Assessing] Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-In this sub-section, "market value" in relation to any goods means the price that such goods would ordinarily fetch on sale in the open market.

(7) Where it appears to the 4 [Assessing] Officer that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel to which this section applies and any other-person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial undertaking or the hotel, the 5[Assessing] Officer shall, in computing the profits and gains of the industrial undertaking or the hotel for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom.

(8) 6[* * *]

(9) In a case where the assessee is entitled also to the deduction under 7 [section 80-I or] section 80J in relation to the profits and gains of an industrial undertaking or the business of a hotel to which this section applies, effect shall first be given to the provisions of this section. --------------------------------------------------------------------- 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

7 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. ------------------------------------------------------------------------ 1.370 1[(9A) Where a deduction in relation to the profits and gains of a small-scale industrial undertaking to which section 80HHA applies is claimed and allowed under that section for any assessment year, deduction in relation to such profits and gains shall not be allowed under this section for the same or any other assessment year.]

(10)Nothing contained in this section shall apply in relation to any undertaking engaged in mining.

2[(11) For the purposes of this section, "backward area" means such area as the Central Government may, having regard to the stage of development of that area, by notification 3 in the Official Gazette, specify in this behalf: Provided that any notification under this sub-section may be issued so as to have retrospective effect to a date not earlier than the 1st day of April,1983.] 4[80HHA. Deduction in respect of profits and gains from newly established small-scale industrial undertakings in certain areas'

(1)Where the gross total income of an assessee includes any profits and gains derived from a small-scale industrial undertaking to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof.

(2)This section applies to any small-scale industrial undertaking which fulfils all the following conditions, namely:- (i) it begins to manufacture or produce articles after the 30th day of September, 1977 6[but before the 1st day of April, 1990], in any rural area; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 2 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. Prior to the substitution, the Explanation read as under: "Explanation.-In this section, 'backward area' means an area specified in the list in the Eighth Schedule. 4 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 5 The deduction under this section is available only if the undertaking begins to manufacture or produce articles after 30-9-1977 but before 1-4-1990. 6 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. ----------------------------------------------------------------------- 1.371 Provided that this condition shall not apply in respect of any small-scale industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. Explanation.-Where in the case of a small-scale industrial under- taking, any machinery or plant or any part thereof previously used for any purpose is transfer-red to a new business and the total value of the machinery or plant or part so transfer-red does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (iii) of this sub-section, the condition specified therein shall be deemed to have been fulfilled.

(3) The deduction specified in sub-section (1) shall be allowed in computing the total income 1[of each of the ten previous years beginning with the previous year in which the industrial undertaking] begins to manufacture or produce articles: 2[Provided that such deduction shall not be allowed in computing the total income of any of the ten previous years aforesaid in respect of which the industrial undertaking is not a small-scale industrial undertaking within the meaning of clause (b) of the Explanation below

sub-section (8).]

(4) Where the assessee is a person, other than a company or a

cooperative society, the deduction under sub-section (1) shall not be admissible unless the accounts of the small-scale industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as

defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. 3

(5) The provisions of sub-sections (6) and (7) of section 80HH shall, so far as may be, apply in relation to the computation of the profits and gains of a small-scale industrial undertaking for the purposes of the deduction under this section as they apply in relation to the computation of the profits and gains of an industrial undertaking for the purposes of the deduction under that section.

(6) In a case where the assessee is entitled also to the deduction under ---------------------------------------------------------------------- 1 Substituted for 'in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the small-scale industrial undertaking' by the Finance Act, 1981, w.e.f. 1-4-1981. 2 Inserted, ibid. ---------------------------------------------------------------------- 1.372 1[section 80-I or] section 80J in relation to the profits and gains of a small-scale industrial undertaking to which this section applies, effect shall first be given to the provisions of this section.

(7) Where a deduction in relation to the profits and gains of a smallscale industrial undertaking to which section 80HH applies is claimed and allowed under that section for any assessment year, deduction in relation to such profits and gains shall not be allowed under this section for the same or any other assessment year.

(8) Nothing contained in this section shall apply in relation to any small-scale industrial under-taking engaged in mining. Explanation.-For the purposes of this section,- 2[(a) "rural area" means any area other than,- (i) an area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (ii) an area within such distance, not being more than fifteen kilometres from the local limits of any municipality or cantonment board referred to in sub- clause (i), as the Central Government may, having regard to the stage of development of such area (including the extent of, and scope for, urbanisation of such area) and other relevant considerations specify in this behalf by notification' in the Official Gazette;] (b) an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of 4[the business of the undertaking does not exceed,-

5[(1) in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees; ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 2 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, clause (a) read as under: "(a) "rural area' shall have the same meaning as in clause (b) of

the Explanation to sub-section (1) of section 35CC;" 4 Substituted for 'the business of the undertaking does not exceed ten lakh rupees; and for this purpose the value of any machinery or plant shall be,-" by the Finance Act, 1981, w.e.f. 1-4-1981. 5 Substituted by the Finance Act, 1986, w.r.e.f. 1-4-1985. Prior

to the substitution, subclauses (1) and (2) read as under:

"(1) in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees; and

(2) in a case where the previous year ends after the 3 1st day of July, 1980, twenty lakh rupees." ---------------------------------------------------------------------- 1.373

(2) in a case where the previous year ends after the 31st day of July, 1980 but before the 18th day of March, 1985, twenty lakh rupees; and

(3) in a case where the previous year ends after the 17th day of March, 1985, thirty-five lakh rupees,] and for this purpose the value of any machinery or plant shall be,- (i) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and (ii) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant.] 1[80HHB. Deduction in respect of profits and gains from projects outside India2

(1) Where the gross total income of an assessee being an Indian company or a person (other than a company) who is resident in India includes any profits and gains derived from the business of-- (a) the execution of a foreign project undertaken by the assessee in pursuance of a contract entered into by him, or (b) the execution of any work undertaken by him and forming part of a foreign project under-taken by any other person in pursuance of a contract entered into by such other person, with the Government of a foreign State or any statutory or other public authority or agency in a foreign State, or a foreign enterprise, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to 3[fifty] per cent thereof: Provided that the consideration for the execution of such project or, as the case may be, of such work is payable in convertible foreign exchange.

(2) For the purposes of this section,- (a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (b) "foreign project" means a project for- (i) the construction of any building, road, dam, bridge or other structure outside India; (ii) the assembly or installation of any machinery or plant outside India; (iii) the execution of such other work (of whatever nature) as may be prescribed. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 3 Substituted for 'twenty-five" by the Income-tax (Amendment) Act, 1986, w.e.f. 1-4-1987. ----------------------------------------------------------------------- 1.374

(3) The deduction under this section shall be allowed only if the following conditions are fulfilled, namely:- (i) the assessee maintains separate accounts in respect of the profits and gains derived from the business of the execution of the foreign project, or as the case may be, of the work forming part of the foreign project undertaken by him and, where the assessee is a person other than an Indian company or a co-operative society, such accounts have been audited by an accountant as defined in the Explanation below

sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant;1 (ii) an amount equal to 2[fifty] per cent of the profits and

gains referred to in sub-section (1) is debited to the profit and loss account of the previous year in respect of which the deduction under this section is to be allowed and credited to a reserve account (to be called the "Foreign Projects Reserve Account") to be utilised by the assessee during a period of five years next following for the purposes of his business other than for distribution by way of dividends or profits; (iii) an amount equal to 3[fifty] per cent of the

profits and gains referred to in sub-section (1) is brought by the assessee in convertible foreign exchange into India, in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder, within a period of six months from the end of the previous year referred to in clause (ii), or, where the 4[Chief Commissioner or Commissioner] is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the 5[Chief Commissioner or Commissioner] may allow in this behalf: Provided that where the amount credited by the assessee to the Foreign Projects Reserve Account in pursuance of clause (ii) or the amount brought into India by the assessee in pursuance of clause (iii) or each of the said amounts is less than 6[fifty] per cent of the

profits and gains referred to in sub-section (1), the deduction under that sub-section shall be limited to the amount so credited in pursuance of clause (ii) or the amount so brought into India in pursuance of clause (iii), whichever is less.

(4) If at any time before the expiry of five years from the end

of the previous year in which the deduction under sub-section (1) is allowed, the assessee utilises the amount credited to the Foreign Projects Reserve Account for distribution by way of dividends or profits or for any other purpose which is not a purpose of the business of the assessee, the --------------------------------------------------------------------- 2 Substituted for 'twenty-five' by the Income-tax (Amendment) Act, 1986, w.e.f. 1-4-1987. 3 Ibid. 4 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Ibid. 6 Substituted for 'twenty-five' by the Income-tax (Amendment) Act, 1986, w.e.f. 1-4-1987. ----------------------------------------------------------------------- 1.375

deduction originally allowed under sub-section (1) shall be deemed to have been wrongly allowed, and the 1[Assessing] Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of that section being reckoned from the end of the previous year in which the money was so utilised.

(5) Notwithstanding anything contained in any other provision of this Chapter under the heading "C.-Deductions in respect of certain incomes", no part of the consideration or of the income comprised in the consideration payable to the assessee for the execution of a

foreign project refer-red to in clause (a) of sub-section (1) or of any work referred to in clause (b) of that sub-section shall qualify for deduction for any assessment year under any such other provision.] 2[80HHC. Deduction in respect of profits retained for export business 3

4[(1) Where an assessee, being an Indian company or a person (other ---------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted by the Finance Act, 1985, w.e.f. 1-4-1986. Prior to the substitution, section 80HHC, as inserted by the Finance Act, 1983, w.e.f. 1-4-1983, read as under:

"80HHC. Deduction in respect of export turnover.--(1) Where the assessee, being an Indian company or a person (other than a company) who is resident in India, exports out of India during the previous year relevant to an assessment year any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, the following deductions, namely:- (a) a deduction of an amount equal to one per cent of the export turnover of such goods or merchandise during the previous year; and (b) a deduction of an amount equal to five per cent of the amount by which the export turnover of such goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding previous year.

(2) (a) This section applies to all goods or merchandise [other than those specified in clause (b)] if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange. (b) The goods or merchandise referred to in clause (a) are the following, namely:- (i) agricultural primary commodities, not being produce of plantations; (ii) mineral oil; -> -> ----------------------------------------------------------------------- 1.376 than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the 1[profits] derived by the assessee from the export of such goods or merchandise: Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate, (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the 2[total profits derived ---------------------------------------------------------------------- (iii)minerals and ores; and (iv) such other goods or merchandise as the Central Government may, by notification in the Official Gazette, specify in this behalf.

(3) No deduction under clause (b) of sub-section (1) shall be allowed unless the assessee had, during the immediately preceding previous year, exported out of India goods or merchandise to which this section applies. Explanation.-For the purposes of this section,- (a) convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (b) "export turnover" means the sale proceeds of any goods or merchandise exported out of India, but 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)." 4 Substituted by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to

the substitution, subsection (1), as amended by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1987, read as under:

"(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction equal to the aggregate of- (a) four per cent of the net foreign exchange realisation; and (b) fifty per cent of so much of the profits derived by the assessee from the export of such goods or merchandise as exceeds the amount refer-red to in clause (a): Provided that the deduction under this sub-section shall not exceed the profits derived by the assessee from the export of such goods or merchandise: Provided further that an amount equal to the amount of the deduction claimed under this sub-section is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee." 1 Substituted for 'whole of the income' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted for "total profits of the export business of the assessee the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee" by the Finance Act, 1992, w.e.f. 1-4-1992. ---------------------------------------------------------------------- 1.377 by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods]. (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading

House has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of the 1[profits] derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House.]

(2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are 2[received in, or brought into, India] by the assessee 3[(other than the supporting manufacturer)] in convertible foreign exchange 4 [within a period of six months from the end of the previous year or, where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf.] (b) This section does not apply to the following goods or merchandise, namely:- (i) mineral oil; and (ii) minerals and ores 5[(other than processed minerals and ores specified in the Twelfth Schedule)]. 6[Explanation 1.-The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2.--For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill

or bill of export as referred to in sub-section (1) of section 50 of the Customs Act, 1962 (52 of 1962), shall, for the purposes of this section, be deemed to be the sale proceeds thereof.] ----------------------------------------------------------------------- 1 Substituted for "whole of the income" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted by "receivable" by the Finance Act, 1990, w.e.f. 1-4-

3 Inserted, ibid, w.r.e.f. 1-4-1989. 4 Inserted, ibid, w.e.f. 1-4-1991. 5 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 6 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. ----------------------------------------------------------------------- 1.378

1[(3) For the purposes of sub-section (1),- (a) where the export out of India is of goods or merchandise manufactured 2[or processed] by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or merchandise manufactured 3[or processed] by the assessee and of trading goods, the profits derived from such export shall,- (i) in respect of the goods or merchandise manufactured 4[ or processed] by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods: Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and ----------------------------------------------------------------------- 1 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992.

Prior to the substitution, sub-section (3) read as under:

"(3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession'), the same proportion as the export turnover bears to the total turnover of the business carried on by the assesses." Earlier, it was substituted for the following by the Finance Act, 1990, w.e.f. 1-4-1991:

"(3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be,- (a) in a case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head "Profits and gains of business or profession'; (b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession") the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee." 2 Inserted by the Finance Act, 1992, w.e.f. 1-4-1992. 3 Ibid. 4 Ibid. ---------------------------------------------------------------------- 1.379 (iiic), of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation.-For the purposes of this sub-section,- (a) "adjusted export turnover" means the export turnover as reduced by the export turnover in respect of trading goods; (b) "adjusted profits of the business' means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed

in the manner provided in clause (b) of sub-section (3); (c) "adjusted total turnover" means the total turnover of the business as reduced by the export turnover in respect of trading goods; (d) "direct costs" means costs directly attributable to the trading goods exported out of India including the purchase price of such goods; (e) "indirect costs" means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover; (f) "trading goods" means goods which are not manufactured 1[or processed] by the assessee.] 2[(3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be,- (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business 3[* * *]; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business 4[* * *] the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee.]

5[(4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form,6 along with the return of income, the report of an accountant, as defined in the

Explanation below sub-section (2) of section 288, certifying that the ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1992. 2 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 The words "as computed under the head 'Profits and gains of business or profession" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 4 The words "(as computed under the head "Profits and gains of business or profession.,) omitted, ibid. 5 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f 1-4-1987.

6 See rule 18BBA(3) and Form No. 10CCAC. ------------------------------------------------------------------------ 1.380 deduction has been correctly claimed 1[in accordance with the provisions of this section.]] 2[(4A) The deduction under sub-section (1A) shall not be admissible unless the supporting manufacturer furnishes in the prescribed form along with his return of income,- (a) 3the report of an accountant, as defined in the

Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the 4 [profits] of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House; and (b) 5a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section: Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under any other law.] Explanation.-For the purposes of this section,- (a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; 6[(aa) "export out of India" shall not include any transaction by way of sale or other-wise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 7 (52 of 1962);] (b) "export turnover" means the sale proceeds 8[, received in, or brought into, India] by the assessee in convertible foreign exchange 9[in accordance with clause (a) of sub-

section (2)] of any goods or merchandise to which this section applies and which are exported out of India, but 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);] ---------------------------------------------------------------------- 1 Substituted for "on the basis of the amount of export turnover" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Earlier, the italicised words were substituted for 'net foreign exchange realisation as determined in accordance with the Import and Export Policy of the Government of India for the relevant period" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 4 Substituted for "income" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 6 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1986. 8 Substituted for "receivable" by the Finance Act, 1990, w.e.f. 1-4-1991, 9 Inserted, ibid. ------------------------------------------------------------------------ 1.381 1[(ba) "total turnover", shall 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 2 (52 of 1962): Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression "total turnover" shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28;] 3[(baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by-

(1) ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and

(2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;] 4[(bb) Omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.] 5[6[(c)] "Export House Certificate" or "Trading House Certificate" means a valid Export House Certificate or Trading House Certificate,. as the case may be, issued by the Chief Controller of Imports and Exports, Government of India; 7[(d)]"supporting manufacturer" means a person being an Indian company or a person (other than a company) resident in India, 8[manufacturing (including processing) goods] or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export.] 1 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1987. 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 4 Prior to the omission, clause (bb), as inserted by the Finance Act, 1990, w.e.f. 1-4-1991, read as under: "(bb) 'total turnover" shall not include any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28;" 5 Inserted as clause (d) by the Finance Act, 1988, w.e.f. 1-4-1989. 6 Relettered for "(d)" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. The original clause (c), as inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1987, and omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, read as under: "(c) net foreign exchange realisation' means the total free on board value of exports out of India of goods and merchandise to which this section applies as reduced by the aggregate of the cost, insurance and freight value of all categories of import licences, to be issued by the Chief Controller of Imports and Exports, Government of India, to which the assessee is entitled during the previous year, either against export obligation or against exports as replenishments;' 7 Relettered for "(e)", ibid. 8 Substituted for 'manufacturing goods' by the Finance Act, 1990, w.e.f. 1-4-1991. ---------------------------------------------------------------------- 1.382 granite or other rocks that are cut and exported as raw blocks after being washed and cleaned. The entry in the Twelfth Schedule is very clear and unambiguous and uses the term "cut and polished". 2. The amendment with regard to sales over the counters has retrospective effect from 1st April, 1986 and it would normally apply even to completed assessments. However past cases where assessments have already been completed would not be reopened with a view to check up whether counter-sales have been treated as exports for the purposes of the relief under this section. Where, however, the records of the assessee clearly show that such sales over the counter have been given relief under the section the Assessing Officer will have to take necessary action to rectify the mistake. 3. Deduction under this section is to be allowed after the income chargeable to tax under the head 'profits and gains from business and profession' has been computed under rule 8. 4. The Finance Act, 1990 made a clarificatory amendment by inserting a definition for the term 'total turnover' to exclude cash compensatory support, duty drawback and profit on sale of import entitlements. Since the amendment only clarified the legislative intention as it always existed, the position as regards the past years should be the same as that after coming into force of the amendment. 5. The Finance Act, 1990 has restricted the definition of the term 'export turnover' to mean FOB sale proceeds actually received by the assessee in convertible foreign exchange within six months of the end of the previous year or within such further period as the Chief Commissioner/Commissioner may allow in this regard. In the case of an assessee who is doing export business exclusively 'export turnover' and 'total turnover' would be identical if the entire sale proceeds are brought into India in convertible foreign exchange within the prescribed time limit.. In order to arrive at the amount deductible under the section in the case of an assessee doing export business as well as some other domestic business the fraction of 'export turnover' to 'total turnover' will be applied to his profits computed under the head 'profits and gains from business or profession'. 6. An assessee exporting goods or merchandise under Government to Government credits will also be eligible for claiming the deduction irrespective of the fact that the sale proceeds of such exports are realised in their hands in Indian currency. 7. If any export house/trading house holding a certificate in this regard for the relevant accounting period passes on to the manufacturer part of the amount of the tax benefit derived on account of the deduction under section 80HHC then the amount of actual payment made to the manufacturer for passing on the tax benefit may, subject to the limit laid down be treated as business expenditure and be allowed as deduction in the computation of the total income of the export/trading house. The total amount of the tax benefit on account of the deduction under section 80HHC and the tax benefit on account of the aforesaid deduction shall in no case exceed the maximum amount of tax benefit available under the section to the export/trading house. 8. The provisions of the proviso to section 80HHC will not be infringed if dividends are distributed by the assessee out of the reserve contemplated therein. 9. Export of cut and polished diamonds and gem stones will not amount to export of minerals and ores and hence will qualify for relief under section 80HHC. 1.383 1[80HHD. Deduction in respect of earnings in convertible foreign exchange

(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of a hotel or of a tour operator, approved by the prescribed authority' in this behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of a sum equal to the aggregate of- (a) fifty per cent of the profits derived by him from services provided to foreign tourists; and (b) so much of the amount out of the remaining profits referred to in clause (a) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the

assessee in the manner laid down in sub-section (4): 3[Provided that a hotel or, as the case may be, a tour operator approved by the prescribed authority on or after the 30th day of November, 1989, and before the 1st day of October, 1991, shall be deemed to have been approved by the prescribed authority for the purposes of this section in relation to the assessment year commencing on the 1st day of April, 1989, or the 1st day of April, 1990, or, as the case may be, the 1st day of April, 1991, if the assessee was engaged in the business of such hotel or as such tour operator during the previous year relevant to any of the said assessment years.]

(2) This section applies only to services provided to foreign tourists the receipts in relation to which are received 4 [in, or brought into, India by the assessee in convertible foreign exchange within a period of six months from the end of the previous year or, where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months or within such further period as the Chief Commissioner or Commissioner may allow in this behalf.] 5[Explanation.-For the purposes of this sub-section, any payment received by an assessee, engaged in the business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer 6 [from another hotelier, tour operator or travel agent, as the case may be,] on behalf of a foreign tourist or group of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange if the person making the payment furnishes to the assessee a certificate specified in sub- section (2A). ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 4 Substituted for by the assessee in convertible foreign exchange' by the Finance Act, 1990, w.e.f. 1-4-1991. 5 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 6 Substituted for 'from a tour operator or, as the case may be, a travel agent" by the Finance Act, 1994, w.e.f. 1-4-1995. ----------------------------------------------------------------------- 1.384 1(2A) Every person making payment to an assessee referred to in

the Explanation to sub-section (2) out of Indian currency obtained by conversion of foreign exchange received from or on behalf of a foreign tourists or a group of foreign tourists shall furnish to that assessee a certificate in the prescribed form indicating the amount received in foreign exchange, its conversion into Indian currency and such other particulars as may be prescribed.]

2[(3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession") the same proportion as the

receipts specified in sub-section (2) 3 [[as reduced by any payment, referred to in sub-section (2A), made by the assessee]] bear to the total receipts of the business carried on by the assessee.]

(4)The amount credited to the reserve account under clause (b) of

sub-section(1), shall be utilised by the assessee before the expiry of a period of five years next following the previous year in which the amount was credited for the following purposes, namely:- (a) construction of new hotels approved by the prescribed authority in this behalf or expansion of facilities in existing hotels already so approved; (b) purchase of new cars and new coaches by tour operators already so approved or by travel agents; (c) purchase of sports equipment for mountaineering, trekking, golf, river-rafting and other sports in or on water; (d) construction of conference or convention centers; (e) provision of such new facilities for the growth of Indian tourism as the Central Government may, by notification in the Official Gazette, specify in this behalf: Provided that where any of the activities referred to in clauses (a) to (e) would result in creation of any asset owned by the assessee outside India, such asset should be created only after obtaining prior approval of the prescribed authority. ----------------------------------------------------------------------- 2 Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Prior to

the substitution, subsection (3) read as under:

"(3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be,- (a) in a case where the business carried on by the assessee consists exclusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, the profits of the business as computed under the head "Profits and gains of business or profession"; (b) in a case where the business carried on by the assessee does not consist exclusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession') the same proportion as the receipts in convertible foreign exchange bear to the total receipts of the business carried on by the assessee." 3 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ---------------------------------------------------------------------- 1.385

(5) Where any amount credited to the reserve account under

clause (b) of sub-section (1),- (a) has been utilised for any purpose other than those

referred to in sub-section (4), the amount so utilised; or (b) has not been utilised in the manner specified in sub-

section (4), the amount not so utilised, shall be deemed to be the profits,- (i) in a case referred to in clause (a), in the year in which the amount was so utilised; or (ii) in a case referred to in clause (b), in the year immediately following the period of five years specified in

sub-section (4), and shall be charged to tax accordingly.

1(6) The deduction under sub-section (1), shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the

Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the 2[3[* * *] amount of convertible foreign exchange received by the assessee for services provided by him to foreign tourists 4[, payments made by him to any assessee referred to in sub-section (2A)] and the payments received by him in Indian currency as referred to in the Explanation

to sub-section (2)]. Explanation.-For the purposes of this section,- (a) "travel agent" means a travel agent or other person (not being an airline or a shipping company) who holds a valid licence granted by the Reserve Bank of India under section 325 of the Foreign Exchange Regulation Act, 1973 (46 of 1973); (b) "convertible foreign exchange" shall have the meaning assigned to it in clause (a) of the Explanation to section 80HHC; (c) "services provided to foreign tourists" shall not include services by way of sale in any shop owned or managed by the person who carries on the business of a hotel or of a tour operator or of a travel agent;] 6[(d) "authorised dealer", "foreign exchange" and "Indian currency" shall have the meanings respectively assigned to them in clauses (b), (h) and (k) of section 2 of the Foreign Exchange Regulation Act, 19737 (46 of 1973).] -------------------------------------------------------------------- 2 Substituted for "amount of convertible foreign exchange received by the assessee for services provided by him to the foreign tourists" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 3 The words "aggregate of the" omitted by the Finance Act, 1994, w.e.f. 1-4-1995. 4 Inserted, ibid. 5 Section 32 has been omitted by the Foreign Exchange Regulation (Amendment) Act, 1993. 6 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 1.386 1[80HHE. Deduction in respect of profits from export of computer software, etc.

(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of,- (i) export out of India of computer software or its transmission from India to a place outside India by any means; (ii) providing technical services outside India in connection with the development or production of computer software, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from such business: 2[Provided that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 3[1996], or any subsequent assessment year.]

(2) The deduction specified in sub-section (1) shall be allowed only if the consideration in respect of the computer software referred to in that sub-section is received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, where the Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Commissioner may allow in this behalf. Explanation.-The said consideration shall be deemed to have been received in India where it is credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.

(3) For the purposes of sub-section (1), profits derived from the business referred to in that sub-section shall be the amount which bears to the profits of the business, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.

4(4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the

Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

(5) Where a deduction under this section is claimed and allowed

in respect of profits of the business referred to in sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits under any other provision of this Act for the same or any other assessment year. Explanation.-For the purposes of this section,- (a) "convertible foreign exchange" shall have the meaning assigned to it in clause (a) of the Explanation to section 80HHC; ---------------------------------------------------------------------- 1 Inserted, by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 2 Being omitted by the Finance Act, 1995, w.e.f. 1-4-1996. 3 Substituted for "1995" by the Finance Act, 1994, w.e.f. 13-5- 1994. Earlier "1995" was substituted for "1994" by the Finance Act, 1993, w.e.f. 13-5-1993. ---------------------------------------------------------------------- 1.387 (b) "computer software" means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme which is transmitted from India to a place outside India by any means; (c) "export turnover" means the consideration in respect of computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with

sub-section (2), but does not include freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; (d) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by-

(1) ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and

(2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India; (e) "total turnover" shall not include- (i) any sum referred to in clauses (iiia), (iiib) and (iiic) of section 2 8; (ii) any freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India; and (iii) expenses, if any, incurred in foreign exchange in providing the technical services outside India.] 1[80-I. Deduction in respect of profits and gains from industrial undertakings after a certain date, etc.

(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel 2[or the business of repairs to ocean-going vessels or other powered craft], to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof: Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect 3 [in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel] as if for the words "twenty per cent", the words "twenty-five per cent" had been substituted.

4[(1A) Notwithstanding anything contained in sub-section (1), in ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. Earlier, section 80-1 was inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 and omitted by the Finance Act, 1972, w.e.f. 1-4-1973. 2 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 3 Ibid. 4 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. ---------------------------------------------------------------------- 1.388 relation to any profits and gains derived by an assessee from- (i) an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants; or (ii) a ship which is first brought into use; or (iii) the business of a hotel which starts functioning, on or after the 1st day of April, 1990 1[but before the 1st day of April, 1991], there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty-five per cent thereof: Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words "twenty-five per cent", the words "thirty per cent" had been substituted.]

(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of 2[ten] years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial under-taking; (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power: Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section: Provided further that the condition in clause (iii) shall, in relation to a small-scale industrial undertaking, apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 2 Substituted for "fourteen" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. Earlier, "fourteen" was substituted for "nine" by the Finance Act, 1990, w.e.f. 1-4-1990, which was substituted for "four" by the Finance Act, 1985, w.e.f. 1-4-1985. ---------------------------------------------------------------------- 1.389 Explanation 1.-For the purposes of clause (ii) of this sub- section, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely:- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2.-Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. Explanation 3.-For the purposes of this sub-section, "small-scale industrial undertaking" shall have the same meaning as in clause (b)

of the Explanation below sub-section (8) of section 80HHA.

(3) This section applies to any ship, where all the following conditions are fulfilled, namely:- (i) it is owned by an Indian company and is wholly used for the purposes of the business carried on by it; (ii) it was not, previous to the date of its acquisition by the Indian company, owned or used in Indian territorial waters by a person resident in India; and (iii) it is brought into use by the Indian company at any time within the period of 1[ten] years next following the 1st day of April, 1981.

(4) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely:- (i) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose; (ii) the business of the hotel is owned and carried on by a company registered in India with a paid-up capital of not less than five hundred thousand rupees; (iii) the hotel is for the time being approved for the purposes of this sub-section by the Central Government; ---------------------------------------------------------------------- 1 Substituted for "fourteen" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. Earlier, "fourteen" was substituted for "nine" by the Finance Act, 1990, w.e.f. 1-4-1990, which was substituted for "four" by the Finance Act, 1985, w.e.f. 1-4-1985. ---------------------------------------------------------------------- 1.390 (iv) the business of the hotel starts functioning after the 31st day of March, 1981, but before the 1st day of April, 1[1991]. 2[(4A) This section applies to the business of repairs to ocean- going vessels or other powered craft which fulfils all the following conditions, namely:- (i) the business is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it is carried on by an Indian company and the work by way of repairs to ocean-going vessels or other powered craft has been commenced by such company after the 31st day of March, 1983, but before the 1st day of April, 1988; and (iv) it is for the time being approved for the purposes of this subsection by the Central Government.]

(5) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the- previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning 3[or the company commences work by way of repairs to ocean-going vessels or other powered craft] (such assessment year being hereafter in this section referred to as the initial assessment year) and each of the seven assessment years immediately succeeding the initial assessment year: Provided that in the case of an assessee, being a co-operative society, the provisions of this sub-section shall have effect as if for the words "seven assessment years", the words "nine assessment years" had been substituted: 4[Provided further that in the case of an assessee carrying on the business of repairs to ocean-going vessels or other powered craft, the provisions of this sub-section shall have effect as if for the words "seven assessment years", the words "four assessment years" had been substituted:] 5[Provided also that in the case of- (i) an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants; or (ii) a ship which is first brought into use; or (iii) the business of a hotel which starts functioning, on or after the 1st day of April, 1990 6[but before the 1st day of April, ------------------------------------------------------------------------ 1 Substituted for "1995" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. Earlier, "1995" was substituted for "1990" by the Finance Act, 1990, w.e.f. 1-4-1990, which was substituted for "1985" by the Finance Act, 1985, w.e.f. 1-4-1985. 2 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 4 Ibid. 5 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 6 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. ---------------------------------------------------------------------- 1.391 1991], provisions of this sub-section shall have effect as if for the words "seven assessment years", the words "nine assessment years" had been substituted: Provided also that in the case of an assessee, being a co- operative society, deriving profits and gains from an industrial undertaking or a ship or a hotel referred to in the third proviso, the provisions of that proviso shall have effect as if for the words "nine assessment years", the words "eleven assessment years" had been substituted.]

(6)Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel 1[or the business of repairs to ocean-going vessels or other powered craft] to which the provisions of sub-section

(1) apply shall, for the purposes of determining the quantum of

deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel 2[or the business of repairs to ocean-going vessels or other powered craft] were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.

(7)Where the assessee is a person other than a company or a co-

operative society, the deduction under sub-section (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the

Explanation below subsection (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.3

(8)Where any goods held for the purposes of the business of the industrial undertaking or the hotel or the operation of the ship 4[or the business of repairs to ocean-going vessels or other powered craft] are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carried on by the assessee are transferred to the business of the industrial undertaking or the hotel or the operation of the ship 4[or the business of repairs to oceangoing vessels or other powered craft] and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the business of the industrial undertaking or the hotel or the operation of the ship 6[or the business of repairs to ocean-going vessels or other powered craft] does not correspond to the market value of such goods as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of the industrial undertaking or the ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 4 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. --------------------------------------------------------------------- 1.392 business of the hotel or the operation of the ship 1[or the business of repairs to ocean-going vessels or other powered craft] shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date: Provided that where, in the opinion of the 2[Assessing] Officer, the computation of the profits and gains of the industrial undertaking or the business of the hotel or the operation of the ship 3[or the business of repairs to ocean-going vessels or other powered craft] in the manner hereinbefore specified presents exceptional difficulties, the 4 [Assessing] Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-In this sub-section, "market value", in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market.

(9) Where it appears to the 5[Assessing] Officer that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel or the operation of the ship 6[or the business of repairs to ocean-going vessels or other powered craft] to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial undertaking or the hotel or the operation of the ship 7[or the business of repairs to ocean-going vessels or other powered craft], the 8[Assessing] Officer shall, in computing the profits and gains of the industrial undertaking or the hotel or the ship 9[or the business of repairs to oceangoing vessels or other powered craft] for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom.

(10) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertakings with effect from such date as it may specify in the notification.] 10[80-IA. Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases

(1) Where the gross total income of an assessee includes any profits ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Ibid. 6 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 7 Ibid. 8 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 9 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 10 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1991. ------------------------------------------------------------------------ 1.393 and gains derived from any business of an industrial undertaking or a hotel or operation of a ship 1[or developing, maintaining and operating any infrastructure facility] (such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount

equal to the percentage specified in subsection (5) and for such

number of assessment years as is specified in subsection (6).

(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: Provided that the condition in this clause shall, in relation to a small scale industrial undertaking 2 [or an industrial undertaking referred to in sub-clause (b) of clause (iv) which begins to manufacture or produce an article or thing during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 1998], apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted; 3[(iv) (a) in the case of an industrial undertaking not specified in subclause (b ) 4 [or sub-clause (c)], it begins to manufacture or produce articles or things or to operate such plant or plants, at any time during the period beginning on the 1st day of April, 1991 and ending on the 31st day of March, 1995, or such further period as the Central Government may, by notification ---------------------------------------------------------------------- 1 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 2 Inserted by the Finance Act, 1994, w.e.f. 1-4-1994. 3 Substituted by the Finance Act, 1993, w.e.f. 1-4-1994. Prior to the substitution, clause (iv), as originally enacted, read as under: "(iv) it begins to manufacture or produce articles or things or to operate such plant or plants, at any time during the period beginning on the 1st day of April, 1991, and ending on the 31st day of March, 1995, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;" 4 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ----------------------------------------------------------------------- 1.394 in the Official Gazette, specify with reference to any particular industrial undertaking; (b) in the case of an industrial undertaking located in an industrially backward State specified in the Eighth Schedule or set up in any part of India for the generation, or generation and distribution, of power, it begins to manufacture or produce articles or things or to operate its cold storage plant or plants or to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 1998;] 1[(c) in the case of an industrial undertaking located in such industrially backward district as the Central Government may, having regard to the prescribed guidelines, by notification in the Official Gazette, specify in this behalf, it begins to manufacture or produce articles or things or to operate its cold storage plant or plants at any time during the period beginning on the 1st day of October, 1994 and ending on the 31st day of March, 1999;] 2[(d) in the case of an industrial undertaking being a small scale industrial undertaking, not specified in sub- clause (b) or in subclause (c), it begins to manufacture or produce articles or things or to operate its cold storage plant at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, 2000;] (v) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. Explanation 1.-For the purposes of clause (ii) of this sub- section, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely:- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2.-Where in the case of an industrial undertaking any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 2 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ----------------------------------------------------------------------- 1.395 clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.

(3) This section applies to any ship, where all the following conditions are fulfilled, namely:- (i) it is owned by an Indian company and is wholly used for the purposes of the business carried on by it; (ii) it was not, previous to the date of its acquisition by the Indian company, owned or used in Indian territorial waters by a person resident in India; and (iii) it is brought into use by the Indian company at any time during the period beginning on the 1st day of April, 1991, and ending on the 31st day of March, 1995.

(4) This section applies to the business of any hotel, where conditions (i), (ii), (v) and either of the conditions (iii) or (iv), are fulfilled, namely:- (i) the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose; (ii) the business of the hotel is owned and carried on by a company. registered in India with a paid-up capital of not less than five hundred thousand rupees; (iii) the business of the hotel, located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may, having regard to the need for development of infrastructure for tourism in any place and other relevant considerations specify for the purpose of this clause, starts functioning at any time during the period beginning on the 1st day of April, 1990, and ending on the 31st day of March, 1994; (iv) the business of the hotel--

(1) located in any place, or

(2) located in a place other than a place referred to in clause (iii) of this sub-section, starts functioning at any time during the period beginning on the 1st day of April, 1991, and ending on the 31st day of March, 1995; (v) the hotel is for the time being approved by the prescribed authority.2 3[(4A) This section applies to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfills all the following conditions, namely:- (i) the enterprise is owned by a company registered in India or by a consortium of such companies; (ii) the enterprise has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State ----------------------------------------------------------------------- 2 Ibid. 3 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ---------------------------------------------------------------------- 1.396 Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement; (iii) the enterprise starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995.]

(5) The amount referred to in sub-section (1) shall be- 1[(i) (a) in the case of an industrial undertaking referred to in subclause (a) 2[or sub-clause (d)] of clause (iv) of

sub-section (2), twenty-five per cent of the profits and gains derived from such industrial undertaking; (b) in the case of an industrial undertaking referred to in subclause (b) 2[or sub-clause (c)] of clause (iv) of sub-

section (2), hundred per cent of the profits and gains derived from such industrial undertaking for the initial five assessment years and thereafter twenty-five per cent of the profits and gains derived from such industrial undertaking: Provided that where the assessee is a company, the provisions of this clause shall have effect as if for the words "twenty-five per cent", the words "thirty per cent" had been substituted;] 4[ (ia) in the case of an enterprise referred to in sub- section (4A), hundred per cent of the profits and gains derived from such business for the initial five assessment years and thereafter, thirty per cent of' such profits and gains;] (ii) in the case of a hotel referred to in clause (iii) of

sub-section (4), fifty per cent of the profits and gains derived from the business of such hotel: Provided that the said hotel is approved by the prescribed authority5 for the purposes of this clause in accordance with the rules made under this Act: Provided further that the said hotel approved by the prescribed authority before the 31st day of March, 1992, shall be deemed to have been approved by the prescribed authority for the purposes of this section in relation to the assessment year commencing on the 1st day of April, 1991; (iii) in the case of a hotel referred to in clause (iv) of

sub-section (4), thirty per cent of the profits and gains derived from the business of such hotel; (iv) in the case of a ship, thirty per cent of the profits and gains derived from such ship. ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1993, w.e.f. 1-4-1994. Prior to the substitution, clause (i) read as under: "(i) in the case of an industrial under-taking, twenty-five per cent of the profits and gains derived from such industrial undertaking: Provided that where the assessee is a company, the provisions of this clause shall have effect as if for the words "twenty-five per cent", the words "thirty per cent" had been substituted;" 2 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 3 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 4 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ----------------------------------------------------------------------- 1.397

(6) The number of assessment years referred to in sub-section (1) shall, including the initial assessment year, be- (i) twelve in the case of an assessee, being a co-operative society, deriving profits and gains from an industrial undertaking; (ii) ten in the case of any other assessee deriving profits and gains from an industrial undertaking; (iii) ten in the case of any other assessee deriving profits and gains from a ship or the business of a hotel; 1[(iv) any ten consecutive assessment years falling within a period of twelve assessment years beginning with the assessment year in which an assessee begins operating and maintaining infrastructure facility.]

(7) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the

provisions of sub-section (1) apply shall, for the purposes of

determining the quantum of deduction under sub-section (5) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.

2(8) Where the assessee is a person other than a company or a co-

operative society, the deduction under sub-section (1) from profits and gains derived from an industrial undertaking shall not be admissible unless, the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the

Explanation below subsection (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.

(9) Where any goods held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date: Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-In this sub-section, "market value", in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market. ----------------------------------------------------------------------- 1 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ----------------------------------------------------------------------- 1.398

(10)Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom.

(11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertakings with effect from such date as it may specify in the notification.

(12) For the purposes of this section,- (a) "hilly area" means any area located at a height of one thousand metres or more above the sea level; (b) "industrial undertaking" shall have the meaning assigned to it in the Explanation to section 33B; (c) "initial assessment year" means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning; ------------------------------------------------------------------------ The following clauses (c) and (ca) are being substituted for the above clause (c) by the Finance Act, 1995, w.e.f. 1-4-1996: "(c) "initial assessment year"-

(1) in the case of an industrial undertaking or cold storage plant or ship or hotel, means the assessment year relevant to the previous year in which; the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage, plant or plants or the ship is first brought into use or the business of the hotel starts functioning;

(2) in the case of an enterprise, carrying on the business of developing, operating and maintaining any infrastructure facility, means the assessment year specified by the assessee at his option to be the initial-year, not falling beyond the twelfth assessment year starting from the previous year in which the enterprise begins operating and maintaining the infrastructure facility. (ca) "infrastructure facility" means a road, highway, bridge, airport, port or rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette;" (d) "place of pilgrimage" means a place where any temple, mosque, gurudwara, church or other place of public worship of renown throughout any State or States is situated; (e) "rural area" means any area other than- (i) an area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee or ------------------------------------------------------------------------ 1.399 by any other name) or a cantonment board and which has a population of not less than ten thousand according to the preceding census of which relevant figures have been published before the first day of the previous year; or (ii) an area within such distance not being more than fifteen kilometres from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area (including the extent of, and scope for, urbanisation of such area) and other relevant considerations specify in this behalf by notification in the Official Gazette; 1[(f) "small-scale industrial undertaking" means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951).]] 2[80J. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases3

(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains 4 [(reduced by the deduction, if any, admissible to the assessee under section 80HH] 5[or section 80HHA)] of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, [computed in the manner ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, clause (f), as originally enacted, read as under: "(f) "small scale industrial undertaking" means an industrial undertaking where the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of business of the undertaking does not exceed sixty lakh rupees and for this purpose the value of any machinery or plant shall be,- (i) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and (ii) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant." 2 Inserted, in place of section 84 which was omitted, by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 4 Substituted for "(reduced by the aggregate of the deductions, if any, admissible to the assessee under section 80H and section 80HH)" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 5 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 6 Substituted for "computed in the prescribed manner" by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1972. ------------------------------------------------------------------------ 1.400 specified in sub-section (1A)] in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year): 1[Provided that in relation to the profits and gains derived by an assessee, being a company, from an industrial undertaking which begins to manufacture or produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976, or from a ship which is first brought into use after that date, or from the business of a hotel which starts functioning after that date, the provisions of this sub-section shall have effect as if for the words "six per cent", the words "seven and a half per cent" had been substituted.]

2[(1A) (1) For the purposes of this section, the capital employed in an industrial undertaking or the business of a hotel shall, except as otherwise expressly provided in this section, be computed in accordance with clauses (II) to (IV) and the capital employed in a ship shall be computed in accordance with clause (V). (II) The aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking or of the business of the hotel to which this section applies shall first be ascertained in the following manner:- (i) in the case of assets entitled to depreciation, their written down value; (ii) in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee; (iii) in the case of assets acquired otherwise than by purchase and not entitled to depreciation, the value of the assets when they became assets of the business; (iv) in the case of assets, being debts due to the person carrying on the business, the nominal amount of those debts; (v) in the case of assets, being cash in hand or bank, the amount thereof. Explanation 1.-In this clause, "actual cost" has the same meaning

as in clause (1) of section 43. Explanation 2.-In this clause and in clause (III), "computation period" means the period for which profits and gains of the industrial undertaking or business of the hotel are computed under sections 28 to 43A. Explanation 3.-In this clause and in clause (V), "written down

value" has the same meaning as in clause (6) of section 43. Explanation 4.-Where the cost of any asset has been satisfied otherwise than in cash, the then value of the consideration actually given for the asset shall be treated as the actual cost of the asset. (III) From the aggregate of the amounts as ascertained under clause (II) shall be deducted the aggregate of the amounts, as on the first day of the computation period, of borrowed moneys and debts owed by the assessee (including amounts due towards any liability in respect of tax). Explanation.-For the purposes of this clause,- ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1975, w.e.f. 1-4-1976. 2 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1972. ----------------------------------------------------------------------- 1.401 (i) "tax" means- (a) income-tax or super-tax (including advance tax) due under any provision of this Act; (b) wealth-tax due under any provision of the Wealth-tax Act, 1957 (27 of 1957); (c) gift-tax due under any provision of the Gift-tax Act, 1958 (18 of 1958); (d) super profits tax due under any provision of the Super Profits Tax Act, 1963 (14 of 1963); (e) surtax due under any provision of the Companies (Profits) Surtax Act, 1964 (7 of 1964); (ii) any liability in respect of tax shall be deemed to have become due- (a) in the case of advance tax due under any provision of this Act, on the date on which such advance tax is payable; and (b) in the case of any other tax, on the first day of the period within which it is required to be paid. (IV) The resultant sum as determined under clause (III) shall be diminished by the value, as ascertained under clause (II), of any investments the income from which is not taken into account in computing the profits of the business and any moneys not required for the purpose of the business, insofar as the aggregate of such investments or moneys exceed the amount of the borrowed moneys which under clause (III) are required to be deducted in computing the capital. (V) The capital employed in a ship shall be taken to be the written down value of the ship as reduced by the aggregate of the amounts owed by the assessee as on the computation date on account of moneys borrowed or debts. incurred in acquiring that ship. Explanation.-In this clause, "computation date" in relation to a ship, means- (a) in respect of the previous year in which the ship is first brought into use, the date on which it is so brought into use; (b) in respect of any subsequent previous year, the first day of such previous year.]

(2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning (such assessment year being hereafter, in this section, referred to as the initial assessment year) and each of the four assessment years immediately succeeding the initial assessment year: Provided that in the case of an assessee, being a co-operative society, the provisions of this sub-section shall have effect as if for the words "four assessment years", the words "six assessment years" had been substituted.

(3) Where the amount of the profits and gains derived from the industrial undertaking or ship or business of the hotel, as the case may be, ITA-26 1.402 included in the total income (as computed without applying the provisions of section 64 and before making any deduction under Chapter VI-A 1[* * *]) in respect of the previous year relevant to an assessment year commencing on or after the 1st day of April, 1967, (not being an assessment year prior to the initial assessment year or subsequent to the fourth assessment year as reckoned from the end of the initial assessment year) falls short of the relevant amount of capital employed during the previous year, the amount of such shortfall, or, where there are no such profits and gains, an amount equal to the relevant amount of capital employed during the previous year (such amount, in either case, being hereafter, in this section, referred to as deficiency) shall be carried forward and set off

against the profits and gains referred to in subsection (1) [as computed after allowing the deductions, if any, admissible under 2[* * *] 3[section 80HH] 4 [or section 80HHA] 5[* * *] and the said sub-

section (1)] in respect of the previous year relevant to the next following assessment year and, if there are no such profits and gains for that assessment year, or where the deficiency exceeds such profits and gains, the whole or balance of the deficiency, as the case may be, shall be set off against such profits and gains for the next following assessment year and if and so far as such deficiency cannot be wholly so set off, it shall be set off against such profits and gains assessable for the nexT following assessment year and so on: Provided that- (i) in no case shall the deficiency or any part thereof be carried forward beyond the seventh assessment year as reckoned from the end of the initial assessment year; (ii) where there is more than one deficiency and each such deficiency relates to a different assessment year, the deficiency which relates to an earlier assessment year shall be set off under this sub-section before setting off the deficiency in relation to a later assessment year: Provided further that in the case of an assessee being a co- operative society, the provisions of this. sub-section shall have effect as if for the words "fourth assessment year",- the words "sixth assessment year" had been substituted.

(4) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by the splitting up, or the reconstruction, of. a business already in existence; (ii) it is not formed by the transfer to a new business of 6[* * *] machinery or plant previously used for any purpose; ----------------------------------------------------------------------- 1 The words "or section 280-O" omitted by the Finance Act, 1988, w.e.f. 1-4-1988. 2 The words "section 80H" omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 3 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-

4 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 5 The words "section 80-I" omitted by the Finance Act, 1972, w.e.f. 1-4-1973. 6 The words "a building (not being a building taken on rent or lease)" omitted by the Finance Act, 1975, w.e.f. 1-4-1976. ----------------------------------------------------------------------- 1.403 (iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of 1[thirty-three] years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking; (iv) in a case where the industrial undertaking manufactures or produces articles, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power: Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section: 2 [Provided further that, where any building or any part thereof previously used for any purpose is transferred to the business of the industrial undertaking, the value of the building or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking:] 3[Provided also that in the case of an industrial undertaking which manufactures or produces any article specified in the list in the Eleventh Schedule, the provisions of clause (iii) shall have effect as if for the words "thirty-three years", the words "thirty-one years" had been substituted.] 4[Explanation 1.-For the purposes of clause (ii) of this sub- section, any machinery or plant which was used outside India by any per-son other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely:-, (a) such machinery or plant was not, at any time, previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee. Explanation 2.-Where in the case of an industrial undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant ---------------------------------------------------------------------- 1 Substituted for "twenty-eight" by the Finance Act, 1975, w.e.f. 1-4-1975 which was earlier substituted for "twenty-three" by the Finance Act, 1969, w.e.f 14-1969. 2 Inserted by the Finance Act, 1975, w.e.f. 1-4-1976. 3 Inserted by the Finance Act, 1979, w.e.f. 1-4-1979. 4 Inserted by the Finance Act, 1975,, w.e.f. 1-4-1976. ---------------------------------------------------------------------- 1.404 or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with and the total value of machinery or plant or part so transferred shall not be taken into account in computing the capital employed in the industrial undertaking.]

(5) This section applies to any ship, where all the following conditions are fulfilled, namely:- (i) it is owned by an Indian company and is wholly used for the purposes of the business carried on by it; (ii) it was not, previous to the date of its acquisition by the Indian company, owned and used in Indian territorial waters by a person resident in India; and (iii) it is brought into use by the Indian company at any time within a period of 1[thirty-three] years next following the 1st day of April, 1948.

(6) This section applies to the business of any hotel, where all the following conditions are fulfilled, namely:- (a) the business of the hotel 2[* * *] is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose; (b) the business of the hotel is owned and carried on by a company registered in India with a paid-up capital of not less than five hundred thousand rupees; (c) 3[* * *] (d) the hotel is for the time being approved for the purposes of this sub-section by the Central Government; 4[(e)the business of the hotel starts functioning on or after the 1st day of April, 1961, but before the 1st day of April, 1981.] 5[Explanation.-Where in the case of the business of a hotel, any building, or any part thereof, previously used as a hotel, or any machinery or plant, or any part thereof, previously used for any purpose, is transferred to a new business and the total value of the building, machinery or plant or part so transferred does not exceed twenty per cent of the total value of the building, machinery or plant used in the business, then, for the purposes of clause (a) of this sub-section, the condition specified therein shall be deemed to have been complied with and the total value of the building, machinery or plant or part so transferred shall not be taken into account in computing the capital employed in the business of the hotel.] ----------------------------------------------------------------------- 1 Substituted for "twenty-eight" by the Finance Act, 1975, w.e.f. 1-4-1975 which was substituted for "twenty-three" by the Finance Act, 1969, w.e.f. 1-4-1969. 2 The words "starts functioning on or after the 1st day of April, 1961, and" omitted by the Finance Act, 1975, w.e.f. 1-4-1975. 3 Omitted by the Finance Act, 1973, w.e.f 1-4-1974. 4 Inserted by the Finance Act, 1975, w.e.f. 1-4-1975. 5 Substituted by the Finance Act, 1975, w.e.f. 1-4-1976. ------------------------------------------------------------------------ 1.405 1[(6A) Where the assessee is a person other than a company or a

cooperative society, the deduction under sub-section (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the

Explanation below subsection (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.2 (6B) Where any goods held for the purposes of the business of the industrial undertaking or the hotel or the operation of the ship are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carried on by the assessee are transferred to the business of the industrial undertaking or the hotel or the operation of the ship and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the business of the industrial under-taking or the hotel or the operation of the ship does not correspond to the market value of such goods as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of the industrial undertaking or the business of the hotel or the operation of the ship shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date: Provided that where, in the opinion of the 3[Assessing] Officer, the computation of the profits and gains of the industrial undertaking or the business of the hotel or the operation of the ship in the manner hereinbefore specified presents exceptional difficulties, the 4[Assessing] Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-In this sub-section, "market value", in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market. (6C) Where it appears to the 5[Assessing] Officer that, owing to the close connection between the assessee carrying on the business of the industrial undertaking or the hotel or the operation of the ship to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial undertaking or the hotel or the operation of the ship, the 6[Assessing] Officer shall, in computing the profits and gains of the industrial undertaking or the hotel or the ship for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1975, w.e.f. 1-4-1976. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Ibid. ---------------------------------------------------------------------- 1.406

(7)The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial under-takings with effect from such date as it may specify in the notification.] 1[80JJ. Deduction in respect of profits and gains from business of poultry farming Where the gross total income of an assessee includes any profits and gains derived from business of poultry fanning, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to thirty-three and one-third per cent thereof.] 2[80JJA. Deduction in respect of profits and gains from business of growing mushrooms.-Omitted by the Finance Act, 1983, w.e.f 1-4- 1984. It was inserted by the Finance Act, 1979, w.e.f. 1-4-1980.] 3[80K. Deduction in respect of dividends attributable to profits and gains from new industrial undertakings or ships or hotel business.Omitted by the Finance Act, 1986, w.e.f 1-4-1987. Original section was ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. Earlier, section 80JJ, as inserted by the Finance Act, 1975, w.e.f. 1-4-1976; amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981 and the Finance Act, 1983, w.e.f. 1-4-1984 and omitted by the Finance Act, 1985, w.e.f. 1-4-1986, read as under: "80JJ. Deduction in respect of profits and gains from business of livestock breeding or poultry or dairy farming.-Where the gross total income of an assessee includes any profits and gains derived from a business of livestock breeding, or poultry or dairy farming, there shall be allowed, in computing the total income of the assessee, a deduction as specified hereunder, namely- (a)in a case where the amount of such profits and gains does not exceed, in the aggregate, fifteen thousand rupees, the whole of for each amount; and (b)in any other case, fifteen per cent of the aggregate amount of such profits and gains or fifteen thousand rupees, whichever is higher: Provided that in computing the aggregate amount of such profits and gains in a case where the profits and gains derived from a business of poultry farming exceed one hundred thousand rupees, such excess shall be ignored." 2 Prior to the omission, section 80JJA read as under: "80JJA. Deduction in respect of profits and gains from business of growing mushrooms.-Where the gross total income of an assessee includes any profits and gains derived from a business of growing mushrooms, not being profits and gains that are in the nature of agricultural income, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to one-third of such profits and gains or ten thousand rupees, whichever is less." 3 Prior to the omission, section 80K, as substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1968 and amended by the Finance Act, 1975, w.e.f. 1-4-1975, ----------------------------------------------------------------------- 1.407 inserted, in place of section 85 which was deleted, by the Finance (No. 2) Act, 1967, w.e.f 1-4-1968.] 1[80L. Deductions In respect of interest on certain securities, dividends, etc. 2

(1) 3[Where the gross total income of an assessee, being- (a) an individual, or (b) a Hindu undivided family, 4[* * * ] 5[(c) omitted by the Finance Act, 1994, w.re.f. 1-4- 1968.] includes any income by way of-] (i) interest on any security of the Central Government or a State Government 6[* * *]; -> -> read as under: "80K. Deduction in respect of dividends attributable to profits and gains from new industrial undertakings or ships or hotel business.-Where the gross total income of an assessee, being- (a) the owner of any share or shares in a company, or (b) a person who is chargeable to tax under this Act on the income byway dividends on any share or shares in a company owned by any other per-son, includes any income by way of dividends paid or deemed to have been paid by the company in respect of such share or shares, there shall, subject to any rules that may be made by the Board in this behalf, be allowed, in computing his total income, a deduction from such income by way of dividends of an amount equal to such part thereof as is attributable to the profits and gains derived by the company from an industrial undertaking or ship or the business of a hotel, on which no tax is payable by the company under this Act for any assessment year commencing prior to the 1st day of April, 1968, or in respect of which the company is entitled to a deduction under section 80J for the assessment year commencing on the 1st day of April, 1968, or for any subsequent assessment year: Provided that no deduction under this section shall be allowed in respect of any income by way of dividends which is attributable to the profits and gains derived by the company from an industrial undertaking which begins to manufacture or produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976, or from a ship which is first brought into use after that date or from the business of a hotel which starts functioning after that date." 1 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. Earlier, section 80L was inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4- 1968 and substituted by the Finance Act, 1968, w.e.f. 1-4 3 Substituted for "Where the gross total income of an assessee includes any income by way of"- by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 4 The word "or" omitted by the Finance Act, 1994, w.r.e.f. 1-4-1968. 5 Prior to the omission, clause (c) read as under: "(c) an association of persons or a body of individuals consisting in either case only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu," The italicised words were inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1972. 6 The words "(not being interest payable under section 280D in respect of any annuity deposit made under Chapter XXII-A)" omitted by the Finance Act, 1988. w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.408 1[(ia) interest on National Savings Certificates (VI Issue) or National Savings Certificates (VII Issue) or National Savings Certificates (VIII Issue) issued under the Government Savings Certificates Act, 1959 (46 of 1959);] 2[(ii) interest on such debentures, issued by any institution or authority or any public sector company, or any co-operative society (including a co-operative land mortgage bank or a co-operative land development bank), as the Central Government may, by notification 3 in the Official Gazette, specify in this behalf; 4[Explanation.-Omitted by the Finance Act, 1987, w.e.f. 1-4-1987.]] 5[(iia) 6interest on deposits under such National Deposits Scheme as may be framed by the Central Government and notified by it in this behalf in the Official Gazette;] (iii) 7interest on deposits under any 8[other] scheme framed by the Central Government and notified by it in this behalf in the Official Gazette; 9[(iiia) interest on deposits under the Post Office (Monthly Income Account) Rules, 1987;] (iv) dividends from any Indian company; (v) income received in respect of units from the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); 10[(va) income received in respect of units of a Mutual Fund specified under clause (23D) of section 10;] ----------------------------------------------------------------------- 1 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to the substitution, clause (ia), as inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.r.e.f. 1-4-1988, read as under: "(ia) interest on National Savings Certificates (VI Issue) and National Savings Certificates (VII Issue) issued under the Government Savings Certificates Act, 1959 (46 of 1959);" 2 Substituted by the Finance Act, 1986, w.e.f. 1-4-1987. 4 Prior to the omission, the Explanation, substituted by the Finance Act, 1986, w.e.f. 1-4-1987, read as under: "Explanation.-For the purposes of this clause, "public sector company" means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);" 5 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 7 The Scheme of Post Office (Time Deposits) governed by the Post Office (Time Deposits) Rules, 1970 and The Scheme of Post Office (Recurring Deposits) governed by the Post Office (Recurring Deposits) Rules, 1970 [vide Notification No. 2879, dated 1-9-1970] and the National Savings Scheme, 1992 [vide GSR 820(E), dated 21-10-1992] have been notified. 8 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 9 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 10 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.409 (vi) interest on deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) or a co- operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); 1[* * *] 2[(via) interest on deposits with any such bank, not being a banking company or a co-operative society referred to in clause (vi) but being a bank established by or under any law made by Parliament, as may be approved3 by the Central Government for the purposes of this clause;] 4[(Vii) interest on deposits with a financial corporation which is engaged in providing long-term finance for industrial development in India 5[* * *]: Provided that the corporation 6[* * *] is for the time being approved by the Central Government for the purposes of clause

(viii) of sub-section (1) of section 36;] 7[(viia) interest on deposits with any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning development or improvement of cities, towns and villages, or for both;] 8[(viii) interest on deposits with a co-operative society, not being a cooperative society referred to in clause (vi), made by a member of the society;] 9[or] 10[(ix) dividends from any co-operative society;] 11[(x) interest on deposits with, or dividend received from, any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes: Provided that the company is for the time being approved by the Central Government for the purpose of clause (viii) of

subsection (1) of section 36,] ---------------------------------------------------------------------- 1 The word "or" omitted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 2 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 4 Substituted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 5 The words "or with a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes" omitted by the Finance Act, 1988, w.e.f. 1-4-

6 The words "or, as the case may be, the company" omitted, ibid. 7 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 8 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 9 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 10 Ibid. 11 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. --------------------------------------------------------------------- 1.410 there shall, in accordance with and subject to the provisions of this section be allowed, in computing the total income of the assessee, a deduction as specified hereunder, namely:-

1[(1)] in a case where the amount of such income does not exceed in the aggregate 2[ten] thousand rupees, the whole of such amount; and

3F(2)] in any other case, 4[ten] thousand rupees: 5[Omitted by the Finance Act, 1983, w.e.f 1-4-1984.] 6[Omitted by the Finance Act, 1992, w.e.f 1-4-1993.] ----------------------------------------------------------------------- 1 Substituted for "(a)" by the Finance Act, 1982, w.e.f. 1-4-

2 Being substituted by "thirteen" by the Finance Act, 1995, w.e.f. 1-4-1996. Earlier "ten" was substituted for "seven" by the Finance Act, 1993, w.e.f. 1-4-1994; "seven" was substituted for "four" by the Finance Act, 1983, w.e.f. 1-4-1984 which was substituted for "three" by the Finance Act, 1982, w.e.f. 1-4-1983. 3 Substituted for "(b)" by the Finance Act, 1982, w.e.f. 1-4-

4 Being substituted by "thirteen" by the Finance Act, 1995, w.e.f. 1-4-1996. Earlier, "ten" was substituted for "seven" by the Finance Act, 1993, w.e.f. 1-4-1994; "seven" was substituted for "four" by the Finance Act, 1983, w.e.f. 1-4-1984 which was substituted for "three" by the Finance Act, 1982, w.e.f. 1-4-1983. 5 Prior to the omission, the proviso, as inserted by the Finance Act, 1982, w.e.f. 1-4-1983, read as under: "Provided that where the gross total income of the assessee includes any income by way of interest on any security referred to in clause (i) or interest on any deposits referred to in clause (vi) (being deposits for a period of one year or more), there shall be allowed in computing the total income of the assessee a further deduction of an amount equal to so much of the income by way of such interest as has not been allowed by way of deduction under the foregoing provisions of this sub-section; so, however, that the amount of such further deduction shall not exceed two thousand rupees:" 6 Prior to the omission, the first and second provisos, as substituted by the Finance Act, 1988, w.e.f. 1-4-1989, read as under: "Provided that where the gross total income of the assessee includes any income by way of interest on any deposits referred to in clause (iia), or income in respect of units referred to in clause (v) or clause (va), or income by way of interest or dividend referred to in clause (x), there shall be allowed in computing the total income of the assessee, a further deduction of an amount equal to so much of such income as has not been allowed by way of deduction under the foregoing provisions of this sub-section; so, however, that the amount of such further deduction shall not exceed three thousand rupees: Provided further that where any income by way of interest on any deposits referred to in clause (iia) or any dividends referred to in clause (iv) remains unallowed after the deduction under the foregoing provisions of this section, there shall be allowed in computing the total income of the assessee, an additional deduction of an amount equal to so much of such income as has remained unallowed; so, however, that the amount of such additional deduction shall not exceed three thousand rupees." Prior to the substitution, the provisos, as inserted by the Finance Act, 1984, w.e.f. 1-4-1985, read as under: "Provided that where the gross total income of the assessee includes any income by way of interest on any deposits referred to in clause (iia), or income in respect of units referred to in clause (v), there shall be allowed in computing the total income of the assessee a further deduction of an amount equal to so much of such income as has not been allowed by way of deduction under the foregoing provisions of this sub-section; so, however, that the amount of such further deduction shall not exceed three thousand rupees: ---------------------------------------------------------------------- 1.411 1[Explanation.-For the purposes of this sub-section, the expression "security" means a Government security as defined in clause

(2) of section 22 of the Public Debt Act, 1944 3 (18 of 1944).]

4 [(2) Omitted by the Finance Act, 1986, w.e.f 1-4-1987.]

5 [(3) For the removal of doubts, it is hereby declared that

where the income referred to in sub-section (1) is derived from any asset held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under the said sub- section in respect of such income in computing the total income of any partner of the firm or any member of the association or body.] ---------------------------------------------------------------------- -> -> Provided further that where any income by way of interest on any deposits referred to in clause (iia) remains unallowed after the deduction under the foregoing provisions of this section, there shall be allowed in computing the total income of the assessee, an additional deduction of an amount equal to so much of such income as has remained unallowed; so, however, that the amount of such additional deduction shall not exceed two thousand rupees." 1 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.

2 Section 2(2) of the Public Debt Act, 1944 defines government security as under:

"(2) "Government security" means- (a) a security, created and issued, by the Government for the purpose of raising a public loan, and having one of the following forms, namely:- (i) stock transferable by registration in the books of the Bank; or (ii) a promissory note payable to order; or (iii)a bearer bond payable to bearer, or (iv) a form prescribed in this behalf; (b) any other security created and issued by the Government in such form and for such of the purposes of this Act as may be prescribed."

4 Prior to the omission, sub-section (2) read as under:

"(2) In a case where the assessee is entitled also to the deduction under section 80K in relation to the whole or any part of the income by way of dividends referred to in clause (iv) of sub-

section (1), only so much of such income by way of dividends as may remain after the deduction under section 80K shall be taken into account for the purpose of allowing the deduction under sub-section

(1)." 5 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1976. ---------------------------------------------------------------------- 1.412 1[80M. Deduction in respect of certain inter-corporate dividends2

(1) Where the gross total income of a domestic company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to,- (i) in the case of a scheduled bank or a public financial institution or a State financial corporation or a State industrial investment corporation or a company registered under section 25 of the Companies Act, 1956 (1 of 1956), sixty per cent of the income by way of dividends from another domestic company; (ii) in the case of any other domestic company, so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first mentioned domestic company on or before the due date: 3[Provided that where any domestic company receives any income by way of dividend from the units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), such domestic company shall, subject to the aforesaid provisions, be eligible for deduction to the extent of- (a) four-fifth of such income in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1994; (b) two-fifth of such income in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1995, and no deduction shall be allowed on such income in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1996 and any subsequent previous year.]

(2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under clause

(ii) of sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.

(3) Where the dividend distributed is in respect of any period comprised in the previous year ending on the 31st day of March, 1990, no deduction shall be allowed in respect of such dividend. ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Prior to the substitution, section 80M, as substituted by the Finance Act, 1986, w.e.f. 1-4-1987, read as under: "80M. Deduction in respect of certain inter-corporate dividends.-Where the gross total income of an assessee, being a domestic company, includes any income by way of dividends from a domestic company, there shall be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to sixty per cent of such income." Earlier, section 80M was inserted in place of section 85A (inserted by the Finance Act, 1965, w.e.f. 1-4-1965) by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. It was amended by the Finance Act, 1968, w.e.f. 1-4-1968; Finance Act, 1970, w.e.f. 1-4-1971; Finance (No. 2) Act, 1971, w.e.f. 1-4-1972; Finance Act, 1975, w.e.f. 1-4-1976; Finance Act, 1976, w.e.f. 1-4-1977; Finance Act, 1981, w.e.f. 1-4- 1982; Finance Act, 1982, w.e.f. 1-4-1983 and Finance Act, 1984, w.e.f. 1-4-1985. 3 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. --------------------------------------------------------------------- 1.413 Explanation.-For the purposes of this section, the expressions- (i) "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 1 (40 of 1980), or any other bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) and which is a domestic company; (ii) "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 2 (1 of 1956); (iii) "State financial corporation" and "State industrial investment corporation" shall have the same meanings as in section 43B; (iv) "due date" means the date for furnishing the

return of income under sub-section (1) of section 139.] 3 [80MM. Deduction in the case of an Indian company in respect of royalties, etc., received from any concern in India.-Omitted by the Finance Act 1983, w.e.f 1-4-1984. It was inserted by the Finance Act, 1969, w.e.f 1-4-1970.] -------------------------------------------------------------------- 2 Ibid. 3 Prior to the omission, section 80MM, as amended by the Finance Act, 1970, w.e.f. 1-4-1970; the Finance (No. 2) Act, 1971, w.e.f. 1-4- 1972 and the Finance Act, 1974, w.e.f. 1-4-1975, read as under: "80MM. Deduction in the case of an Indian company in respect of

royalties, etc. received from any concern in India.-(1) Where the gross total income of an assessee, being an Indian company, includes any income by way of royalty, commission, fees or any other payment (not being income chargeable under the head "Capital gains"), received by the assessee from any person carrying on a business in India in consideration for- (i) the provision of technical know-how which is likely to assist in the manufacture or processing of goods or materials, or in the installation or erection of machinery or plant for such manufacture or processing, or in the working of a mine, oil well or other source of mineral deposits, or in the search for, or discovery or testing of, mineral deposits or the winning of access to them, or in carrying out any operation relating to agriculture, animal husbandry, dairy or poultry farming, forestry or fishing, or (ii) rendering services in connection with the provision of such technical know how, under an agreement entered into by the assessee with such person on or after the 1st day of April, 1969, and approved by the Board in this behalf, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction from such income of an amount equal to forty per cent thereof, in computing the total income of the assessee: -> -> ------------------------------------------------------------------------ 1.414 1[80N. Deduction in respect of dividends received from certain foreign companies.-Omitted by the Finance Act, 1985, w.e.f 1-4-1986. It was inserted by the Finance (No. 2) Act, 1967, w.e.f 1-4-1968 in place of section 85B which was inserted by the Finance Act, 1966, w.e.f 1-4-1966.] ----------------------------------------------------------------------- -> -> Provided that the application for such approval is made to the Board before the 1st day of October of the relevant assessment year: Provided further that approval of the Board shall not be necessary in the case of any such agreement which has been approved for the purposes of the deduction under this sub-section by the Central Government before the 1st day of April, 1972, and every application for such approval of any such agreement pending with the Central Government immediately before that day shall stand transferred to the Board for disposal.

(2) For the purposes of this section "provision of technical know-how" means,- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or similar property; (iv) the imparting of any information concerning industrial, commercial or scientific knowledge, experience or skill.

(3) The provisions of sub-section (1) shall not apply in relation to any income in respect of which the assessee is entitled to the deduction specified in section 80-O." 1 Prior to the omission, section 80N, as amended by the Finance Act, 1968, w.e.f. 1-4-1969; the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972; the Finance Act, 1974, w.r.e.f. 1-4-1969/w.e.f. 1-4-1975 and the Finance Act, 1984, w.e.f. 1-4-1985, read as under: "80N. Deduction in respect of dividends received from certain foreign companies.Where shares in a foreign company have been allotted to an assessee, being an Indian company, in consideration of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to the foreign company by the assessee, or in consideration of technical services rendered or agreed to be rendered to the foreign company by the assessee, under an agreement approved by the Board in this behalf, and any income by way of dividend on such shares included in the gross total income of the assessee is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed a deduction of an amount equal to fifty per cent of the income so received in, or brought into, India, in computing the total income of the assessee: Provided that the application for such approval is made to the Board before the 1st day of October of the relevant assessment year: Provided further that the approval of the Board shall not be necessary in the case of any such agreement which has been approved for the purposes of the deduction under this section by the Central Government before the 1st day of April, 1972, and every application for such approval of any such agreement pending with the -> -> ---------------------------------------------------------------------- 1.415 1[80-O. Deduction in respect of royalties, etc., from certain foreign enterprises2 3[Where the gross total income of an assessee, being an Indian company 4[or a person (other than a company) who is resident in India],] includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical 5[or professional] services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, 6[* * *]; 7 Land such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there ----------------------------------------------------------------------- -> ->Central Government immediately before that day shall stand transferred to the Board for disposal. Explanation.-For the purposes of this section,- (i) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the law for the time being in force for regulating payments and dealings in foreign exchange; (ii) any income used by the assessee outside India in the manner permitted by the Reserve Bank of India shall be deemed to have been brought into India in accordance with the law for the time being in force for regulating payments and dealings in foreign exchange, on the date on which such permission is given." 1 Substituted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. Earlier, it was inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4- 1968 in place of section 85C which was inserted by the Finance Act, 1966, w.e.f. 1-4-1966. Section 80-0 was also amended by the Finance Act, 1968, w.e.f. 1-4-1969.

3 Substituted for "(1) Where the gross total income of an assessee, being an Indian company or a person (other than a company) who is resident in India," by the Finance Act, 1974, w.e.f. 1-4-1975. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 5 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 6 The words "under an agreement approved in this behalf by the Chief Commissioner or the Director General" omitted, ibid. Earlier, these words were substituted for "under an agreement approved by the Board in this behalf" by the Finance Act, 1988, w.e.f. 1-4-1989. 7 Substituted for "and such income is received in convertible foreign exchange in India, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in India in computing the total income of the assessee" by the Finance Act, 1988, w.e.f. 1-4-1988. These words restore the provision as it stood prior to the substitution by the Finance Act, 1987, w.e.f. 1-4-1988. Earlier, it was amended by the Finance Act, 1974, w.r.e.f. 14-1972 and the Finance Act, 1984, w.e.f. 1-4-1985. ---------------------------------------------------------------------- 1.416 shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into, India, in computing the total income of the assessee]: 1[Provisos omitted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1992.] 2[Provided 3[* * *] that such income is received in India within a period of six months from the end of the previous year, or where the 4[Chief Commissioner or Commissioner] is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the 5[Chief Commissioner or Commissioner] may allow in this behalf.] 6[Explanation.-For the purposes of this section,- (i) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the law for the time being in force for regulating payments and dealings in foreign exchange; 7[(ii) "foreign enterprise" means a person who is a non- resident.]] 8[(iii) services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India.] ----------------------------------------------------------------------- 1 Prior to the omission, the first and second provisos, as substituted by the Finance Act, 1988, w.e.f. 1-4-1989, read as under: "Provided that the application for the approval of the agreement referred to in this section is made to the Chief Commissioner or, as the case may be, the Director General in the prescribed form and verified in the prescribed manner before the 1st day of October of the assessment year in relation to which the approval is first sought: Provided further that the approval of the Chief Commissioner or, as the case may be, the Director General shall not be necessary in the case of any such agreement which has been approved for the purposes of the deduction under this section by the Central Government before the 1st day of April, 1972, or by the Board before the 1st day of April, 1989, and every application for such approval of any such agreement pending with the Board immediately before the 1st day of April, 1989 shall stand transferred to the Chief Commissioner or the Director General for disposal:" 2 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 3 The word "also" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 4 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Ibid. 6 Substituted by the Finance Act, 1985, w.e.f. 1-4-1986. Prior to the substitution, the Explanation, as inserted by the Finance Act, 1974, w.r.e.f. 1-4-1972, read as under: "Explanation.-The provisions of the Explanation to section 8ON shall apply for the purposes of this section as they apply for the purposes of that section." 7 Substituted by the Finance Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, clause (ii) read as under: "(ii)any income used by the assessee outside India in the manner permitted by the Reserve Bank of India shall be deemed to have been brought into India in accordance with the law for the time being in force for regulating payments and dealings in foreign exchange, on the date on which such permission is given." 8 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. --------------------------------------------------------------------- 1.417

1[(2) * * * 2[80P. Deduction in respect of income of co-operative societies

(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in

sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-

section (2), in computing the total income of the assessee.

(2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in- 3(i)carrying on the business of banking or providing credit facilities to its members, or (ii)a cottage industry, or (iii)the marketing of the agricultural produce of its members, or (iv)the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members 4 [or] ----------------------------------------------------------------------- 1 Omitted by the Finance Act, 1974, w.e.f. 1-4-1975. 2 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 in place of section 81 which was simultaneously deleted. 4 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. ----------------------------------------------------------------------- 1.418 Sec. 80P 1[(vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities: 2[Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:-

(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities;

(2) the co-operative credit societies which provide financial assistance to the society;

(3) the State Government;] 3[(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oil seeds, fruits or vegetables raised or grown by its members to- (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii)a Government company as defined in section 617 of the Companies Act, 1956 4 ( 1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business;] (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 2 Ibid. 3 Substituted by the Finance Act, 1983, w.e.f. 1-4-1984. Prior to the substitution, clause (b), as substituted by the Finance Act, 1978, w.e.f. 1-4-1979, read as under: "(b) In the case of a co-operative society, being a primary society engaged in Supplying milk raised by its members to- (i)a federal milk co-operative society; or (ii)the Government or a local authority; or (iii)a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk to the public), the whole of the amount of profits and gains of such busin 1.419 specified), so much of its profits and gains attributable to such activities as 1[does not exceed,- (i) where such co-operative society is a consumers' co-operative society, forty thousand rupees; and (ii) in any other case, twenty thousand rupees. Explanation.-In this clause, "consumers" co-operative society" means a society for the benefit of the consumers;] (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities 2[* * *1 or any income from house property chargeable under section 22. Explanation.-For the purposes of this section an "urban consumers' co-operative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.

(3) In a case where the assessee is entitled also to the deduction under 3[* * *] 4 [section 80HH] 5[or section 80HHA] 6[or section 80HHB] 7[or section 80HHC] 2[or section 80HHD] 9[or section 80-1] 10[or section 80IA] or section 80J 11[or section 80JJ] 12[* *

*], the deduction under subsection (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-

section (2), shall be allowed with reference to the income, if any, as referred to in those clause included in ----------------------------------------------------------------------- 1 Substituted for "does not exceed twenty thousand rupees" by the Finance Act, 1979, w.e.f. 1-4-1980. The italicised words were substituted for "fifteen thousand" by the Finance Act, 1969, w.e.f 1-4-1970. 2 The words "chargeable under section 18" omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 The words "section 80H or" omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 4 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974. 5 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 6 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 7 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 8 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

9 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 10 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1991. 11 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. Earlier, the words "or section 80JJ" were Inserted by the Finance Act, 1975, w.e.f. 1-4-1976 and omitted by the Finance Act, 1985, w.e.f. 1-4-1986. 12 The words "or section 80JJA" omitted by the Finance Act, 1983, w.e.f. 1-4-1984. They were inserted by the Finance Act, 1979, w.e.f. 1-4-1980. --------------------------------------------------------------------- 1.420 the gross total income as reduced by the deductions under 1[* * *] 2[section 80HH,] 3[section 80HHA,] 4 [section 80HHB,] 5[section 80HHC,] 6[section 80HHD,] 7[section 80-1,] 8[section 80-IA,] 9[10[section 80J and 80JJ]].]

11[(4) * * *] 12[80Q. Deduction in respect of profits and gains from the business of publication of books 13

(1) Where in the case of an assessee the gross total income of the previous year relevant to the assessment year commencing on the 1st day of April, 1992, or to any one of the four assessment years next following that assessment year, includes any profits and gains derived from a business carried on in India of printing and publication of books or publication of books, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof. ---------------------------------------------------------------------- 1 The words "section 80H," were omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 2 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974. 3 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 4 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 5 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 6 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

7 Inserted by the Finance Act, 1981, w.e.f.1-4-1981. 8 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1991. 9 Substituted for "section 80J and section 80JJ" by the Finance Act, 1985, w.e.f. 1-4-1986. Earlier, these words were substituted for "section 80J, section 80JJ and section 80JJA" by the Finance Act, 1983, w.e.f. 1-4-1984 which were substituted for "section 80J and section 80JJ" by the Finance Act, 1979, w.e.f. 1-4-1980 and these were substituted for land section 80J" by the Finance Act, 1975, w.e.f. 1-4-1976. 10 Substituted for "and section 80J" by the Finance Act, 1989, w.e.f. 1-4-1990. 11 Omitted by the Finance Act, 1969, w.e.f. 1-4-1970. 12 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Earlier, section 800 was inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 in place of section 82. It was omitted by the Finance Act, 1972, w.e.f. 1-4-1972. 1.421

(2)In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHC or section 80-1 or section 80-IA or section 80J or section 80P, in relation to any

part of the profits and gains referred to in sub-section (1), the

deduction under subsection (1) shall be allowed with reference to such profits and gains included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80HHC, section 80-1, section 80IA, section 80J and section 80P.

(3)For the purposes of this section, "books" shall not include newspapers, journals, magazines, diaries, brochures, tracts, pamphlets and other publications of a similar nature by whatever name called.] 1[80QQ. Deduction in respect of profits and gains from the business of publication of books.-Omitted, by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989. It was inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f 1-4-1971.] 2 [80QQA. Deduction in respect of professional income of authors of text books in Indian languages

(1) Where, in the case of an individual resident in India, being an author, the gross total income of the previous year relevant to the assessment year 3[commencing on- (a) the 1st day of April, 1980, or to any one of the nine assessment years next following that assessment year; or (b) the 1st day of April, 1992, or to any one of the four assessment years next following that assessment year, ----------------------------------------------------------------------- 1 Prior to the omission, section 800Q, as amended by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974; Finance Act, 1975, w.e.f. 1-4- 1975; Taxation Laws (Amendment) Act, 1975, W.e.f. 1-4-1976; Finance (No. 2) Act, 1977, w.e.f. 1-4-1978; Finance Act, 1979, w.e.f. 1-4-1980 and Finance Act, 198 1, w.e.f. 1-4-198 1, read as under: "80QQ. Deduction in respect of profits and gains from the

business of publication of books.-(1) Where in the case of an assessee the gross total income of the previous year relevant to the assessment year commencing on the 1st day of April, 1971, or to any one of the fourteen assessment years next following that assessment year, includes any profits and gains derived from a business carried on in India of printing and publication of books or publication of books, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof.

(2) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80-1 or section 80J or section 80P, in relation to any part of the profits and

gains referred to in sub-section (1), the deduction under section (1) shall be allowed with reference to such profits and gains included in the gross total income as reduced by the deductions under section 80HH, section 80HHA, section 80-1, section 80J and section 80P.

(3) For the purposes of this section, "books" shall not include newspapers, journals, magazines, diaries, brochures, tracts, pamphlets and other publications of the similar nature, by whatever name called.] 2 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980. 3 Substituted for "commencing on the 1st day of April, 1980, or to any one of the nine assessment years next following that assessment year, includes" by the Finance (No.- 2) Act, 1991, w.e.f. 1-4-1992. Earlier, "nine" was substituted for "four" by the Finance Act, 1985, w.e.f. 1-4-1985. ----------------------------------------------------------------------- 1.422 includes] any income derived by him in the exercise of his profession on account of any lump sum consideration for the assignment or grant of any of his interests in the copyright of any book, or of royalties or copyright fees (whether receivable in lump sum or otherwise) in respect of such book, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income of an amount equal to twenty-five per cent thereof.

(2) No deduction under sub-section (1) shall be allowed unless- (a) the book is either in the nature of a dictionary, thesaurus or encyclopaedia or is one that has been prescribed or recommended as a text book, or included in the curriculum, by any University, for a degree or post- graduate course of that University; and (b) the book is written in any language specified in the Eighth Schedule to the Constitution or in any such other language as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the need for promotion of publication of books of the nature referred to in clause (a) in that language and other relevant factors. Explanation.-For the purposes of this section,- (i) "author" includes a joint author; (ii) "lump sum", in regard to royalties or copyright fees, includes an advance payment on account of such royalties or copyright fees which is not returnable; (iii)"University" shall have the same meaning as in the Explanation to clause (ix) of section 47.] 1[80R. Deduction in respect of remuneration from certain foreign sources in the case of professors, teachers, etc. Where the gross total income of an individual who is a citizen of India includes any remuneration received by him outside India from any University or other educational institution established outside India or 2[any other association or body established outside India], for any service rendered by him during his stay outside India in his capacity as a professor, teacher or research worker in such University, institution, association or body, there shall be 3[allowed, in computing the total income of the individual, a deduction from such remuneration of an amount equal to,- (i) fifty per cent of the remuneration; or (ii) seventy-five per cent of such remuneration as is brought into India by, or on behalf of, the assessee in accordance with the Foreign ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1967, w.e.f. 1-4-1968 in place of section 80F which was deleted. 2 Substituted for "such other association or body established outside India as may be notified in this behalf by the Central Government in the Official Gazette" by the Finance Act, 1983, w.e.f. 1-4-1984. 3 Substituted for the words "allowed a deduction from such remuneration of an amount equal to fifty per cent thereof, in computing the total income of the individual:" by the Finance Act, 1990, w.e.f. 1-4-1991. ----------------------------------------------------------------------- 1.423 Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder, whichever is higher). 1[Omitted by the Finance Act, 1990, w.e.f 1-4-1991.] 2[80RR. Deduction in respect of professional income from foreign sources in certain cases3 Where the gross total income of an individual resident in India, being an author, playwright, artist, 4 [musician, actor or sportsman (including an athlete)] includes any income derived by him in the exercise of his profession from the Government of a foreign State or any person not resident in India, 5[there shall be allowed, in computing the total income of the individual, a deduction from such income of an amount equal to,- (i) fifty per cent of the income; or (ii) seventy-five per cent of such income as is brought into India by, or on behalf of, the assessee in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any rules made thereunder, whichever is higher.] 6 [80RRA. Deduction in respect of remuneration received for services rendered outside India7

(1) Where the gross total income of an individual who is a citizen of India includes any remuneration received by him in foreign currency from ---------------------------------------------------------------------- 1 Prior to the omission, the proviso read as under: "Provided that where the individual renders continuous service outside India in such University, institution, association or body for a period exceeding thirty-six months, no deduction under this section shall be allowed in respect of the remuneration for such service relating to any period after the expiry of the thirty-six months aforesaid." 2 Inserted by the Finance Act, 1969, w.e.f. 1-4-1970. 4 Substituted for "musician or actor" by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. 5 Substituted for "and such income is received in, or brought into, India by him or on his behalf in accordance with the Foreign Exchange Regulation Act, 1947 (7 of 1947), and any rules made thereunder, there shall be allowed a deduction from such income of an amount equal to twenty-five per cent of the income so received or brought, in computing the total income of the individual" by the Finance Act, 1990, w.e.f. 1-4-1991. 6 Substituted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. It was inserted by the Finance Act, 1973, w.e.f. 1-4-197 1.424 any employer (being a foreign employer or an Indian concern) for any service rendered by him outside India, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the individual, a deduction from such remuneration 1[of an amount equal to,- (i) fifty per cent of the remuneration; or (ii) seventy-five per cent of such remuneration as is brought into India by, or on behalf of, the assessee in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder, whichever is higher]: 2[Omitted by the Finance Act, 1990, w.e.f 1-4-1991.)

(2) The deduction under this section shall be allowed- (i) in the case of an individual who is or was, immediately before undertaking such service, in the employment of the Central Government or any State Government, only if such service is sponsored by the Central Government; (ii) in the case of any other individual, only if he is a technician and the terms and conditions of his service outside India are approved in this behalf by the Central Government or the prescribed authority. Explanation.-For the purposes of this section,- (a) "foreign currency" shall have the meaning assigned to it in the Foreign Exchange Regulation Act, 1973 3 (46 of 1973); (b) "foreign employer" means,- (i) the Government of a foreign State; or (ii) a foreign enterprise; or (iii) any association or body established outside India; (c) "technician" means a person having specialised knowledge and experience in- (i) constructional or manufacturing operations or mining or the generation or distribution of electricity or any other form of power; or (ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building; or (iii)public administration or industrial or business management; or (iv) accountancy; or ---------------------------------------------------------------------- 1 Substituted for "of an amount equal to fifty per cent thereof" by the Finance Act, 1987, w.e.f. 1-4-1988. 2 Prior to the omission, it read as under: "Provided that where the individual renders continuous service outside India under or for such employer for a period exceeding thirty-six months, no deduction under this section shall be allowed in respect of the remuneration for such service relating to any period after the expiry of the thirty-six months aforesaid." 1.425 (v) any field of natural or applied science (including medical science) or social science; or (vi) any other field which the Board may prescribe in this behalf, who is employed in a capacity in which such specialised knowledge and experience are actually utilised.] The relationship of employer-employee/master-servant should exist between the assessee and the payer of the remuneration. Individuals who render service outside India in the capacity of independent contractors or consultants are not eligible for the deduction. Seamen working as marine engineers, radio officers masters, mates, pursers or captains are to be regarded as technicians. Helpers to masons who assist in concrete mixing, RCC work, etc. and other persons similarly placed will be regarded as technicians. If the service is for a period not exceeding 36 months there is no bar to the same individual claiming the deduction in respect of any subsequent employment after he had served the same employer-. Where the services outside India are performed under different employers the period of service under these employers cannot be clubbed together so as to deny the benefit of deduction-as the services under different employers would be under different agreements. Remuneration received by seamen outside India in foreign exchange for services rendered outside India would qualify for the deduction. 1[80S. Deduction in respect of compensation for termination of managing agency, etc., in the case of assessees other than companies.- Omitted by the Finance Act, 1986, w.e.f 1-4-1987. It was introduced in place of old section 112 by the Finance (No. 2) Act, 1967, w.e.f 1- 4-1968.] ----------------------------------------------------------------------- 1 Prior to the omission, section 80S, as amended by the Finance Act, 1973, w.r.e.f. 1-4-1972, read as under: "80S. Deduction in respect of compensation for termination of managing agency, etc., in the case of assessees other than companies.- Where the gross total income of an assessee not being a company includes any income by way of compensation or other payment which is chargeable as the profits and gains of business or profession in accordance with the provisions of sub-clause (a) or sub-clause (b) or sub-clause (c) of clause (ii) of section 28, there shall be allowed, in computing the total income of the assesses, a deduction from such income of an amount equal to twenty-five per cent thereof, so, however, that the amount of the deduction under this section shall not, in any case, exceed one hundred thousand rupees." ----------------------------------------------------------------------- 1.426 1[80T. Deduction in respect of long-term capital gains in the case of assessees other than companies.-Omitted by the Finance Act, 1987, w.e.f 1-4-1988. It was inserted by the Finance (No. 2) Act, 1967, w.e.f 1-41968 in place of section 114.] 2[80TT. Deduction in respect of winnings from lottery.-Omitted by the ---------------------------------------------------------------------- 1 Prior to the omission, section 80T, as amended by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972; Finance (No. 2) Act, 1974, w.e.f. 1-4-1975; Finance (No. 2) Act, 1980, w.e.f. 1-4-1981; Finance Act, 1982, w.e.f. 1-4-1983 and the Finance Act, 1986, w.e.f. 1-4-1987, read as under: "80T. Deduction in respect of long-term capital gains in the case of assessees other than companies.-Where the gross total income of an assessee not being a company includes any income chargeable under the head "Capital gains" relating to capital assets other than short-term capital assets (such income being, hereinafter, referred to as long-term capital gains), there shall be allowed, in computing the total income of the assessee, a deduction from such income of an amount equal to,- (a) in a case where the long-term capital gains do not exceed ten thousand rupees, the whole of such long-term capital gains; (b) in any other case, ten thousand rupees as increased by a sum equal to- (A) fifty per cent of the amount by which the long- term capital gains relating to capital assets, being buildings or lands or any rights in buildings or lands or gold, bullion or jewellery, exceed ten thousand rupees; (B) sixty per cent of the amount by which the long- term capital gains relating to any other capital assets exceed ten thousand rupees: Provided that where the long-term capital gains relate to- (i)buildings or lands or any rights in buildings or lands; (ii)gold, bullion or jewellery; and (iii) any other capital asset, or to any two of the categories of capital assets mentioned in the foregoing clauses of this proviso (the assets falling under each clause being treated as a separate category), the deduction of ten thousand rupees referred to in this clause shall be allowed in the following order, namely:-

(1) the deduction shall first be allowed against long- term capital gains relating to the assets mentioned in clause (i);

(2) next, where the amount of the long-term capital gains relating to the assets mentioned in clause (i) is less than ten thousand rupees, a deduction equal to the amount of the difference between ten thousand rupees and such capital gains shall be allowed against the long- term capital gains relating to the assets mentioned in clause (ii); and

(3) thereafter, the balance, if any, of the said ten thousand rupees shall be allowed as a deduction against the long-term capital gains relating to the assets mentioned in clause (iii), and the provisions of sub-clause (A) and sub-clause (B) of this clause shall apply as if the references to ten thousand rupees therein were references to the amount of deduction allowed in accordance with

clauses (1), (2) and (3) of this proviso." 2 Prior to the omission, section 80TT, as amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, read as under: "80TT. Deduction in respect of winnings from lottery Where the gross total income of an assessee, not being a company, includes any income by way of winnings from any lottery (such income being hereafter in this section referred to as winnings), there shall be allowed, in computing the total income of the assessee, a deduction from the winnings of an amount equal to,- (a) in a case where the winnings do not exceed five thousand rupees, the whole of such winnings; (b) in any other case, five thousand rupees as increased by a sum equal to fifty per cent of the amount by which the winnings exceed five thousand rupees." ----------------------------------------------------------------------- 1.427 Finance Act, 1986, w.e.f 1-4-1987. It was inserted by the Finance Act, 1972, w.e.f 1-4-1972.] 1[D.-Other deductions [80U. Deduction in the case of permanent physical disability (including blindness)3 In computing the total income of an individual, being a resident, who, at the end of the previous year, is suffering from a permanent physical disability (including blindness) or is subject to mental retardation, being a permanent physical disability or mental retardation specified in the rules made in this behalf by the Board, which is certified by a physician, a surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital, and which has the effect of reducing considerably such individual's capacity for normal work or engaging in a gainful employment or occupation, there shall be allowed a deduction of a sum of 4 [twenty] thousand rupees: ---------------------------------------------------------------------- 1 The sub-chapter 'D' comprising of the only section 80U was inserted by the Finance Act, 1968, w.e.f. 1-4-1969. 2 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to the substitution, section 80U, as substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981; Finance Act,1984, w.e.f. 1-4-1985; Finance Act, 1987, w.e.f. 1-4-1988; Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988 and Finance Act, 1989, w.e.f. 1-4-1990, read as under: "80U. Deduction in the case of totally blind or physically handicapped resident persons.-4 1) In computing the total income of an individual, being a resident, who, as at the end of the previous year,- (i) is totally blind, or (ii) is subject to or suffers from a permanent physical disability (other than blindness) being a permanent physical disability specified in the rules made in this behalf by the Board, and which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation, or (iii)is subject to mental retardation to the extent specified in the rules made in this behalf by the Board, and which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation, there shall be allowed a deduction of a sum of fifteen thousand rupees: Provided that such individual produces before the Assessing Officer, in respect of the first assessment year for which deduction is claimed under this section,- (a) in a case referred to in clause (i), a certificate as to his total blindness from, a registered medical practitioner being an oculist,, (b) in a case referred to in clause (ii), a certificate as to the permanent physical disability refer-red to in the said clause from a registered medical practitioner; and (c) in a case referred to in clause (iii), a certificate as to the mental retardation from a psychiatrist working in a Government hospital.

(2) The Board shall, in making any rules for specifying any disability or mental retardation for the purposes of clause (ii) or

clause (iii), as the case may be, of subsection (1), have regard to the nature of such disability or mental retardation and the effect which such disability or menial retardation is likely to have on the capacity of a person subject thereto, or suffering therefrom, to engage in a gainful employment or occupation." 4 Being substituted by "forty" by the Finance Act, 1995, w.e.f. 1-4-1996. ----------------------------------------------------------------------- 1.428 Provided that such individual produces the aforesaid certificate before the Assessing Officer in respect of the first assessment year for which he claims deduction under this section: Provided further that the requirement of producing the aforesaid certificate from a physician, a surgeon, an oculist or a psychiatrist, as the case may be, working in a Government hospital shall not apply to an individual who has already produced a certificate before the Assessing Officer under the provisions of this section as they stood immediately before the 1st day of April, 1992. Explanation.-For the purposes of this section, the expression "Government hospital" shall have the meaning assigned to it in the Explanation to section 80DD. 1[80V. Deduction from gross total income of the parent in certain cases.-Omitted by the Finance Act, 1994, w.e.f 1-4-1995. It was inserted by the Finance Act, 1993, w.e.f 1-4-1994.] ----------------------------------------------------------------------- 1 Prior to the omission, it read as under: "80V Deduction from gross total income of the parent in certain cases.-Where a minor child, whose income is included in the total income of one of his parents under sub-section (1A) of section 64, is suffering from any disability of the nature specified in section 80U, then, in computing the total income of such parent, there shall be allowed from the gross total income of such parent a deduction of a sum to which such minor child would have been entitled under section 80U had the total income of such minor child been computed separately." Earlier, section 80V, as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and omitted by the Finance Act, 1985, w.e.f. 1-4-1986, read as under: "80V. Deduction of interest on moneys borrowed to pay taxes.-In computing the total income of an assessee, there shall be allowed by way of deduction any interest paid by him in the previous year on any money borrowed for the payment of any tax due from him under this Act." ----------------------------------------------------------------------- 1.429 1[80VV. Deduction in respect of expenses incurred in connection with certain proceedings under the Act.-Omitted by the Finance Act, 1985, w.e.f 1-4-1986. It was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f 1-4-1976.] ---------------------------------------------------------------------- 1 Prior to the omission, it read as under: "80VV. Deduction in respect of expenses incurred in connection with certain proceedings under the Act.-In computing the total income of an assessee, there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any court relating to the determination of any liability under this Act, by way of tax, penalty or interest: Provided that no deduction under this section shall, in any case, exceed in the aggregate five thousand rupees." ---------------------------------------------------------------------- 1.430 CHAP RESTRICTION ON CERTAIN DEDUCTIONS IN THE CASE OF COMPANIES CHAPTER VI-B RESTRICTION ON CERTAIN DEDUCTIONS IN THE CASE OF COMPANIES 1[80VVA. Restriction on certain deductions in the case of companies.- Omitted by the Finance Act, 1987, w.e.f 1-4-1988. It was inserted by the Finance Act, 1983, w.e.f 1-4-1984.] ----------------------------------------------------------------------- 1 Prior to the omission, section 80VVA as amended by the Finance Act, 1985, w.e.f. 1-4-1986 and Finance Act, 1986, w.e.f. 1-4-1987, read as under: "80VVA. Restriction on certain deductions in the case of

companies.-(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company, the amount or, as the case may be, the aggregate amount which, but for the provisions of this section, would have been admissible as deduction for any assessment year under any one or more

of the provisions of this Act specified in sub-section (2) exceeds seventy per cent of the amount of total income as computed had no deduction been allowed under any of the said provisions (such total income being hereinafter referred to as the pre-incentive total income), the amount or, as the case may be, the aggregate amount to be allowed as deduction for that year in respect of any one or more of the said provisions shall be restricted, in the manner specified in

sub-section (3), to seventy per cent of the pre-incentive total income.

(2) The provisions referred to in sub-section (1) shall be the following, namely:-

(i) clause (iii) of sub-section (1) of section 35;

(ii) clause (ia) of sub-section (2) of section 35; (iii) sub-section (2A) of section 35, to the extent to which the deduction under the said sub-section exceeds the sum paid by the assessee; (iv) sub-section (2B) of section 35, to the extent to which the deduction under the said sub-section exceeds the expenditure incurred by the assessee; (v) section 35C; (vi) section 35CC; (vii) section 35CCA; (viii)section 35CCB;

(ix) clause (ii) of sub-section (2) of section 33;

(x) clause (ii) of sub-section (2) of section 33A;

(xi) sub-section (1), or as the case may be, sub-section (1),

read with clause (i) of sub-section (2), of section 33A;

(xii) clause (ii) of sub-section (3) of section 32A;

(xiii) sub-section (1), or, as the case may be, sub-section

(1), read with clause (i) of sub-section (3) of section 32A; (xiiia) section 32AB; (xiiib) section 33AB; (xiv) section 80G;

(xv) clause (b) of sub-section (2) of section 80GGA;

(xvi) clause (c) of sub-section (2) of section 80GGA; (xvii) section 80HH; (xviii) section 80HHA; (xix) section 80HHB; (xx) section 80HHC; (xxi) section 80-1; (xxii) section 80J;

[(xxii) * * *]

[(xxiv)* * * ]

(3)The deduction under the provisions specified in sub-section

(2), shall, for the purposes of restricting under sub-section (1), the amount or, as the case may be, the aggregate amount of deduction, under those provisions, be allowed in the order in which the said

provisions have been specified in sub-section (2), and accordingly- (a) deduction shall first be allowed under the provision specified in

clause (i) of sub-section (2); and (b) if no deduction is allowable under the provision specified in the said clause (i) or the deduction allowable under that provision is less than seventy per cent of the pre-incentive total income, deduction shall next be allowed under the provision specified in clause (ii) of sub-section

(2); and (c) if no deduction is allowable under the provision specified in the said clause (ii), or the deduction under that provision together with the deduction allowed under the provision referred to in the said clause (i), is less than seventy per cent of the pre-incentive total income, deduction shall next be allowed under the provision specified in clause

(iii) of sub-section (2) and so on until the aggregate deduction so allowed is equal to seventy per cent of the pre- incentive total income.

(4) To the extent to which full deduction cannot be allowed in the assessment year in respect of any provision specified in sub-

section (2), by virtue only of the restriction under sub-section (1) (and not by virtue of anything contained in any other section), the amount remaining unallowed shall be added to the amount, if any, to be allowed to the assessee under the said provision for the next following assessment year and be deemed to be part of the deduction admissible to the assessee under the said provision for that year, or if no such deduction is admissible to the assessee for that year, be deemed to be the deduction admissible to the assessee for that year, and so on for succeeding assessment years." ----------------------------------------------------------------------- 1.435 CHAP INCOMES FORMING PART TO TOTAL INCOME ON WHICH NO INCOME-TAX IS PAYABLE CHAPTER VII INCOMES FORMING PART OF TOTAL INCOME ON WHICH NO INCOME-TAX IS PAYABLE

Income of co-operative societies. [81. Income of co-operative societies.-This section was omitted by the Finance (No. 2) Act, 1967 (20 of 1967), w.e.f 1-4-1968. The provisions contained in this section have simultaneously been incorporated in section 80P of Chapter VIA.] 82 Dividends from co-operative society. [82. Dividends from co-operative society.-This section was omitted by the Finance (No. 2) Act, 1967, (20 of 1967), w.e.f 1-4-1968. The provisions contained in this section were incorporated in section 80Q of Chapter VIA.] 83 Income of marketing society. [83. Income of marketing society.-This section was omitted by the Finance (No. 2) Act, 1967, (20 of 1967), w.e.f 1-4 1968. The provisions contained in this section have now been incorporated in

section 10(29).] 84 Income of newly established industrial undertakings or hotels. [84. Income of newly established industrial undertakings or hotels.- This section was omitted by the Finance (No. 2) Act, 1967, (2O of 1967), w.e.f 1-4-1968. The provisions contained in the section were incorporated in section 80J of Chapter VIA.] 85 Dividend from new industrial undertaking or hotel. [85. Dividend from new industrial undertaking or hotel.-This section was omitted by the Finance (No. 2) Act, 1967 (20 of 1967), w.e.f 1-4- 1968. The provisions contained in this section were incorporated in section 80K of Chapter VIA.] [85A. Deduction of tax on inter-corporate dividends.-This section was inserted by the Finance Act, 1965 w.e.f 1-4-1965 but was omitted by Finance (No. 2) Act, 1967 (20 of 1967), w.e.f 1-4-1968. However, its provisions were simultaneously incorporated in section 80M of Chapter VIA.] [85B. Deduction of tax on dividends received from certain foreign companies.-This section was inserted by the Finance Act, 1966, w.e.f 1-4-1966, and omitted by the Finance (No. 2) Act, 1967 (20 of 1967), w.e.f. 1-4-1968. The provisions contained in this section were incorporated in section 8ON of Chapter VIA which was also omitted, w.e.f 1-4-1986.] [85C. Deduction of tax on royalties, etc., received from certain foreign companies.-This section was inserted by the Finance Act, 1966 w.e.f 1-4-1966 and omitted by the Finance (No. 2) Act, 1967 (20 of 1967), w.e.f 1-4-1968. The provisions contained in this section have now been incorporated in section 80-0 of Chapter VIA.] 86 Share of member of an association of persons or body of individuals in the income of the association or body 1[86. Share of member of an association of persons or body of individuals in the income of the association or body Where the assessee is a member of an association of persons or body ---------------------------------------------------------------------- 1 Substituted by the Finance, Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, section 86, as amended by the Finance Act, 1964, w.e.f. 1-4-1964; Finance Act, 1965, w.e.f. 1-4-1965; Finance Act, 1968, w.e.f. 1-4-1969; Finance (No. 2) Act, 1971, w.e.f. 1-4-1971; and the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, read as under: "86. Other incomes.-Income-tax shall not be payable by an assessee in respect of the following-

[(i) * * *]

[(iv) * * *]

(1) In computing the amount of income-tax on the total income of an assessee with which he is chargeable for any assessment year, there shall be allowed from the amount of income-tax (as computed before allowing the deductions under this Chapter), in accordance with and subject to the provisions of sections 3[88, 88A and 88B], the deductions specified in those sections.

(2) The aggregate amount of the deductions under section 88 or section 88A 4[or section 88B] shall not, in any case, exceed the amount of income-tax (as computed before allowing the deductions under this Chapter) on the total income of the assessee with which he is chargeable for any assessment year.] [87A. Rebate on educational expenses in certain cases.-Omitted by the Finance (No. 2) Act, 1967, with effect from 1-4-1968. It was inserted by the Finance Act, 1964, with effect from 1-4-1964.] 88 Rebate on life insurance premia, contribution to provident fund, etc. 88. Rebate on life insurance premia, contribution to provident fund, etc.

(1) Subject to the provisions of this section, an assessee, being- (a) an individual, or (b) a Hindu undivided family, 6[(c) Omitted by the Finance Act, 1994, w.r.e.f 1-4-1991.] shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to twenty per cent of the aggregate of the sums

referred to in subsection (2): 7 [Provided that in the case of an individual, whose income, derived from the exercise of his profession as an author, playwright, artist, musician, actor or sportsman (including an athlete), is twenty-five per cent or more of his total income, the provisions of this sub-section shall have effect as if for the words "twenty per cent", the words "twenty-five per cent" had been substituted.] ---------------------------------------------------------------------- 1 Substituted for "Relief in respect of income-tax" by the Finance Act, 1990, w.e.f. 1-4-1991. Earlier, it was amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 2 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 3 Substituted for "88 and 88A" by the Finance Act, 1992, w.e.f. 1-4-1993. 4 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 5 The word "or" omitted by the Finance Act, 1994, w.r.e.f. 1-4-

6 Prior to the omission, clause (c), as originally enacted, read as under: "(c) an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu," 7 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. ----------------------------------------------------------------------- 1.436

(2) The sums referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assessee out of his income chargeable to tax- (i) to effect or to keep in force an insurance on the

life of persons specified in sub-section (4); (ii) to effect or to keep in force a contract for a deferred annuity, 1[not being an annuity plan referred to in clause (xiiia)], on the life of persons specified

in sub-section (4): Provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity; (iii) by way of deduction from the salary payable by or on behalf of the Government to any individual being a sum deducted in accordance with the conditions of his service, for the purpose of securing to him a deferred annuity or making provision for his wife or children, insofar as the sum so deducted does not exceed one-fifth of the salary; (iv) as a contribution by an individual to any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies; 2(v) as a contribution to any provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of any person specified

in sub-section (4); (vi) as a contribution by an employee to a recognised provident fund; (vii) as a contribution by an employee to an approved superannuation fund; (viii) in a ten-year account or a fifteen-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to time, where such sums are deposited in an account standing in the name of the persons specified in sub-

section (4); (ix) as subscription to any such security of the Central Government 3[or any such deposit scheme] as that Government may, by notification 4 in the Official Gazette, specify in this behalf; (x) as subscription to the National Savings Certificates (VI Issue) and National Savings Certificates (VII Issue) issued under the Government Savings Certificates Act, 1959 (46 of 1959); ---------------------------------------------------------------------- 1 Substituted for "not being an annuity plan referred to in clause

(ii) of sub-section (1) of section 80CCA" by the Finance Act, 1992, w.e.f. 1-4-1993. 3 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 1.437 1 (xi) as subscription to any such savings certificate as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), as the Central Government may, by notification in the Official Gazette, specify in this behalf; (xii) as a contribution 2 [in the name of] any person

specified in subsection (4), for participation in the Unit-linked Insurance Plan, 1971 (hereafter in this section referred to as the Unit linked Insurance Plan) deemed to have been made under subclause (a) of clause

(8) of section 19 of the Unit Trust of India Act, 1963 (52 of 1963); 3(xiii) as a contribution 4 [in the name of any

person specified in subsection (4)] for participation in any such Unit-linked Insurance Plan of the LIC Mutual Fund notified under clause (23D) of section 10, as the Central Government may, by notification in the Official Gazette, specify in this behalf; 5[(xiiia)to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification6 in the Official Gazette, specify; (xiiib) as subscription, not exceeding ten thousand rupees, to any units of any Mutual Fund notified under clause (23D) of section 10 or the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) under any plan formulated in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf; (xiiic) as a contribution by an individual to any pension fund set up by any Mutual Fund notified under clause (23D) of section 10 7 [or by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963)], as the Central Government may, by notification in the Official Gazette, specify8 in this behalf;] 9(xiv) as subscription to any such deposit scheme of 10[, or as a contribution to any such pension fund set up by,] the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987) (hereafter in this section referred to as the National Housing Bank), as the Central ------------------------------------------------------------------- 2 Substituted for "by" by the Finance Act, 1994, w.r.e.f. 1-4-1991. 4 Substituted for "by any individual", by the Finance Act, 1994, w.r.e.f. 1-4-1991. 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 7 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 10 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. ----------------------------------------------------------------------- 1.438 Government may, by notification in the Official Gazette, specify in this behalf; 1[(xiva) as subscription to any such deposit scheme of- (a) a public sector company which is engaged in providing long-term finance for construction or purchase of houses in India for residential purposes; or (b) any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, not being a scheme the interest on deposits whereunder qualifies for the purposes of computing the deduction under section 80L, as the Central Government may, by notification in the Official Gazette, specify in this behalf;] (xv) for the purposes of purchase or construction of a residential house property the 2[* * *] income from which is chargeable to tax under the head "Income from house property" (or which would, if it had not been used for the assessee's own residence, have been chargeable to tax under that head), where such payments are made towards or by way of- (a) any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or (b) any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or (c) repayment of the amount borrowed by the assessee from-

(1) the Central Government or any State Government, or

(2) any bank, including a co-operative bank, or

(3) the Life Insurance Corporation, or

(4) the National Housing Bank, or

(5) any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is approved for the

purposes of clause (viii) of sub-section (1) of section 36, or

(6) any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. 2 The words "construction of which is completed after the 31st day of March, 1987, and the" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. ---------------------------------------------------------------------- 1.439

(7) the assessee's employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority 1[or a co-operative society]; (d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee, but shall not include any payment towards or by way of- (A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a cooperative society has to pay for becoming such shareholder or member; or 2[(B)Omitted by the Finance (No. 2) Act, 1991, w.e.f. 1- 4-1992.] (C) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or (D) any expenditure in respect of which deduction is allowable under the provisions of section 24.

3[(3) The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on a policy other than a contract for a deferred annuity as is not in excess of ten per cent of the actual capital sum assured. Explanation.-In calculating any such capital sum, no act shall be taken- (i) of the value of any premiums agreed to be returned, or (ii) of any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.]

(4)The persons referred to in sub-section (2) shall be the following, namely:- 4[ (a) for the purposes of clauses (i), (v), (xii) and (xiii) of that sub-section,- ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1992. 2 Prior to the omission, sub-clause (B) read as under: "(B) the cost of the land, except where the consideration for the purchase of the house property is a composite amount and the cost of the land alone cannot be separately ascertained; or" 3 Being omitted by the Finance Act, 1995, w.e.f. 1-4-1996. 4 Substituted by the Finance Act, 1994, w.r.e.f. 1-4-1991. Prior to the substitution, clause (a), as originally enacted, read as under: "(a) for the purposes of clause (i) of that sub- section,- (i)in the case of an individual, the individual, the wife or husband and any child of such individual, and -> -> ----------------------------------------------------------------------- 1.440 (i) in the case of an individual, the individual, the wife or husband and any child of such individual, and (ii) in the case of a Hindu undivided family, any member thereof;] (b) for the purposes of clause (ii) of that sub-section,- (i) in the case of an individual, the individual, the wife or husband and any child of such individual, and 1[(ii) Omitted by the Finance Act, 1994, w.r.e.f 1-4-1991.] (c) for the purposes of 2[clause (viii)] of that sub- section,- (i) in the case of an individual, such individual or a minor of whom he is the guardian; (ii)in the case of a Hindu undivided family, any member of the family; 3[(iii) Omitted by the Finance Act, 1994, w.re.f 1-4- 1991.] 4[(d) Omitted by v the Finance Act, 1994, w.re.f. 1-4-1991.]

(5)Where the aggregate of any sums specified in clause (xv) of

subsection (2) exceeds an amount of ten thousand rupees, a deduction

under sub-section (1) shall be allowed with reference to so much of the aggregate as does not exceed an amount of ten thousand rupees.

(6)The deduction from the amount of income-tax under sub-section

(1) shall not exceed- (i) in the case of an individual, 5[whose income, derived from the exercise of his profession as an author, playwright, artist, musician, actor or sportsman (including an athlete), is twenty-five per cent or more of his total income, seventeen thousand five hundred] rupees; (ii) in any other case, 6[ twelve thousand] rupees.

(7) Where, in any previous year, an assessee- (i) terminates his contract of insurance referred to in

clause (i) of sub-section (2), by "notice to that effect or where the contract ceases to be in force by reason of failure to pay any premium, by ------------------------------------------------------------------------ (ii) in any other case, any member of the Hindu undivided family or association of persons or body of individuals and any child of any of the members of such association or body;" 1 Prior to the omission, clause (ii) read as under: "(ii) in the case of an association of persons or body of individuals, any member and any child of any of the members of such association or body;" 2 Substituted for "clauses (v) and (viii)" by the Finance Act, 1994, w.r.e.f. 1-4-1991. 3 Prior to the omission, sub-clause (iii) read as under: "(iii) in the case of an association of persons or body of individuals, such association or body;" 4 Prior to the omission, clause (d) read as under: "(d) for the purposes of clause (xii) of that sub- section,- (i) in the case of an individual, such individual; (ii)in the case of an association of persons or body of individuals, any one member of such association or body." 5 Substituted for "being an author, playwright, artist, musician, actor or sportsman (including an athlete), fourteen thousand," by the Finance Act, 1992, w.e.f. 1-4-1993. 6 Substituted for "ten thousand" by the Finance Act, 1992, w.e.f. 1-4-1993. ---------------------------------------------------------------------- 1.441 (ii) terminates his participation in any Unit-linked insurance Plan referred to in clause (xii) or clause (xiii)

of sub-section (2), by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation have been paid for five years; or (iii) transfers the house property referred to in clause

(xv) of subsection (2) before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified in that clause, then,- (a) no deduction shall be allowed to the assessee under

sub-section (1) with reference to any of the sums, referred

to in clauses (i), (xii), (xiii)and (xv) of sub-section (2), paid in such previous year; and (b) the aggregate amount of the deductions of income-tax so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be tax payable by the assessee in the assessment year relevant to such previous year and shall be added to the tax on the total income of the assessee with which he is chargeable for such assessment year.

(8) In this section,- (i) "contribution" to any fund shall not include any sums in repayment of loan; (ii) "insurance" shall include- (a) a policy of insurance on the life of an individual or the spouse or the child of such individual or a member of a, Hindu undivided family securing the payment of specified sum on the stipulated date of maturity, if such person is alive on such date notwithstanding that the policy of insurance provides only for the return of premiums paid (with or without any interest thereon) in the event of such person dying before the said stipulated date; (b) a policy of insurance effected by an individual or a member of a Hindu undivided family for the benefit of a minor with the object of enabling the minor, after he has attained majority to secure insurance on his own life by adopting the policy and on his being alive on a date (after such adoption) specified in the policy in this behalf; (iii) "Life Insurance Corporation" means the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 2 (31 of 1956); ---------------------------------------------------------------------- 1 Being substituted by the following by the Finance Act, 1995, w.e.f. 1-4-1996: "contract of insurance,- (a) in case of any single premium policy, within two years after the date of commencement of insurance, or (b) in any other case, before premiums have been paid for two years; or". 1.442 (iv) "public company" shall have the same meaning as in section 3 of the Companies Act, 1956 1 (1 of 1956); (v) "security" means a Government security as defined in

clause (2) of section 2 of the Public Debt Act, 1944 2 (18 of 1944); (vi) "transfer" shall be deemed to include also the transactions referred to in clause (f) of section 269UA. 88A. Rebate in respect of investment in certain new shares or units3

(1) Where an assessee being- (a) an individual; or (b) a Hindu undivided family; 4[* * * ] 5[(c) Omitted by the Finance Act, 1994, w.r.e.f 1-4-1991.] has acquired, in the previous year, out of his income chargeable to tax,- (i) equity shares forming part of any eligible issue of capital; or (ii) units issued under any scheme of any Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963), if the amount of subscription to such units is subscribed, within a period of six months from the close of subscription under such scheme, only to eligible issue of capital, he shall be entitled to a deduction, from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to twenty per cent of the cost of such shares or units to such assessee: Provided that the amount of subscription to such units may be subscribed, for a period not exceeding six months from the close of subscription under any scheme referred to in clause (ii) in such securities of the Central Government, as may be approved by the Board in this behalf: Provided further that no deduction shall be allowed in respect of units issued under any scheme referred to in clause (ii) where the subscription under such scheme closes after the 30th day of September,

Explanation.-Where in any previous year, the assessee has acquired any shares or units referred to in this sub-section and has, within a period of six months from the end of that previous year paid the whole or a part of the amount, if any, remaining unpaid on such shares or units, the amount so paid shall be deemed to have been paid by the assessee towards the cost of such shares or units in the previous year. ---------------------------------------------------------------------- 2 Ibid. 3 The deduction under this section is available only in respect of units and shares issued before 1-10-1990 and 1-4-1991, respectively. 4 The word "or" omitted by the Finance Act, 1994, w.r.e.f. 1-4-

5 Prior to the omission, clause (c), as originally enacted, read as under: "(c) an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu," ----------------------------------------------------------------------- 1.443

(2) Where the aggregate cost to the assessee of the shares or

units referred to in sub-section (1) which are acquired by him in the previous year exceeds twenty-five thousand rupees, the deduction under that subsection shall be allowed only with reference to such of those shares or units (being shares or units the aggregate cost whereof to the assessee does not exceed twenty-five thousand rupees) as are specified by him in this behalf.

(3) For the purposes of this section, "eligible issue of capital" means an issue of equity shares which satisfies the following conditions, namely:- (a) the issue is made by a public company formed and registered in India and the issue is wholly and exclusively for the purposes of carrying on the business of- (i) construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule; or (ii) providing long-term finance for construction or purchase of houses in India for residential purposes: Provided that in the case of a public company carrying on the business referred to in this sub-clause, such company is approved by the Central Government for the purposes of this section; or (iii) a hospital; or (iv) a hotel approved by the prescribed authority; or (v) operation of ships; (b) the issue is an issue of capital made by the company for the first time: Provided that this clause shall not apply in the case of an issue of equity shares made by a public company formed and registered in India with the main object of carrying on the business of operation of ships; (c) the shares forming part of the issue are offered for subscription to the public and such offer for subscription is made by the company before the 1st day of April, 1991; (d) such other conditions as may be prescribed: Provided that in the case of a company which had originally been incorporated as a private company but has become a public company under the provisions of the Companies Act, 1956 (1 of 1956), an issue of equity shares made by it for the first time after it has become a public company shall not be regarded as an eligible issue of capital, if- (i) such company had declared, distributed or paid any dividend when it was a private company; or (ii) any of the shares forming part of such issue is offered for subscription at a premium. Explanation 1.-If any question arises as to whether any issue of equity shares would constitute an eligible issue of capital for the purposes of this section, the question shall be referred to the Central Government whose decision thereon shall be final. 1.444

Explanation 2.-In this sub-section and sub-section (4), "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 1 (1 of 1956).

(4)The deduction under sub-section (1) shall not be allowed unless the assessee has- (i) subscribed to the shares in pursuance of an offer for subscription to the public made by the public company or in pursuance of a reservation or an option in his favour by reason of his being a promoter of the company; or (ii) purchased the shares from a person who is specified as an underwriter in respect of the issue of such shares in

pursuance of clause (11) of Part 1 of Schedule 11 to the Companies Act, 1956 (1 of 1956) and who has acquired such shares by virtue of his obligation as such underwriter.

(5) If any equity shares or units, with reference to the cost of

which a deduction is allowed under sub-section (1), are sold or otherwise transferred by the assessee to any person at any time within a period of three years from the date of their acquisition, the aggregate amount of the deductions of income-tax so allowed in respect of such equity shares or units in the previous year or years preceding the previous year in which such sale or transfer has taken place shall be deemed to be tax payable by the assessee for the assessment year relevant to such previous year and shall be added to the amount of income-tax on the total income of the assessee with which he is chargeable for such assessment year. Explanation.-A person shall be treated as having acquired any shares or units on the date on which his name is entered in relation to those shares or units in the register of members of the company or in the relevant records of any Mutual Fund or Unit Trust of India,

referred to in sub-section (1).

(6) Where a deduction is claimed and allowed under sub-section

(1) with reference to the cost of any equity shares, the cost of such shares shall not be taken into account for the purposes of section 54E. 2[88B. Rebate of income-tax in case of individuals of sixty-five years and above An assessee, being an individual resident in India, who is of the age of sixty-five years or more at any time during the previous year and whose gross total income does not exceed 3[one hundred thousand rupees], shall be entitled to a deduction from the amount of income- tax (as computed before allowing the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to 4[forty per cent] of such income-tax. ------------------------------------------------------------------- 2 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 3 Substituted for "seventy-five thousand rupees" by the Finance Act, 1994, w.e.f. 1-4-1995. Earlier, "seventy-five thousand rupees" was substituted for "fifty thousand rupees" by the Finance Act, 1993, w.e.f. 1-4-1994.. 4 Substituted for "twenty per cent" by the Finance Act, 1994, w.e.f. 1-4-1995. Earlier, "twenty per cent" was substituted for."ten per cent" by the Finance Act, 1993, w.e.f. 1 -4-1994. ---------------------------------------------------------------------- 1.445 Explanation.-For the purposes of this section, "gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under Chapter VIA.] B.- Relief for income-tax] 89 Relief when salary, etc., is paid in arrears or in advance2 1 89. Relief when salary, etc., is paid in arrears or in advance2

(1) Where, by reason of any portion of an assessee's salary being paid in arrears or in advance or by reason of his having received in any one financial year salary for more than twelve months

or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, his income is assessed at a rate higher than that at which it would otherwise have been assessed 3 [the 4

[Assessing] Officer shall, on an application made to him in this

5[(2) * * [89A. Tax relief in relation to export turnover.-This section was inserted by the Finance Act, 1982, w.e.f 1-6-1982 but was omitted by the Finance Act, 1983, w.e.f 1-4-1983.] ---------------------------------------------------------------------- 3 Substituted for "the Commissioner may, on an application made in this behalf by the assessee, grant such relief as he considers appropriate" by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Omitted by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to the

omission, sub-section (2), as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under:

"(2) Where, by reason of any portion of income from interest on securities being received in arrears, an assessee's total income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as may be prescribed." ----------------------------------------------------------------------- 1.446 CHAP DOUBLE TAXATION RELIEF CHAPTER IX DOUBLE TAXATION RELIEF 90 Agreement with foreign countries2 1[90. Agreement with foreign countries2

3[(1)] The Central Government may enter into an agreement with the Government of any country outside India- (a) for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or (c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.]

4[(2) Where the Central Government has entered into an agreement

with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.] ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1972, w.e.f. 1-4-1972. 3 Renumbered by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1972. 4 Inserted, ibid. --------------------------------------------------------------------- 1.447 No. 6387 and exchange of notes dated 28-6-1984, mutual agreement has been reached for application of this agreement with effect from 1-1- 1991, in the territory of five new States as well as part of the Land Berlin where Basic Law was not valid before the coming into force of the German merger. The existing agreement between India and the German Democratic Republic for the avoidance of double taxation with respect to taxes on income and on capital dated 2-3-1990 will be applied only until 31-12-1990. 3. A reduced tax rate of 20 per cent has been prescribed in respect of royalties and fees for technical services paid by a resident of India to a resident of Canada. The reduced rate will be applicable to payments made in respect of the right or property which is first granted or under a contract which is signed after 12th December, 1988. 4. Where a specific provision is made in the Double taxation avoidance agreement, that provision will prevail over the general provisions contained in the Income-tax Act. Where such Agreement provided for a particular mode of computation of income the same should be followed irrespective of the provisions of the Act. 91 Countries with which no agreement exists1 91. Countries with which no agreement exists1

(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.

(2) If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose to him during that previous year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him- (a) of the amount of the tax paid in Pakistan under any law aforesaid on such income which is liable to tax under this Act also; or (b) of a sum calculated on that income at the Indian rate of tax; whichever is less.

(3) If any non-resident person is assessed on his share in the income of a registered firm assessed as resident in India in any previous year and such share includes any income accruing or arising outside India during that previous year (and which is not deemed to accrue or arise in India) in a country with which there is no agreement under section 90 for the relief or avoidance of double taxation and he proves that he has paid income-tax by deduction or otherwise under the law in force in that country in respect of the income so included he shall be entitled to a deduction from the ---------------------------------------------------------------------- 1.448 Indian income-tax payable by him of a sum calculated on such doubly taxed income so included at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. Explanation.-In this section,- (i) the expression "Indian income-tax" means income-tax charged in accordance with the provisions of this Act; (ii) the expression "Indian rate of tax" means the rate determined by dividing the amount of Indian income-tax after deduction of any relief due under the provisions of this Act but before deduction of any relief due under this 2[Chapter], by the total income; (iii) the expression "rate of tax of the said country" means income-tax and super-tax actually paid in the said country in accordance with the corresponding laws in force in the said country after deduction of all relief due, but before deduction of any relief due in the said country in respect of double taxation, divided by the whole amount of the income as assessed in the said country; (iv) the expression "income-tax" in relation to any country includes any excess profits tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country. 1 The words "and super-tax" omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 2 Substituted for "section" by the Finance Act, 1964, w.e.f. 1-4-

---------------------------------------------------------------------- 1.449 CHAP SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX CHAPTER X SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX 92 Income from transactions with non-residents, how computed in certain cases1 92. Income from transactions with non-residents, how computed in certain cases1 Where a business is carried on between a resident and a non- resident and it appears to the 2 [Assessing] Officer that, owing to the close connection between them, the course of business is so arranged that the business transacted between them produces to the resident either no profits or less than the ordinary profits which might be expected to arise in that business, the 3[Assessing] Officer shall determine the amount of profits which may reasonably be deemed to have been derived therefrom and include such amount in the total income of the resident. 93 Avoidance of income-tax by transactions resulting in transfer of income to non-residents 93. Avoidance of income-tax by transactions resulting in transfer of income to non-residents

(1) Where there is a transfer of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, any income becomes payable to a non-resident, the following provisions shall apply- (a) where any person has, by means of any such transfer, either alone or in conjunction with associated operations, acquired any right,,, by virtue of which he has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a non-resident person which, if it were income of the first mentioned person, would be chargeable to income-tax, that income shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this section, be deemed to be income of the first-mentioned person for all the purposes of this Act; (b) where, whether before or after any such transfer, any such first mentioned person receives or is entitled to receive any capital sum the payment whereof is in any way connected with the transfer or any associated operations, then any income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income of a non-resident shall, whether it would or would not have been chargeable to income- tax apart from the provisions of this section, be deemed to be the income of the first-mentioned person for all the purposes of this Act. Explanation.-The provisions of this sub-section shall apply also in relation to transfers of assets and associated operations carried out before the commencement of this Act. ---------------------------------------------------------------------- 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Ibid. ---------------------------------------------------------------------- 1.450

(2) Where any person has been charged to income-tax on any income deemed to be his under the provisions of this section and that income is subsequently received by him, whether as income or in any other form, it shall not again be deemed to form part of his income for the purposes of this Act.

(3) The provisions of this section shall not apply if the first

mentioned person in sub-section (1) shows to the satisfaction of the 1[Assessing] Officer that- (a) neither the transfer nor any associated operation had for its purpose or for one of its purposes the avoidance of liability to taxation; or (b) the transfer and all associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation. Explanation.-For the purposes of this section,- (a) references to assets representing any assets, income or accumulations of income include references to shares in or obligation of any company to which, or obligation of any other person to whom, those assets, that income or those accumulations are or have been transferred; (b) any body corporate incorporated outside India shall be treated as if it were a non-resident; (c) a person shall be deemed to have power to enjoy the income of a non-resident if- (i) the income is in fact so dealt with by any person as to be calculated at some point of time and, whether in the form of income or not, to enure for the benefit

of the first-mentioned person in sub-section (1), or (ii) the receipt or accrual of the income operates to increase the value to such first-mentioned person of any assets held by him or for his benefit, or (iii) such first-mentioned person receives or is entitled to receive at any time any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and assets which represent that income, or (iv) such first-mentioned person has power by means of the exercise of any power of appointment or power of revocation or otherwise to obtain for himself, whether with or without the consent of any other person, the beneficial enjoyment of the income, or (v) such first-mentioned person is able, in any manner whatsoever and whether directly or indirectly, to control the application of the income; ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.451 (d) in determining whether a person has power to enjoy income, regard shall be had to the substantial result and effect of the transfer and any associated operations, and all benefits which may at any time accrue to such person as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.

(4)(a) "Assets" includes property or rights of any kind and "transfer" in relation to rights includes the creation of those rights; (b) "associated operation", in relation to any transfer, means an operation of any kind effected by any person in relation to- (i) any of the assets transferred, or (ii) any assets representing, whether directly or indirectly, any of the assets transferred, or (iii) the income arising from any such assets, or (iv) any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets; (c) "benefit" includes a payment of any kind; (d) "capital sum" means- (i) any sum paid or payable by way of a loan or repayment of a loan; and (ii) any other sum paid or payable otherwise than as income, being a sum which is not paid or payable for full consideration in money or money's worth. 94 Avoidance of tax by certain transactions in securities 94. Avoidance of tax by certain transactions in securities

(1) Where the owner of any securities (in this sub-section and

in subsection (2) referred to as "the owner") sells or transfers those securities, and buys back or reacquires the securities, then, if the result of the transaction is that any interest becoming payable in respect of the securities is receivable otherwise than by the owner, the interest payable as aforesaid shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this sub-section, be deemed, for all the purposes of this Act, to be the income of the owner and not to be the income of any other person. Explanation.-The references in this sub-section to buying back or reacquiring the securities shall be deemed to include references to buying or acquiring similar securities, so however, that where similar securities are bought or acquired, the owner shall be under no greater liability to income-tax than he would have been under if the original securities had been bought back or reacquired.

(2) Where any person has had at any time during any previous year any beneficial interest in any securities, and the result of any transaction relating to such securities or the income thereof is that, in respect of such securities within such year, either no income is received by him or the income received by him is less than the sum to which the income would have amounted if the income from such securities had accrued from day to day and been apportioned accordingly, then the income from such securities for such year shall be deemed to be the income of such person. 1.452

(3) The provisions of sub-section (1) or sub-section (2) shall not apply if the owner, or the person who has had a beneficial interest in the securities, as the case may be, proves to the satisfaction of the 1[Assessing] Officer- (a) that there has been no avoidance of income-tax, or (b) that the avoidance of income-tax was exceptional and not systematic and that there was not in his case in any of the three preceding years any avoidance of income-tax by a

transaction of the nature referred to in sub-section (1) or

sub-section (2).

(4) Where any person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest becoming payable in respect of the securities is receivable by him but is not deemed to be his

income by reason of the provisions contained in sub-section (1), no account shall be taken of the transaction in computing for any of the purposes of this Act the profits arising from or loss sustained in the business.

(5) Sub-section (4) shall have effect, subject to any necessary modifications, as if references to selling back or retransferring the securities included references to selling or transferring similar securities.

(6) The 2[Assessing] Officer may, by notice in writing, require any person to furnish him within such time as he may direct (not being less than twenty-eight days), in respect of all securities of which such person was the owner or in which he had a beneficial interest at any time during the period specified in the notice, such particulars as he considers necessary for the purposes of this section and for the purpose of discovering whether income-tax has been borne in respect of the interest on all those securities. Explanation.-For the purposes of this section,- (a) "interest" includes a dividend; (b) "securities" includes stocks and shares; (c) securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred. ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. ----------------------------------------------------------------------- 1.453 CHAP ADDITIONAL INCOME-TAX ON UNDISTRIBUTED PROFITS [CHAPTER XI ADDITIONAL INCOME-TAX ON UNDISTRIBUTED PROFITS Chapter XI was omitted by the Finance Act, 1987, w.e.f. 1-4-1988. Sections 95 to 103 relating to super-tax were omitted by the Finance Act, 1965, w.e.f. 1-4-1965 and sections 104 to 109 were omitted by the Finance Act, 1987, w.e.f. 1-4-1988.] 104 Income-tax on undistributed income of certain companies- 1[104. Income-tax on undistributed income of certain companies.- Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.] ----------------------------------------------------------------------- 1 Prior to the omission, section 104, as amended by the Finance Act, 1964, w.e.f. 1-4-1964; Finance Act, 1965, w.e.f. 1-4-1965; Finance Act, 1966, w.e.f. 1-4-1966; Finance (No. 2) Act, 1967, w.e.f. 1-4-1968: Finance Act, 1973, w.e.f. 1-4-1974; Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and Finance (No. 2) Act, 1977, w.e.f. 1-4-1978, read as under:

"104. Income-tax undistributed income of certain companies.-(1) Subject to the provisions of this section and of sections 105, 106, 107 and 107A, where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the distributable income of the company of that previous year, the Income-tax Officer shall make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment tinder section 143 or section 144, be liable to pay income-tax at the rate of- (a) fifty per cent, in the case of an investment company, (b) thirty-seven per cent, in the case of a trading company, and (c) twenty-five per cent, in the case of any other company, on the distributable income as reduced by the amount of dividends actually distributed, if any, within the said period of twelve months.

(2) The Income-tax Officer shall not make an order under

sub-section (1) if he is satisfied- (i) that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger- dividend than that declared within the period of

twelve months referred to in sub-section (1) would be unreasonable; or (ii) that the payment of a dividend or a larger dividend than that declared within the period of twelve months

referred to in sub-section (1) would not have resulted in a benefit to the revenue; or (iii) that at least seventy-five per cent of the share capital of the company is throughout the previous year beneficially held by an institution or fund established in India for a charitable purpose the income from dividend whereof is exempt under section 11.

(3) If the Central Government is of opinion that it is necessary or expedient in the public interest so to do, it may, by notification in the Official Gazette and subject to such conditions as may be specified therein, exempt any class of companies to which the provisions of this section apply from the operation of this section.

(4) Without prejudice to the provisions of section 108, nothing contained in this section shall apply to- (a) an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power; (b) a company which is neither an Indian company nor a company which -> -> ----------------------------------------------------------------------- 1.454 105 Special provisions for certain companies. 1[105 Special provisions for certain companies.-Omitted by the Finance ---------------------------------------------------------------------- --> --> has made the prescribed arrangements for the declaration and payment of dividends within India. Explanation.-For the purposes of clause (a) of this sub-section the business of a company shall be deemed to consist mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, if the income attributable to any of the aforesaid activities included in its gross total income for the relevant previous year is not less than fifty-one per cent of such total income." 1 Prior to the omission, section 105, as amended by the Finance Act, 1973, w.e.f. 1-4-1974, read as under:

"105. Special provisions for certain companies.-(1) No order under section 104 shall be made,- (i) in the case of an investment company which has distributed, within the period of twelve months referred to

in sub-section (1) of section 104, not less than eighty per cent of its distributable income; or (ii) in the case of any other company whose distribution, within the period of twelve months referred to in sub-section

(1) of section 104, falls short of the statutory percentage by not more than ten per cent of its distributable income; or (iii) in any case where according to the return made by a company under section 139 it has distributed, within the

period of twelve months referred to in subsection (1) of section 104, not less than the statutory percentage of its distributable income, but in the assessment made by the Income-tax Officer under section 143 or section 144 a higher total income is arrived at and the difference in the total income does not arise out of the application of the proviso

to sub-section (1) of section 145 or sub-section (2) of section 145 or section 144 or the omission by, the company to disclose its income fully and truly; or (iv) in the case of a company where a reassessment is made under the provisions of clause (b) of section 147 and the sum distributed as dividends falls short of the statutory percentage of the distributable income determined on the basis of the reassessment, unless the company, on receipt of a notice from the Income-tax Officer that he proposes to make such an order, fails to make within three months of the receipt of such notice, a further distribution of its profits and gains so that the total distribution made is not less than the statutory percentage of the distributable income. Explanation.-For the purposes of clause (iv) of this sub-section, "the sum distributed as dividends" means,- (a) where in relation to the assessment made under section 143 or section 144, any further distribution of dividends was made by the company in pursuance of a notice under this sub- section,: the aggregate of the following sums, namely- (i) the sum distributed as dividends within the period

of twelve months referred to in sub-section (1) of section 104, and (ii)the sum distributed as dividends within the period of three months from the receipt of the said notice; (b) where an order under section 107A has been made by the Board in relation to the assessment made under section 143 or section 144, the sum distributed as dividends within the period determined by the Board

under the provisions of sub-section (4) of section 107A; -> -> ----------------------------------------------------------------------- 1.455 Act, 1987, w.e.f 1-4-1988.] 106 Period of limitation for making orders under section 104. 1[106. Period of limitation for making orders under section 104.- Omitted by the Finance Act, 1987, w.e.f 1-4-1988.] 107 Approval of Inspecting Assistant Commissioner for orders under section 104. 2[107. Approval of Inspecting Assistant Commissioner for orders under section 104,-Omitted by the Finance Act, 1987, w.e.f 1-4-1988.] 3[107A. Reduction of minimum distribution in certain cases.-Omitted by the Finance Act, 1987, w.e.f 1-4-1988. Original section was inserted by the Finance Act, 1964, w.e.f. 1-4-1964.] ---------------------------------------------------------------------- -> -> (c) in any other case, the sum distributed as dividends within the period of twelve months referred to in

sub-section (1) of section 104.

(2) Any further distribution made under sub-section (1) shall not be taken into account in deciding whether the provisions of section 104 apply in respect of the previous year in which the further distribution is made." 1 Prior to the omission, section 106, as amended by the Finance Act, 1964, w.e.f. 1-4-1964 and substituted by the Finance Act, 1975, w.e.f. 1-4-1975, read as under: "106. Period of limitation for making order under section 104.- No order under section 104 shall be made at any time after- (a) the expiry of- (i)four years from the end of the assessment year relevant

to the previous year referred to in sub-section (1) of that section, where such assessment year is an assessment year commencing on or before the 1st day of April, 1974; (ii) two years from the end of the assessment year relevant

to the previous year refer-red to in sub-section (1) of that section, where such assessment year is an assessment year commencing after the 1st day of April, 1974; or (b) the expiry of one year from the end of the financial year in which the assessment or reassessment of the profits

and gains of the previous year referred to in sub-section (1) of that section is made, whichever is later: Provided that the period of limitation specified in this section shall not apply in a case where the company has made an application to the Board under section 107A." 2 Prior to the omission, section 107, as amended by the Finance Act, 1964, w.e.f. 1-4-1964, read as under: "107. Approval of Inspecting Assistant Commissioner for orders under section 104.Except in cases where a decision is given by the

Board under sub-section (4) of section 107A, no order shall be made by the Income-tax Officer under section 104 unless the previous approval of the Inspecting Assistant Commissioner has been obtained, and the Inspecting Assistant Commissioner shall not give his approval to any order proposed to be made by the Income-tax Officer until he has given the company concerned an opportunity of being heard." 3 Prior to the omission, section 107A, as amended by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978, read as under:

"107A. Reduction of minimum distribution in certain cases.-(1) If any company to which the provisions of section 104 apply (not being an investment company) considers that, having regard to the current requirements for the development of its business, it would not be possible or advisable for it to declare or pay a dividend of an amount larger than that already declared or paid or proposed to be declared or paid by it, it may make an application to the Board for reduction of the amount of the minimum distribution required under this Chapter.

(2) Every application under sub-section (1) shall be in the prescribed form and shall be verified in the prescribed manner and shall be made within the period of twelve months referred to in sub-

section (1) of section 104 or, where the Income-tax Officer has served

on the company a notice under sub-section (1) of section 105 --> --> ----------------------------------------------------------------------- 1.456 108 Savings for company in which public are substantially interested. 1[108. Savings for company in which public are substantially interested.-Omitted by the Finance Act, 1987, w.e.f 1-4-1988.] 109 "Distributable income", "investment company" and "statutory percentage" defined. 2[109. "Distributable income", "investment company" and "statutory percentage" defined.-Omitted by the Finance Act, 1987, w.e.f. 1-4- 1988.] ----------------------------------------------------------------------- --> --> of his intention to make an order under section 104, within thirty days of the receipt of such notice.

(3) Every application under sub-section (1) shall be accompanied by a fee of one hundred rupees.

(4) If the Board is satisfied that a distribution equal to the statutory percentage of the distributable income of the company concerned would be unreasonable, it may reduce the amount of minimum distribution required of the company under this Chapter by such amount, not exceeding twenty per cent of the statutory percentage of its distributable income, as it may consider fit and further determine the period within which such distribution shall be made.

(5) The Board shall not reject an application made under

sub-section (1) without giving the company concerned an opportunity of being heard and its decision shall be final as respects matters concluded by it.

(6) Where an application is made by the company after receipt of a notice from the Income-tax Officer under sub-

section (1) of section 105 and a further distribution is made in accordance with the decision thereon of the Board, such further distribution shall not be taken into account in deciding whether the provisions of section 104 apply in respect of the previous year in which the further distribution is made.

(7) Where an application is made by a company under this section, the Income-tax Officer shall not make any order under section 104 until the decision is given by the Board on that application: Provided that where a company is required to make a distribution or further distribution of its profits and gains in accordance with the decision of the Board and fails to make such distribution or further distribution within the period determined thereunder, the Income-tax Officer shall make an order under section 104 as if no reduction of the amount of minimum distribution had been made by the Board under this section.

(8) If the Central Government is of opinion that it is necessary or expedient in the public interest so to do, it may, by notification in the Official Gazette, declare that the provisions of this section shall not apply to any class of companies or in regard to the whole or any part of the profits and gains of any class of companies.

(9) Notwithstanding anything contained in section 246, no appeal shall lie to the Commissioner (Appeals) against an order of the Income-tax Officer under section 104 in a case where a decision has been given by the Board.

(10) The Board may, by notification in the Official Gazette, direct that, subject to such conditions, if any, as may be specified in the notification, the powers exercisable by it under this section shall also be exercisable by any Commissioner in respect of such companies or classes of companies as may be specified therein and thereupon in respect of such companies or classes of companies the provisions of this section and sections 106 and 107 shall have effect as if references in the said sections to the Board were references to such Commissioner." 1 Prior to the omission, section 108, as originally enacted, read as under: "108. savings for company in which public are substantially interested.-Nothing contained in section 104 shall apply- (a) to any company in which the public are substantially interested; or (b) to a subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous. year." 2 Prior to the omission, section 109, as amended by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962; Finance Act, 1964, w.e.f. 1-4- 1964; Finance Act, 1965, w.e.f. 1-4-1965; Finance Act, 1966, w.e.f. 1- 4-1966; Finance (No. 2) Act, 1967, w.e.f. 1-4-1968; --> --> ----------------------------------------------------------------------- 1.457 --------------------------------------------------------------------- --> --> Finance Act, 1968, w.e.f. 1-4-1969; Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976; Finance (No. 2) Act, 1977, w.e.f. 1-4-1978 and Finance Act, 1983, w.e.f. 1-4-1984, read as under: "109. 'Distributable income', 'investment company'and 'statutory percentage' defined.-For the purposes of sections 104, 105, and 107A and this section,- (i) 'distributable income' means the gross total income of a company as reduced by-- (a) the amount of income-tax payable by the company in respect of its total income, but excluding the amount of any income-tax payable under section 104; (b) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income; (c) any sum with reference to which a deduction is allowable to the company under the provisions of section 80G: (d) losses under the head 'Capital gains' relating to capital assets other than short-term capital assets; (e) income arising outside India in a country the laws of which prohibit or restrict the remittance of money to India: Provided that, when the prohibition or restriction is subsequently removed, any deduction allowed under this provision shall be deemed to be a part of the distributable income of the previous year in which the prohibition or restriction is removed; (f) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949 (10 of 1949); (g) any expenditure actually incurred for the purposes of the business, but not deducted in computing the income chargeable under the head 'Profits and gains of business or profession' being-

(1)a bonus or gratuity paid to an employee.

(2)legal charges,

(3)any such expenditure as is referred to in clause (c) of section 40,

(4)any expenditure claimed as a revenue expenditure but not allowed to be deducted as such and not resulting in the creation of an asset or enhancement in the value of an existing asset; (h) any expenditure wholly and exclusively incurred for the purpose of making or earning any income (other than income chargeable under the head 'Profits and gains of business or profession') included in the gross total income but not allowed to be deducted in computing such income and not resulting in the creation of an asset or enhancement in the value of an existing asset;

[(ia) * * *]

Explanation.-In this clause and in sub-clause (3) of clause (iii) the expression 'provision of technical know-how' means,- (i)the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or similar property; (ii)the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or similar property; (iii) the use of any patent, invention, model, design, secret -> -> ---------------------------------------------------------------------- 1.458 ----------------------------------------------------------------------- -> -> formula or process or similar property; (iv)the imparting of any information concerning industrial, commercial or scientific knowledge, experience or skill; (ii) 'investment company' means a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains' and 'Income from other sources'; (iia) 'trading company' means a company whose business consists mainly in dealing in goods or merchandise manufactured, produced or processed by a person other than that company and whose income attributable to such business included in its gross total income is not less than fifty-one per cent of the amount of such gross total income; (iii) 'statutory percentage' means,-

(1) in the case of a consultancy service company 45

(2)in the case of an investment company other than an

investment company which falls under sub-clause (3) of this clause 90

(3) in the case of an Indian company, not being an Indian

company referred to in clause (a) of sub-section (4) of section 104 or a consultancy service company, a part of whose gross total income consists of profits and gains attributable to- (i)the business of construction of ships or of manufacture or processing of goods or of mining or of generation or distribution of electricity or any other form of power; or (ii)the business of provision of technical know-how, or of rendering services in connection with the provision of technical know-how, to other persons- (a)in relation to that part of its gross total income as is attributable to the business referred to in item (i) of this sub-clause Nil (b)in relation to that part of its gross total income as is attributable to the business referred to in item (ii) of this sub-clause 45 (c)in relation to the remaining part of its gross total income-

(1) if it is an investment company or a company which

satisfies the Conditions specified in sub-clause (4)(a) of this clause 90

(2) in any other case 60 . Explanation.-The provisions of this Chapter shall apply as if each of the aforesaid parts of the gross total income of the company were the gross total income of the company in relation to that part and as if the amount of dividends actually distributed and the distributable income were also similarly apportioned for the purposes of section 104 and this section;

(4) in the case of any other company not referred to in the preceding clauses,- (a)where the accumulated profits and reserves (including depreciation reserves and any amounts capitalised from the earlier reserves) representing accumulations of past profits which have not been the subject of an order under section 104 or the corresponding provision of the Indian income-tax Act, 1922 (11 of 1922), exceed-- either I. the aggregate of- (i) the paid-up capital of the company exclusive of the capital, if any, created out of its profits and gains which have not been the subject of an order under section 104, and (ii)any loan capital which is the property of the shareholders; -> -> ------------------------------------------------------------------------ 1.459 ----------------------------------------------------------------------- or II. the value of the fixed assets as shown in the books of the company, whichever of these is greater 90 Provided that in the case of such company, not being a trading company, sub-clause (a) shall have effect as if for the word 'exceed', the words 'exceed twice the amount of' were substituted; (b) where sub-clause (a) does not apply 60 ; (iv) 'gross total income' means the total income computed in accordance with the provisions of this Act before making any deduction under Chapter VIA." 1.460 CHAP DETERMINATION OF TAX IN CERTAIN SPECIAL CASES CHAPTER XII DETERMINATION OF TAX IN CERTAIN SPECIAL CASES 110 Determination of tax where total income includes income on which no tax is payable2 1[110. Determination of tax where total income includes income on which no tax is payable2 Where there is included in the total income of an assessee any income on which no income-tax is payable under the provisions of this Act, the assessee shall be entitled to a deduction, from the amount of income-tax with which he is chargeable on his total income, of an amount equal to the income-tax calculated at the average rate of income-tax on the amount on which no income-tax is payable]. 111 Tax on accumulated balance of recognised provident fund 111. Tax on accumulated balance of recognised provident fund

(1)Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income, owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable the 3[Assessing] Officer shall calculate the total of the various sums of 4 [tax] in accordance with the provisions of sub-rule

(1) of rule 9 thereof.

(2)Where the accumulated balance due to an employee participating in a recognised provident fund which is not included in his total income under the provisions of rule 8 of Part A of the Fourth Schedule becomes payable, super-tax shall be calculated in the manner provided

in sub-rule (2) of rule 9 thereof. 112 Tax on long-term capital gains 5[112. Tax on long-term capital gains

(1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head "Capital gains", the tax payable by the assessee on the total income shall be the aggregate of,- (a) in the case of an individual or a Hindu undivided family 6[being a resident],- (i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been his total income; and (ii) the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent: Provided that where the total income as reduced by such long term capital gains is below the maximum amount which is not ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1965, w.e.f. 1-4-1965. 3 Substituted for "Income-tax" by the Direct tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for "income-tax and super-tax" by the Finance Act, 1965, w.e.f. 1-4-1965. 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, the original section 112 was amended by the Finance Act, 1965, w.e.f. 1-4- 1965 and the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965 and omitted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968, simultaneously being replaced by section 80S. 6 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ----------------------------------------------------------------------- 1.461 chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate of twenty per cent; (b) in the case of a 1[domestic] company,- (i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total income; and (ii) the amount, of income-tax calculated on such long-term capital gains at the rate of 2[thirty] per cent: 3[Provided that in relation to long-term capital gains arising to a venture capital company from the transfer of equity shares of venture capital undertakings, the provisions of sub-clause (ii) shall have effect as if for the words "4

[thirty] per cent", the words "twenty per cent" had been

(1) the total investment in the company does not exceed ten crore rupees or such other higher amount as may be prescribed; ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 2 Substituted for "forty" by the Finance Act, 1994, w.e.f 1-4-1995. 3 Being omitted by the Finance Act, 1995, w.e.f 1-4-1996. 4 Substituted for "forty" by the Finance Act, 1994, w.e.f 1-4-1995. 5 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 6 Relettered for "(c)" by the Finance Act, 1994, w.e.f 1-4-1995 7 Inserted by the Finance Act, 1994, w.e.f. 1-44995. 8 Being omitted by the Finance Act, 1995, w.e.f 1-4-1996. ------------------------------------------------------------------------ 1.462

(2) the company does not have adequate financial resources to undertake projects for which it is otherwise Professionally or technically equipped ; and

(3) the company seeks to employ any technology which will result in significant improvement over the existing technology in India in any field and the investment in such technology involves high risk. ]

(2) Where the gross total income of an assessee includes any income arising from the transfer of a long-term capital asset, the gross total income shall be reduced by the amount of such income and the deduction under chapter VIA shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

(3) Where the total income of an assessee includes any income arising from the transfer of a long-term capital asset, the total income shall be reduced by the amount of such income and the rebate under section 88 shall be allowed from the income-tax on the total income as so reduced.] 1[112A. Tax on interest on National Savings Certificates (First Issue).-Omitted by the Finance Act, 1988, w.e.f 1-4-1989. It was inserted by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965.] 113 Tax in the case of block assessment of search cases 2[113. Tax in the case of block assessment of search cases The total undisclosed income of the block period, determined under section 158BC, shall be chargeable to tax at the rate of sixty per cent.] 114 Tax on capital gains in cases of assessee other than companies. 3[114. Tax on capital gains in cases of assessees other than companies.-Omitted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 and reintroduced with modifications in section 80T.] ----------------------------------------------------------------------- 1 Prior to the omission, section 112A, as amended by the Finance Act, 1966, w.e.f. 1-4-1966; Finance (No. 2) Act, 1967, w.e.f. 1-4- 1968; Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1968/1-4-1969 and Finance Act, 1973, w.r.e.f. 1-4-1972, read as under: "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, 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 the total income if the amount of such interest and the amount of compensation or other payment, ]referred to in sub-clause (a) or sub-clause (b) or sub-clause (c) of clause (ii) of Section 28 and of the capital gains, if any, had not formed part of it.

[(C) * * *]

[Explanation 1.- * * * ]

the substitution, subsection (1) read as under:

"(1) Subject to the provisions of 1[sub-sections (1A) and (2)], where the total income of an assessee, being a foreign company, includes any income by way of- (a) dividends; or 2 [(aa) interest received from Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency; or] 3[(ab) income received in respect of units, purchased in foreign currency, of a Mutual Fund specified under clause (23D) of section 10; or] 4[(b) royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, 5[the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy],] the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the amount of income by way of dividends, if any, included in the total income, at the rate of twenty-five per cent; 6[(ia)the amount of income-tax calculated on the income by way of interest referred to in clause (aa), if any, included in the total income, at the rate of twenty-five per cent;] 7[(ib)the amount of income-tax calculated on the income in respect of units referred to in clause (ab), if any, included in the total income, at -> -> ----------------------------------------------------------------------- 1.464 (a) a non-resident (not being a company) or of a foreign company, includes any income by way of-- (i) dividends; or ----------------------------------------------------------------------- the rate of twenty-five per cent;] 8[(ii)the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of thirty per cent;] (iii)the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of 9[thirty per cent]; and (iv)the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income referred to in clause (a), 10[clause (aa)] and clause (b). Explanation.-For the purposes of this section,- (a) "fees for technical services" shall "have the same meaning as in 11[Explanation 2] to clause (vii) of sub-

section (1) of section 9; 12[13[(b)] "foreign currency" shall have the same meaning as in the Explanation below item (g) of sub-clause (iv) of

clause (15) of section 10;] (c) "royalty" shall have the same meaning as in 14

[Explanation 2] to clause (vi) of sub-section (1) of section

1 Substituted for "sub-section (2)" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 2 Inserted by the Finance Act, 1983, w.e.f. 1-6-1983. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Substituted by the Finance Act, 1983, w.e.f. 1-6-1983. Prior to the substitution, clause (b) read as under. "(b) royalty or fees for-technical services received from an Indian concern in pursuance of an agreement made by the foreign company with the Indian concern after the 31st day of March, 1976, and approved by the Central Government;" 5 Substituted for "such agreement is approved by the Central Government" by tile Finance Act, 1992, w.e.f. 1-6-1992. 6 Inserted by the Finance Act, 1983, w.e.f. 1-6-1983. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 8 Substituted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to the substitution, clause (ii) read as under: "(ii) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income-

(1)on so much of the amount of such income as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing, or specification relating to any patent, invention, model, design, secret formula, or process or trade mark or similar property, at the rate of twenty per cent;

(2) on the balance of such income, if any, at the rate of forty per cent;" 9 Substituted for "forty per cent", ibid. 10 Inserted by the Finance Act, 1983, w.e.f. 1-6-1983. 11 Substituted for "the Explanation" by the Finance (No. 2) Act, 1977, w.e.f. 14-1977. 12 Inserted as clause (bb) by the Finance Act, 1983, w.e.f. 1-6-

13 Relettered for "(bb)", ibid. Clause (b), as originally enacted, and omitted by the Direct Tax Laws (Amendment) Act, 1989, read as under: "(b) "foreign company" shall have the same meaning as in section 80B;" 14 Substituted for "the Explanation" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977." ------------------------------------------------------------------------ 1.465 (ii) interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency; or (iii) income received in respect of units, purchased in foreign currency, of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India, the income-tax payable shall be aggregate of- (A) the amount of income-tax calculated on the amount of income by way of dividends, if any, included in the total income, at the rate of twenty per cent; (B) the amount of income-tax calculated on the amount by. way of interest referred to in clause (ii), if any, included in the total income, at the rate of twenty per cent; (C) the amount of income-tax calculated on the income in respect of units referred to in clause (iii), if any, included in the total income, at the rate of twenty per cent ; and (D) the amount of income-tax with which he or it would have been chargeable had his or its total income been reduced by the amount of income referred to in clause (i), clause (ii) and clause (iii); (b) a foreign company, includes any income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions

of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of, (A) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of thirty per cent; (B) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income at the rate of thirty per cent; and (C) the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services. Explanation.-For the purposes of this section,- (a) "fees for technical services" shall have the same meaning as in the Explanation 2 to clause (vii) of sub-

section (1) of section 9; (b) "foreign currency" shall have the same meaning as in the Explanation below item (g) of sub-clause (iv) of clause

(15) of section 10; 1.466 (c) "royalty" shall have the same meaning as in Explanation

2 to clause (vi) of sub-section (1) of section 9; (d) "Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).] 1[(1A) Where the royalty refer-red to in clause (b) of sub-

section (1) is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book to an Indian concern 2[or in respect of any computer software to

a person resident in India], the provisions of sub-section (1) shall apply in relation to such royalty as if the words 3[4[the agreement is approved by the Central Government or where it] relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy] occurring in the said clause had been omitted: Provided that such book is on a subject, the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the period commencing from the 1st day of April, 1977, and ending with the 31st day of March, 1978, to be imported into India under an Open General Licence: 5[Provided further that such computer software is permitted according to the Import Trade Control Policy of the Government of India for the time being in force to be imported into India under an Open General Licence.] Explanation 6[1].-In this sub-section, "Open General Licence" means an Open General Licence issued by the Central Government in pursuance of the Imports (Control) Order, 1955.] 7[Explanation 2.-In this sub-section, the expression, "computer software" shall have the meaning assigned to it in clause (b) of the Explanation to section 80HHE.]

(2)Nothing contained in sub-section (1) shall apply in relation to any income by way of royalty received by a foreign company from an Indian concern in pursuance of an agreement made by it with the Indian concern after the 31st day of March, 1976, if such agreement is deemed, for the purposes of the 8[first] proviso to clause (vi) of

sub-section (1) of section 9, to have been made before the 1st day of April, 1976; and the provisions of the annual Finance Act for calculating, charging, deducting or computing income-tax shall apply in relation to such income as if such income had been received in pursuance of an agreement made before the 1st day of April, 1976.] ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 2 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 3 Substituted for "and approved by the Central Government" by the Finance Act, 1992, w.e.f. 1-6-1992. 4 Substituted for "approved by the Central Government or where the agreement" by the Finance Act, 1994, w.e.f. 1-4-1995. 5 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 6 Renumbered, ibid. 7 Inserted, ibid. 8 Inserted by the Finance (No 2) Act, 1991, w.e.f. 1-4-1991. ------------------------------------------------------------------------ 1.467

1[(3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under sections 28 to 44C and section

57 in computing his or its income referred to in sub-section (1).

(4) Where in the case of an assessee referred to in sub-section

(1),- (a) the gross total income consists only of the income referred to in clause (a) of that sub-section, no deduction shall be allowed to him or it under Chapter VIA; (b) the gross total income includes any income referred to in clause (a)of that sub-section, the gross total income shall be reduced by the amount of such income and the deduction under Chapter VIA shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

(5) It shall not be necessary for an assessee referred to in

sub-section (1) to furnish under subsection (1) of section 139 a return of his or its income if- (a) his or its total income in respect of which he or it is assessable under this Act during the previous year consisted

only of income referred to in clause (a) of sub-section (1); and (b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.] 2[115AB. Tax on income from units purchased in foreign currency or capital gains arising from their transfer

(1) Where the total income of an assessee, being an overseas financial organisation (hereinafter referred to as offshore fund) includes- (a) income received in respect of units purchased in foreign currency; or (b) income by way of long-term capital gains arising from the transfer of units purchased in foreign currency, the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the income in respect of units referred to in clause (a), if any, included in the total income, at the rate of ten per cent; (ii) the amount of income-tax calculated on the income by way of long term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and (iii) the amount of income-tax with which the offshore fund would have been chargeable had its total income been reduced by the amount of income referred to in clause (a) and clause (b). ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 2 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. ------------------------------------------------------------------------ 1.468

(2) Where the gross total income of the offshore fund,- (a) consists only of income from units or income by way of long-term capital gains arising from the transfer of units, or both, no deduction shall be allowed to the assessee under sections 28 to 44C 1[* * *] or clause (i) or clause (iii) of section 57 or under Chapter VIA 2 [and nothing contained in the provisions of the second proviso to section 48 shall apply to income referred to in clause (b) of sub-section

(1)]; (b) includes any income referred to in clause (a), the gross total income shall be reduced by the amount of such income and the deduction under Chapter VIA shall be allowed as if the gross total income as so reduced were the gross total income of the assessee. Explanation.-For the purposes of this section,- (a) "overseas financial Organisation" means any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India, which has entered into an arrangement for investment in India with any public sector bank or public financial institution or a mutual fund specified under clause (23D) of section 10 and such arrangement is approved by the Central Government for this purpose; (b) "unit" means unit of a mutual fund specified under clause (23D) of section 10 or of the Unit Trust of India; (c) "foreign currency" shall have the meaning as in the Foreign Exchange Regulation Act, 1973 3 (46 of 1973); (d) "Public sector bank" shall have the meaning assigned to it in clause (23D) of section 10; (e) "Public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 4 ( 1 of 1956); (f) "Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).] 5[115AC. Tax on income from bonds or shares purchased in foreign currency or capiual gains arising from their transfer

(1) Where the total income of an assessee, being a non-resident, includes- (a) income by way of interest or dividends, on bonds or shares of an Indian company, issued in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf,6 and purchased by him in foreign currency; or -----------------------------------------------------------------------

1 The words "or sub-section (2) of section 48" omitted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 4 Ibid. 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 6 The Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 has been specified in respect of assessment year 1993-94 (previous year 1992-93) and subsequent assessment years. ----------------------------------------------------------------------- 1.469 (b) income by way of long-term capital gains arising from the transfer of bonds or, as the case may be, shares referred to in clause (a), the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the income by way of interest or dividends, as the case may be, in respect of bonds or shares referred to in clause (a), if any, included in the total income, at the rate of ten per cent; (ii) the amount of income-tax calculated on the income by way of long term capital gains referred to in clause (b), if any, at the rate of ten per cent; and (iii) the amount of income-tax with which the non- resident would have been chargeable had his total income been reduced by the amount of income referred to in clause (a) and clause (b).

(2) Where the gross total income of the non-resident- (a) consists only of income by way of interest or dividends in respect of bonds or, as the case may be, shares referred

to in clause (a) of sub-section (1), no deduction shall be allowed to him under sections 28 to 44C or clause (i) or clause (iii) of section 57 or under Chapter VIA; (b) includes any income referred to in clause (a) or clause

(b) of subsection (1) the gross total income shall be reduced by the amount of such income and the deduction under Chapter VIA shall be allowed as if the gross total income as so reduced, were the gross total income of the assessee.

(3) Nothing contained in the first and second provisos to section 48 shall apply for the computation of long-term capital gains arising out of the transfer of long-term capital asset, being bonds or

shares refer-red to in clause (b) of sub-section (1).

(4). It shall not be necessary for a non-resident to furnish

under subsection (1) of section 139 a return of his income if- (a) his total income in respect of which he is assessable under this Act during the previous year consisted only of

income referred to in clause (a) of sub-section (1); and (b) the tax deductible at source under the provisions of Chapter XVIIB has been deducted from such income.] 1[115AD. Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer

(1) Where the total income of a Foreign Institutional Investor includes- (a) income received in respect of securities (other than units referred to in section 115AB) listed in a recognised stock exchange in India in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder; or (b) income by way of short-term or long-term capital gains arising from the transfer of such securities, ------------------------------------------------------------------------ 1 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. ------------------------------------------------------------------------ 1.470 the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the income in respect of securities referred to in clause (a), if any, included in the total income, at the rate of twenty per cent; (ii) the amount of income-tax calculated on the income by way of short term capital gains referred to in clause (b), if any, included in the total income, at the rate of thirty per cent; (iii) the amount of income-tax calculated on the income by way of long term capital gains referred to in clause (b), if any, included in the total income, at the rate of ten per cent; and (iv) the amount of income-tax with which the Foreign Institutional Investor would have been chargeable had its total income been reduced by the amount of income referred to in clause (a) and clause (b).

(2) Where the gross total income of the Foreign Institutional Investor- (a) consists only of income in respect of securities

referred to in clause (a) of sub-section (1), no deduction shall be allowed to it under sections 28 to 44C or clause (i) or clause (iii) of section 57 or under Chapter VIA; (b) includes any income referred to in clause (a) or clause

(b) of subsection (1), the gross total income shall be reduced by the amount of such income and the deduction under Chapter VIA shall be allowed as if the gross total income as so reduced, were the gross total income of the Foreign Institutional Investor.

(3) Nothing contained in the first and second provisos to section 48 shall apply for the computation of capital gains arising out of the transfer of securities referred to in

clause (b) of sub-section (1). Explanation.-For the purposes of this section,- (a) the expression "Foreign Institutional Investor" means such investor as the Central Government may, by notification" in the Official Gazette, specify in this behalf; (b) the expression "securities" shall have the meaning assigned to it-in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 2 (42 of 1956).] 3[115B. Tax on profits and gains of life insurance business

4[(1)] Where the total income of an assessee includes any profits and gains from life insurance business, the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the amount of profits and ---------------------------------------------------------------------- 3 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976. 4 Inserted by the Finance Act, 1988, w.e.f 1-4-1989. ---------------------------------------------------------------------- 1.471 gains of the life insurance business included in the total income, at the rate of twelve and one-half per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of profits and gains of the life insurance business.]

1[(2) Notwithstanding anything contained in sub-section (1) or in any other law for the time being in force or any instrument having the force of law, the assessee shall, in addition to the payment of

income-tax computed under sub-section (1), deposit, during 2[the previous years relevant to the assessment years commencing on the 1st day of April, 1989 and the 1st day of April, 1990], an amount equal to thirty-three and one-third per cent of the amount of income-tax

computed under clause (i) of sub-section (1), in such social security fund (hereafter in this subsection referred to as the security fund), as the Central Government may, by notification3 in the Official Gazette, specify in this behalf: Provided that where the assessee makes during the said previous 4[years] any deposit of an amount of not less than two and one-half per cent of the profits and gains of the life insurance business in the security fund, the amount of income-tax payable by the assessee under the said clause (i) shall be reduced by an amount equal to two and one-half per cent of such profits and gains and, accordingly, the deposit of thirty-three and one-third per cent required to be made under this sub-section shall be calculated on the income-tax as so reduced.] 5[115BB. Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income- tax payable shall be the aggregate of- (i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of forty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i). ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 2 Substituted for "the previous year relevant to the assessment year commencing on the 1st day of April, 1989" by the Finance Act, 1989, w.e.f. 1-4-1990. 4 Substituted for "year" by the Finance Act, 1989, w.e.f. 1-4-1990. 5 Inserted by the Finance Act, 1986, w.e.f. 1-4-1987. ----------------------------------------------------------------------- 1.472 Explanation.-For the purposes of this section, "horse race" shall have the same meaning as in section 74A.] 1[115BBA. Tax on non-resident sportsmen or sports associations

(1) Where the total income of an assessee,- (a) being a sportsman (including an athlete), who is not a citizen of India and is a non-resident, includes any income received or receivable by way of- (i) participation in India in any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport; or (ii) advertisement; or (iii)contribution of articles relating to any game or sport in India in newspapers, magazines or journals; or (b) being a non-resident sports association or institution, includes any amount guaranteed to be paid or payable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport played in India, the income-tax payable by the assessee shall be the aggregate of- (i) the amount of income-tax calculated on income referred to in clause (a) or clause (b) at the rate of ten per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income referred to in clause (a) or clause (b): Provided that no deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the income referred to in clause (a) or clause (b).

(2) It shall not be necessary for the assessee to furnish under

subsection (1) of section 139 a return of his income if- (a) his total income in respect of which he is assessable under this Act during the previous year consisted only of income referred to in clause (a) or clause (b) of sub-section

(1); and (b) the tax deductible at source under the provisions of Chapter XVIIB has been deducted from such income.] ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. ----------------------------------------------------------------------- 1.473 CHAP SPECIAL PROVISIONS RELATING TO CERTAIN INCOMES OF NON-RESIDENTS 1[CHAPTER XIIA SPECIAL PROVISIONS RELATING TO CERTAIN INCOMES OF NON-RESIDENTS 115C. Definitions In this Chapter, unless the context otherwise requires,- (a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (b)"foreign exchange asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange; (c) "investment income" means any income derived from a foreign exchange asset; (d) "long-term capital gains" means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset; (e) "non-resident Indian" means an individual, being a citizen of India or a person of Indian origin who is not a "resident". Explanation.-A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India; (f) "specified asset" means any of the following assets, namely:- (i)shares in an Indian company; (ii)debentures issued by an Indian company which is not a private company as defined in the Companies Act, 1956 2 (1 of 1956); (iii)deposits with an Indian company which is not a private company as defined in the Companies Act, 1956 3 (1 of 1956); (iv)any security of the Central Government as defined in

clause (2) of section 2 of the Public Debt Act, 19444 (18 of 1944); (v) such other assets as the Central Government may specify in this behalf by notification in the Official Gazette. 115D. Special provision for computation of total income of non- residents

(1) No deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the investment income of a non-resident Indian. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1983, w.e.f. 1-6-1983. 3 Ibid. 4 Ibid. ----------------------------------------------------------------------- 1.474

(2) Where in the case of an assessee, being a non-resident Indian,- (a) the gross total income consists only of investment income or income by way of long-term capital gains or both, no deduction shall be allowed to the assessee 1[2[under Chapter VIA and nothing contained in the provisions of the second proviso to section 48 shall apply to income chargeable under the head "Capital gains]]; (b) the gross total income includes any income referred to in clause (a), the gross total income shall be reduced by the amount of such income and the deductions under Chapter VIA shall be allowed as if the gross total income as so reduced were the gross total income of the assessee. 115E. Tax on investment income and long-term capital gains3

(1) Where the total income of an assessee, being a non-resident Indian, consists only of investment income or income by way of long- term capital gains or both, the tax payable by him on his total income shall be the amount of income-tax calculated on such total income at the rate of twenty per cent of such income 4[* * *].

(2) Where the total income of an assessee, being a non-resident Indian includes any income of the nature referred to in sub-section

(1), the tax payable by him on his total income shall be- (i) 5[the income-tax] payable by him in accordance with the

provisions of sub-section (1) on income of the nature referred to in that sub-section included in the total income; plus (ii) the amount of income-tax chargeable on the total income as reduced by the amount of income of the nature refer-red to

in subsection (1), had the total income so reduced been his total income. 115F. Capital gains on transfer of foreign exchange assets not to be charged in certain cases

(1) Where, in the case of an assessee being a non-resident Indian, any long-term capital gains arise from the transfer of a foreign exchange asset (the asset so transferred being hereafter in this section referred to as the original asset), and the assessee has, within a period of six months after the date of such transfer, invested 6[* * *] the whole or any part of the net consideration in any specified asset 7[* * *], or in any savings certificates referred to in clause (4B), of section 10 (such specified asset ----------------------------------------------------------------------

1 Substituted for under subsection (2) of section 48 or under Chapter VIA" by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Substituted for "under Chapter VIA" by the Direct Tax Laws (Second Amendment) Act, 1989, w.r.e.f. 1-4-1988. 4 The words "as increased by a surcharge for purposes of the Union at the rate of twelve and a half per cent of such income-tax" omitted by the Finance Act, 1985, w.e.f. 1-4-1986. 5 Substituted for "the aggregate of the income-tax and surcharge", ibid. 6 The words "or deposited" omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 7 The words "or in an account referred to in clause (4A)"omitted, ibid. ----------------------------------------------------------------------- 1.475 1[* * *], or such savings certificates being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the net consideration shall not be charged under section 45. Explanation.-For the purposes of this sub-section,- (i) "cost", in relation to any new asset, being a deposit referred to in sub-clause (iii), or specified under sub- clause (v), of clause (f) of section 115C, means the amount of such deposit; (ii) "net consideration", in relation to the transfer of the original asset, means the full value of the consideration received or accruing as a result of the transfer of such asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

(2) Where the new asset is transferred or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as

the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to capital assets other than short-term capital assets of the previous year in which the new asset is transferred or converted (otherwise than by transfer) into money. 115G. Return of income not to be filed in certain cases It shall not be necessary for a non-resident Indian to furnish

under sub-section (1) of section 139 a return of his income if- (a) his total income in respect of which he is assessable under this Act during the previous year consisted only of investment income or income by way of long-term capital gains or both; and (b) the tax deductible at source under the provisions of Chapter XVIIB has been deducted from such income. 115H. Benefit under Chapter to be available in certain cases even after the assessee becomes resident Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the 3[Assessing] Officer a ----------------------------------------------------------------------- 1 The words "or such deposit in the account aforesaid" omitted, ibid. 2 The words "referred to in clause (4A) of section 10 or" omitted by the Finance Act, 1988, w.e.f. 1-4-1989 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.476 declaration in writing along with his return of income under section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this Chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or subclause (iv) or sub-clause (v) of clause (f) of section 115C; and if he does so, the provisions of this Chapter shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets. 115-I. Chapter not to apply if the assessee so chooses A non-resident Indian may elect not to be governed by the provisions of this chapter for any assessment year by furnishing 1[his return of income for that assessment year under section 139 declaring therein] that the provisions of this chapter shall not apply to him for that assessment year and if he does so, the provisions of this chapter shall not apply to him for that assessment year and his total income for that assessment year shall be computed and tax on such total income shall be charged in accordance with the other provisions of this Act.] ---------------------------------------------------------------------- 1 Substituted for "to the Assessing Officer his return of income for that assessment year under section 139 together with a declaration in writing to the effect" by the Finance Act, 1990, w.e.f. 1-4-1990. ----------------------------------------------------------------------- 1.477 CHAP SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES 1[CHAPTER XII-B SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES 2115J. Special provisions relating to certain companieS3

(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company 4[(other than a company engaged in the business of generation or distribution of electricity)], the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 5[but before the 1st day of April, 1991] (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. 6[(1A) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956).] Explanation.-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year 7[prepared under sub-section (1A)], as increased by- (a) the amount of income-tax paid or payable, and the provision therefore; or (b) the amounts carried to any reserves 8[(other than the

reserves specified in section 80HHD 9[or sub-section (1) of section 33AC])], by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; 10[or] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 2 The section is not operative for assessment year 1991-92 and onwards. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 5 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 6 Inserted by the Finance Act, 1989, w.e.f. 1-4-1989. 7 Substituted for "prepared in accordance with the provisions of Parts II and III of the Sixth Schedule to the Companies Act, 1956 (1 of 1956)" by the Finance Act, 1989, w.e.f. 1-4-1989. 8 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 9 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. 10 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.478 1[(g) the amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose

other than those referred to in sub-section (4) of that section; or (h) the amount credited to the reserve account under section 80HHD, to the extent that amount has not been

utilised within the period specified in sub-section (4) of that section;] 2[(ha) the amount deemed to be the profits under sub-

section (3) of section 33AC;] 3[if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited] to the profit and loss account, and as reduced by,- (i) the amount withdrawn from reserves 4[ (other than the reserves specified in section 80HHD)] or provisions, if any such amount is credited to the 5[profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or] (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or 6[(iii) 7the amounts [as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii) I attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD; so however, that such amounts are

computed in the manner specified in sub-section (3) or sub-

section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be; or] 8[(iv)] the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions

of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable.

(2) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. 3 Substituted for "if any such amount is debited", ibid. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 5 Substituted for "profit and loss account; or" by the Finance Act, 1989, w.r.e.f. 1-4-1988. 6 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 8 Renumbered for "(iii), ibid. ----------------------------------------------------------------------- 1.479 forward to the subsequent year or years under the provisions of sub-

section (2) of section 32 or sub-section (3) of section 32A or clause

(ii) of sub-section (1) of section 72 or section 73 or section 74 or

sub-section (3) of section 74A or sub-section (3) of section 80J.) 1.480 CHAP SPECIAL PROVISIONS RELATING TO RETAIL TRADE, ETC. 1[CHAPTER XIIC SPECIAL PROVISIONS RELATING TO RETAIL TRADE, ETC. 115K. Special provision for computation of income in certain cases 2

3(1) Notwithstanding anything contained in any other provision of this Act relating to the computation of income chargeable under the head "Profits and gains of business or profession", in the case of any person, 4[to whom this section applies and who is- (a) carrying on the business of retail trade in any goods or merchandise; or (b) carrying on the business of running an eating place or of operating, hiring or leasing a motor cab, a taxicab or a three-wheeled motor vehicle or any other business as may be prescribed; or (c) engaged in any vocation, and submits a statement in accordance with the provisions of sub-

section (4), a sum of 5[forty-two] thousand rupees shall be deemed to be the profits and gains of such person from such business or vocation.]

(2) The provisions of sub-section (1) shall apply to any person, being an individual or a Hindu undivided family, where- (a) such person has not been assessed to income-tax for any assessment year commencing on or before the 1st day of April, 1992; (b) in the case of person referred to in-

(i) clause (a) of sub-section (1), his turnover from the business of retail trade during the relevant previous year does not exceed ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 4 Substituted for the following by the Finance Act, 1994, w.e.f. 1- 4-1995: "to whom this section applies, carrying on- (a) the business of retail trade in any goods or merchandise and who submits a statement in accordance

with the provisions of sub-section (4), a sum *[of thirty-seven thousand rupees) shall be deemed to be the profits and gains of such person from the business of retail trade; 0 (b) the business of running an eating place [or of operating, hiring or leasing a goods carriage, a motor cab, a maxicab or a three-wheeled motor vehicle] or engaged in any vocation and who submits a statement in

accordance with the provisions of sub-section (4), a sum of [thirty-seven] thousand rupees shall be deemed to be the profits and gains of such person from such business or vocation." * Substituted for "equal to seven per cent of the amount specified

in sub-section (5)" by the Finance Act, 1993, w.e.f. 1-4-1994. CHAP INCOME-TAX AUTHORITIES CHAPTER XIII INCOME-TAX AUTHORITIES A.-Appointment and control 116 Income-tax authorities 1[116. Income-tax authorities There shall be the following classes of income-tax authorities for the purposes of this Act, namely:- (a) the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 19632 (54 of 1963), (b) Directors-General of Income-tax or Chief Commissioners of Income-tax, (c) Directors of Income-tax or, Commissioners of Income-tax or Commissioners of Income-tax (Appeals), 3[(cc) Additional Directors of Income-tax or Additional Commissioners of Income-tax or Additional Commissioners of income-tax (Appeals),] (d) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals), (e) Assistant Directors of Income-tax or Assistant Commissioners of Income-tax, (f) Income-tax Officers, (g) Tax Recovery Officers, (h) Inspectors of Income-tax.] ------------------------------------------------------------------------ 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 116, as amended by the Central Boards of Revenue Act, 1963, w.e.f. 1-1-1964; the Finance Act, 1970, w.e.f. 1-4-1970 and the Finance (No. 2) Act, 1977, w.e.f. 10-7- 1978, read as under: "116. Income-tax authorities.-There shall be the following classes of income-tax authorities for the purposes of this Act, namely:- (a) the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), (b) Directors of Inspection, (c) Commissioners of Income-tax, Commissioners of Income- tax (Appeals) and Additional Commissioners of Income-tax, (d) Assistant Commissioners of Income-tax, who may be either Appellate Assistant Commissioners of Income-tax, or Inspecting Assistant Commissioners of Income-tax, (e) Income-tax Officers, and (f) Inspectors of Income-tax." 3 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. ----------------------------------------------------------------------- 1.485 117 Appointment of income-tax authorities2 117. Appointment of income-tax authorities2

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

(2) Without prejudice to the provisions of sub-section (1), and subject to the rules and orders of the Central Government regulating the conditions of service of persons in public services and posts, the Central Government may authorise the Board, or a Director-General, a Chief Commissioner or a Director or a Commissioner to appoint income-tax authorities below the rank of an Assistant Commissioner.

(3) Subject to the rules and orders of the Central Government regulating the conditions of service of persons in public services and posts, an income-tax authority authorised in this behalf by the Board may appoint such executive or ministerial staff as may be necessary to assist it in the execution of its functions.] 118 Control of income-tax authorities4 3[118. Control of income-tax authorities4 The Board may, by notification in the Official Gazette, direct that any income-tax authority or authorities specified in the notification shall be ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 117, as amended by the Finance Act, 1970, w.e.f. 1-4-1970 and the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978, read as under:

"117. Appointment of income-tax authorities.-(1) The Central Government may appoint as many Directors of Inspection, Commissioners of Income-tax, Commissioners of Income-tax (Appeals), Additional Commissioners of Income-tax, Appellate or Inspecting Assistant Commissioners of Income-tax and Income-tax Officers of Class I Service, as it thinks fit.

(2) The Commissioner may, subject to the rules and orders of the Central Government regulating the conditions of service of persons in public services and posts, appoint as many Income-tax Officers of Class II Service and as many Inspectors of Income-tax as may be sanctioned by the Central Government.

(3) Subject to the rules and orders of the Central Government regulating the conditions of service of persons in public services and posts, an income-tax authority may appoint such executive or ministerial stiff as may be necessary to assist it in the execution of its functions. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 118, read as under:

"118. Control of income-tax authorities.--(1) Inspecting Assistant Commissioners shall be subordinate to the Commissioner within whose jurisdiction they perform their functions and also to the Director of Inspection.

(2) Income-tax Officers shall be subordinate to the Commissioner and the Inspecting Assistant Commissioner within whose jurisdiction they perform their functions and also to the Director of Inspection.

(3) Inspectors of Income-tax shall be subordinate to the Income- tax Officer or other income-tax authority under whom they are appointed to work and to any other income-tax authority to whom the said officer or other authority is subordinate.

Explanation.-For the purposes of sub-section (1), "Director of Inspection" does not include a Deputy Director of Inspection or an Assistant Director of Inspection; and for the purposes of sub-section

(2), "Director of Inspection" does not include an Assistant Director of Inspection." ----------------------------------------------------------------------- 1.486 subordinate to such other income-tax authority or authorities as may. be specified in such notification.] 119 Instructions to subordinate authorities 1[119. Instructions to subordinate authorities

(1)The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be issued- (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the 2[Deputy Commissioner (Appeals)] 3[or the Commissioner (Appeals)] in the exercise of his appellate functions.

(2) Without prejudice to the generality of the foregoing power,- 4(a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 5[ 139], 143, 144, 147, 148, 154, 155, 6[sub-section (1A) of section 201, sections 210, 211, 7 [234A, 234B], 234C], 271 and 273 or otherwise), general or special orders in respect of any class of incomes or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and any such order may, if the Board is of opinion that it is necessary in the public interest so to do, be published and circulated in the prescribed manner for general information; (b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise 8[any income-tax authority, not being a Deputy Commissioner (Appeals) or Commissioner (Appeals)] to admit an application or claim for any exemption, ---------------------------------------------------------------------- 1 Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1- 4-1971. 2 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance (No. 2) Act, 1977, w.e.f 10-7-1978. 5 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 6 Substituted for "210, 234A, 234B" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. Earlier, the figures "234A, 234B" were inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 7 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 8 Substituted for "the Commissioner or the Income-tax Officer" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988. ------------------------------------------------------------------------ 1.487 deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law. 1[(c) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order for reasons to be specified therein, relax any requirement contained in any of the provisions of Chapter IV or Chapter VIA, where the assessee has failed to comply with any requirement specified in such provision for claiming deduction thereunder, subject to the following conditions, namely:- (i) the default in complying with such requirement was due to circumstances beyond the control of the assessee; and (ii) the assessee has complied with such requirement before the completion of assessment in relation to the previous year in which such deduction is claimed: Provided that the Central Government shall cause every order issued under this clause to be laid before each House of Parliament.]

2[(3) * * *] 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 2 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1988. Prior to the omission, sub-section (3) read as under:

"(3) Every Income-tax Officer employed in the execution of this Act shall observe and follow such instructions as may be issued to him for his guidance by the Director of Inspection or by the Commissioner or by the Inspecting Assistant Commissioner within whose jurisdiction he performs his functions." ----------------------------------------------------------------------- 1.488 the merits of the case in the light of his individual judgement. It would be necessary to ensure that the income-tax authorities refrain from quoting or referring to the advice or guidance given by the Board in any order passed by them. [Instruction No. 796, dated 12th November, 1974] 5. A circular of the CBDT cannot override or detract from the Act, inasmuch as what section 119 has empowered is to issue orders, instructions or directions for the "proper administration" of the Act

or for such other purposes specified in sub-section (2) of the section. Such an order, instruction or direction cannot override the provisions of the Act; that would be destructive of all the known principles of law as that would really amount to giving power to a delegated authority to even emend the provision of law enacted by

Parliament. [Kerala Financial Corpn. v CIT (1994) 210 ITR 129 (SC)] B.-Jurisdiction 120 Jurisdiction of income-tax authorities2 1[120. Jurisdiction of income-tax authorities2

(1) Income-tax authorities shall exercise all or any of the powers and perform all or any of the functions Conferred on, or, as the case may be, assigned to such authorities by or under this Act in accordance with such directions as the Board may issue for the exercise of the powers and performance of the functions by all or any of those authorities.

(2) The directions of the Board under sub-section (1) may authorise any other income-tax authority to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the other income-tax authorities who are subordinate to it.

(3) In issuing the directions or orders referred to in sub-

sections (1) and (2), the Board or other income-tax authority authorised by it may have regard to any one or more of the following criteria, namely:- (a) territorial area; (b) persons or classes of persons; (c) incomes or classes of income; and (d) cases or classes of cases.

(4) Without prejudice to the provisions of sub-sections (1) and

(2), the Board may, by general or special order, and subject to such conditions, restrictions or limitations as may be specified therein,- (a) authorise any Director General or Director to perform such functions of any other income-tax authority as may be assigned to him by the Board; (b) empower the Director General or Chief Commissioner or Commissioner to issue orders in writing that the powers and functions conferred on, or as the case may be, assigned to, the Assessing Officer by or under this Act in respect of any specified area or persons or classes of persons or incomes or classes of ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 120 read as under: "120. Jurisdiction of Directors of Inspection.-Directors of Inspection shall perform such functions of any other income-tax authority as may be assigned to them by the Board." ---------------------------------------------------------------------- 1.489 income or cases or classes of cases, shall be exercised or performed by a Deputy Commissioner, and, where any order is made under this clause, references in any other provision of this Act, or in any Rule made thereunder to the Assessing Officer shall be deemed to be references to such Deputy Commissioner by whom the powers and functions are to be exercised or performed under such order, and any provision of this Act requiring approval or sanction of the Deputy Commissioner shall not apply.

(5)The directions and orders referred to in sub-sections (1) and

(2) may, wherever considered necessary or appropriate for the proper management of the work, require two or more Assessing Officers (whether or not of the same class) to exercise and perform, concurrently, the powers and functions in respect of any area or persons or classes of persons or incomes or classes of income or cases or classes of cases; and, where such powers and functions are exercised and performed concurrently by the Assessing Officers of different classes, any authority lower in rank amongst them shall exercise the powers and perform the functions as any higher authority amongst them may direct, and, further, references in any other provision of this Act or in any rule made thereunder to the Assessing Officer shall be deemed to be references to such higher authority and any provision of this Act requiring approval or sanction of any such authority shall not apply.

(6)Notwithstanding anything contained in any direction or order issued under this section, or in section 124, the Board may, by notification in the Official Gazette,, direct that for the purpose of furnishing of the return of income or the doing of any other act or thing under this Act or any rule made thereunder by any person or class of persons, the income-tax authority exercising and performing the powers and functions in relation to the said person or class of persons shall be such authority as may be specified in the notification.] 121 Jurisdiction of Commissioners. 1[121. Jurisdiction of Commissioners.-Omitted by the Direct Tax Laws. ----------------------------------------------------------------------- 1 Prior to the omission, section 121, as originally enacted and

sub-section (2) substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967, read as under:

"121. Jurisdiction of Commissioners.---(1) Commissioners shall perform their functions in respect of. such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Board may direct.

(2) Where any directions issued under subsection (1) have assigned to two or more Commissioners the same area or the same persons or classes of persons or the same incomes or classes of income or the same cases or classes of cases, they shall have concurrent jurisdiction and shall perform such functions in relation to the said area or persons or classes of persons or incomes or classes of income or cases or classes of cases as the Board may, by general or special order in writing specify, for the distribution and allocation of the work to be performed." ----------------------------------------------------------------------- 1.490 (Amendment) Act, 1987, w.e.f. 1-4-1988.] 1[121A. Jurisdiction of Commissioners (Appeals).-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988. It was inserted by the Finance (No. 2) Act, 1977, w.e.f 10-7-1978.] 122 Jurisdiction of Appellate Assistant Commissioners. 2[122. Jurisdiction of Appellate Assistant Commissioners.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988.] 123 Jurisdiction of Inspecting Assistant Commissioners. 3[123. Jurisdiction of Inspecting Assistant Commissioners.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988.] 124 Jurisdiction of Assessing Officers 4[124. Jurisdiction of Assessing Officers

(1) Where by virtue of any direction or order issued under sub-

section (1) or sub-section (2) of section 120, the Assessing Officer has been ---------------------------------------------------------------------- 1 Prior to the omission, section 121A read as under:

"121A. Jurisdiction of Commissioners (Appeals).-(1) Commissioners (Appeals) shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income as the Board may direct.

(2) Where any directions issued under sub-section (1) have assigned to two or more Commissioners (Appeals), the same area or the same persons or classes of persons or the same incomes or classes of income, they shall perform their functions in accordance with any orders which the Board may make for the distribution and allocation of the work to be performed." 2 Prior to the omission, section 122 read as under:

"122. Jurisdiction of Appellate Assistant Commissioners.-(1) Appellate Assistant Commissioners shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income as the Board may direct.

(2) Where any directions issued under sub-section (1) have assigned to two or more Appellate Assistant Commissioners, the same area or the same persons or classes of persons or the same incomes or classes of income, they shall perform their functions in accordance with any orders which the Board may make for the distribution and allocation of the work to be performed." 3 Prior to the omission, section 123, as substituted, by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967, read as under:

"123. Jurisdiction of Inspecting Assistant Commissioners.-(1) Inspecting Assistant Commissioners shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Commissioner may direct.

(2) Where any directions issued under sub-section (1) have assigned to-two or more Inspecting Assistant Commissioners, the same area or the same persons or classes of persons or the same incomes or classes of income or the same cases or classes of cases, they shall have concurrent jurisdiction and shall perform such functions in relation to the said area or persons or classes of persons or incomes or classes of income or cases or classes of cases as the Commissioner may, by general or special order in writing, specify, for the distribution and allocation of the work to be performed". 4 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 124, as amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967 and the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975, read as under:

"124. Jurisdiction of Income-tax officers.-(1) Income-tax Officers shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Commissioner may direct.

(2) Where any directions issued under sub-section (1) have assigned to two or more Income-tax Officers, the same area or the same persons or classes of persons -> -> ---------------------------------------------------------------------- 1.491 vested with jurisdiction over any area, within the limits of such area, he shall have jurisdiction- (a) in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession is situate within the area, and (b) in respect of any other person residing within the area.

(2) Where a question arises under this section as to whether an Assessing Officer has jurisdiction to assess any person, the question shall be determined by the Director General or the Chief Commissioner or the Commissioner; or where the question is one relating to areas within the jurisdiction of different Directors General or Chief Commissioners or Commissioners, by the Directors General or Chief Commissioners or Commissioners concerned or, if they are not in agreement, by the Board or by such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, specify. ---------------------------------------------------------------------- -> -> or the same incomes or classes of income or the same cases or classes of cases, they shall have concurrent jurisdiction and shall perform their functions in relation to the said area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, in accordance with such general or special orders in writing as the Commissioner, or the Inspecting Assistant Commissioner authorised by the Commissioner in this behalf, may make for the purpose of facilitating the performance of such functions.

(3) Within the limits of the area assigned to him, the Income-tax Officer shall have jurisdiction- (a) in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession is situate within the area, and (b) in respect of any other person residing within the area.

(4) Where a question arises under this section as to whether an Income-tax Officer has jurisdiction to assess any person, the question shall be determined by the Commissioner; or where the question is one relating to areas within the jurisdiction of different Commissioners, by the Commissioners concerned or, if they are not in agreement, by the Board.

(5) No person shall be entitled to call in question the jurisdiction of an Income-tax Officer- (a) after the expiry of one month from the date on which he

has made a return under sub-section (1) of section 139 or after the completion of the assessment, whichever is earlier; (b) where he has made no such return, after the expiry of

the time allowed by the notice under sub-section (2) of section 139 or under section 148 for the making of the return.

(6) Subject to the provisions of sub-section (5), where an assessee calls in question the jurisdiction of an Income-tax Officer, then the Income-tax Officer shall, if not satisfied with the correctness of the claim refer the matter for determination under sub-

section (4) before assessment is made.

(7) Notwithstanding anything contained in this section or in section 130A every Income-tax Officer shall have all the powers conferred by or under the Act on an Income-tax Officer in respect of any income accruing or arising or received within the area for which he is appointed." ----------------------------------------------------------------------- 1.492

(3) No person shall be entitled to call in question the jurisdiction of an Assessing Officer-

(a) where he has made a return under sub-section (1) of section 139, after the expiry of one month from the date on

which he was served with a notice under sub-section (1) of

section 142 or subsection (2) of section 143 or after the completion of the assessment, whichever is earlier; (b) where he has made no such return, after the expiry of

the time allowed by the notice under sub-section (1) of section 142 or under section 148 for the Making of the return or by the notice under the first proviso to section 144 to show cause why the assessment should not be completed to the best of the judgment of the Assessing Officer, whichever is earlier.

(4) Subject to the provisions of sub-section (3), where an assessee calls in question the jurisdiction of an-Assessing Officer, then the Assessing Officer shall, if not satisfied with the correctness of the claim, refer the matter for determination under

sub-section (2) before the assessment is made.

(5) Notwithstanding anything contained in this section or in any direction or order issued under section 120, every Assessing Officer shall have all the powers conferred by or under this Act on an Assessing Officer in respect of the income accruing or arising or received within the area, if any, over which he has been vested with jurisdiction by virtue of the directions or orders issued under sub-

section (1) or sub-section (2) of section 120.] 125 Powers of Commissioner respecting specified areas, cases, persons, etc. 1[125. Powers of Commissioner respecting specified areas, cases, persons, etc.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.] ---------------------------------------------------------------------- 1 Prior to the omission, section 125, as substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967 and amended by the Finance Act, 1972, w.e.f. 1-4-1972; the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975 and the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978, read as under: "125. Powers of Commissioner respecting specified areas, cases,

persons, etc.-(1) The Commissioner may, by general or special order in writing, direct that- (a) the powers conferred on the Income-tax Officer by or under this Act shall, in respect of any specified case or class of cases or of any specified person or class of persons, be exercised by the Inspecting Assistant Commissioner; (b) such of the functions assigned to the Income-tax Officer by or under this Act, as are specified in any such order may, in respect of any specified area, case or classes of cases, person or class of persons or class of incomes, be performed by an inspector of income-tax or any member of the ministerial staff, subordinate to the Commissioner or any other income-tax authority subordinate to him, and specified in such order, subject to such conditions, restrictions or limitations as may be specified therein: Provided that the Commissioner shall not, unless he is authorised in this behalf by the Board by general or special order in writing, make an order under clause (b) in relation to the functions of an Income-tax Officer mentioned in the following provisions of this Act, namely, sections 131, 132, 132A, 132B, 140A, 143, 144, 146, 147, 148, 162, 163, 171, 172, 174, 175, 176, 177, 178, 183, 184, 185, 189, 221, 222, 226, 228, 228A, 253,271 to 273 (both inclusive) and 274. -> -> ----------------------------------------------------------------------- 1.493 1[125A. Concurrent jurisdiction of Inspecting Assistant Commissioner and Income-tax Officer.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. It was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975.] 126 Powers of Board respecting specified area, classes of persons or incomes. 2[126. Powers of Board respecting specified area, classes of persons or incomes.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.] ----------------------------------------------------------------------

-> -> (2) For the purposes of any case or person or proceeding under this Act in respect of which or whom an

order under sub-section (1) applies,- (a) where such order is made under clause (a) of the

said sub-section (1), references in this Act or in any rule made thereunder to the Income-tax Officer shall be deemed to be references to the Inspecting Assistant Commissioner and any provision of this Act requiring approval or sanction of the Inspecting Assistant Commissioner shall not apply; (b) where such order is made under clause (b) of the

said sub-section (1), references in this Act or in any rule made hereunder to the Income-tax Officer shall be deemed to include references to the Inspector of Income- tax or the member of the ministerial staff specified in such order." 1 Prior to the omission, section 125A, as amended by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978, read as under: "125A. Concurrent jurisdiction of Inspecting Assistant

Commissioner and Income-tax Officer.-(1) The Commissioner may, by general or special order in writing, direct that all or any of the powers or functions conferred on, or assigned to, the Income-tax Officer or Income-tax Officers by or under this Act in respect of any area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, shall be exercised or performed concurrently by the Inspecting Assistant Commissioner.

(2) Where under sub-section (1), an Inspecting Assistant Commissioner exercises concurrent jurisdiction with one or more Income-tax Officers in respect of any area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, the Income-tax Officer or Income-tax Officers shall exercise the powers and perform the functions under this Act in relation thereto as the Inspecting Assistant Commissioner may direct.

(3) Without prejudice to the generality of the provisions

contained in sub-section (3) of section 119, every Income-tax Officer shall also observe and follow such instructions as may be issued to him for his guidance by the Inspecting Assistant Commissioner within whose jurisdiction he performs his functions in relation to any particular proceeding or the initiation of any proceeding under this Act: Provided that no instructions, which are prejudicial to the assessee, shall be issued before an opportunity is given to the assessee to be heard. Explanation.-For the purposes of this sub-section, no instruction as to the lines on which an investigation connected with the assessment should be made shall be deemed to be an instruction prejudicial to the assessee.

(4) Where an order is made under sub-section (1) and the Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in relation to any area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, references in this Act or in any rule made thereunder to the Income-tax Officer shall be construed as references to the Inspecting Assistant Commissioner and any provision of this Act requiring approval or sanction of the Inspecting Assistant Commissioner shall not apply." 2 Prior to the omission, section 126, as amended by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978, read as under: "126. Powers of Board respecting specified area, classes of persons or incomes.Notwithstanding anything contained in the foregoing sections, the Board may, by notification in the Official Gazette, empower Commissioners, -> -> ---------------------------------------------------------------------- 1.494 127 Power to transfer cases2 1[127. Power to transfer cases2 ----------------------------------------------------------------------- -> -> Commissioners (Appeals), Appellate Assistant Commissioners, Inspecting Assistant Commissioners and Income-tax Officers to perform such functions in respect of such area or of such classes of persons or of such classes of income as may be specified in the notification, and thereupon the functions so specified shall cease to be performed in respect of the area or classes of persons or classes of income by the other authorities under section 121, section 121A, section 122, section 123 or section 124." 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the omission, section 127, sub-section ( ) of which was substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4- 1967 and again the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10- 1975, read as under:

"127. Power to transfer cases.-(1) The Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more of the following officers subordinate to him, namely:- (a) any Income-tax Officer or Income-tax Officers; (b) any Income-tax Officer or income-tax Officers having concurrent jurisdiction with the Inspecting Assistant Commissioner, to any other Income-tax Officer or Income-tax Officers (whether with or without concurrent jurisdiction with the Inspecting Assistant Commissioner) also subordinate to him and the Board may similarly transfer any case from- (i) any Income-tax Officer or Income-tax Officers, or (ii) any Income-tax Officer or income-tax Officers having concurrent jurisdiction with the Inspecting Assistant Commissioner, to any other Income-tax Officer or Income-tax Officers (whether with or without concurrent jurisdiction with the Inspecting Assistant Commissioner): Provided that nothing in this subsection shall be deemed to require any such opportunity to be given where the transfer is from any Income-tax Officer or Income-tax Officers (whether with or without concurrent jurisdiction with the Inspecting Assistant Commissioner) to any other Income-tax Officer or income-tax Officers (whether with or without concurrent jurisdiction with the Inspecting Assistant Commissioner) and the offices of all such officers are situated in the same city, locality or place: Provided further that- (a) where any case has been transferred from any Income-tax Officer or Income-tax Officers to two or more Income-tax Officers, the Income-tax Officers to whom the case is so transferred shall have concurrent jurisdiction over such case and shall perform their functions in accordance with such general or special orders in writing as the Board or the Commissioner or the Inspecting Assistant Commissioner authorised by the Commissioner in this behalf, may make for the purpose of facilitating the performance of such functions; (b) where any case has been transferred from any Income-tax Officer or Income-tax Officers (whether with or without concurrent jurisdiction with the Inspecting Assistant Commissioner) to two or more Income-tax Officers with concurrent jurisdiction with the Inspecting Assistant Commissioner, the officers (including the Inspecting Assistant Commissioner) to whom the case is so transferred shall have concurrent jurisdiction over such case and shall perform their functions in accordance with such general or special orders in writing as the Board or the Commissioner may make for the purpose of facilitating the performance of such functions, and the Income-tax Officers shall perform their functions also in accordance with such orders or directions as the Inspecting Assistant Commissioner may make

under sub-section (2) of section 124 or, as the case may be,

under sub-section (2) of section 125A.

(2) The transfer of a case under sub-section (1) may be made at any stage of the proceedings, and shall not render necessary the re- issue of any notice already issued by the Income-tax Officer or Income-tax Officers from whom the case is transferred. ->-> ---------------------------------------------------------------------- 1.495

(1) The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him.

(2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner,- (a) where the Directors General or Chief Commissioners or Commissioners,. to whom such Assessing Officers are subordinate are in agreement, then the Director General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order; (b) where the Directors General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorise in this behalf.

(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place.

(4) The transfer of a case under sub-section (1) or sub-section

(2) may be made at any stage of the proceedings, and shall not render necessary the re-issue of any notice already issued by the Assessing Officer or Assessing Officers from whom the case is transferred. Explanation.-In section 120 and this section, the word "case", in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.] ---------------------------------------------------------------------- -> -> Explanation.-In this section and in sections 121, 123, 124 and 125, the word 'case', in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year." ----------------------------------------------------------------------- 1.496 128 Functions of Inspectors of Income-tax. 1[128. Functions of Inspectors of Income-tax.-Omitted by the Direct Tax Laws (Amendment) Act, 1987. w.e.f. 1-4-1988.] 129 Change of incumbent of an office 129. Change of incumbent of an office Whenever in respect of any proceeding under this Act an income- tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor: Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard. 130 Commissioner competent to perform any function or functions. 2[130. Commissioner competent to perform any function or functions.-Omitted by the Direct Tax Laws (Amendment) Act. 1987, w.e.f. 1-4-1988.] 3[130A. Income-tax Officer competent to perform any function or functions.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Original section was inserted by the Finance (No. 2) Act, 1967, w.e.f., 1-4-1967.] ----------------------------------------------------------------------- 1 Prior to the omission, section 128, as substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967, read as under: "128. Functions of Inspectors of Income-tax.-Inspectors of Income-tax shall perform such functions in the execution of this Act as are assigned to them by the Commissioner by an order, whether made

under clause (b) of sub-section (1) of section 125 or otherwise, or by any other income-tax authority under whom they are appointed to work." 2 Prior to the omission, section 130, as substituted by the Finance Act, 1970, w.e.f. 1-4-1970 and amended by the Taxation Laws Amendment) Act, 1984, w.e.f. 1-10-1984, read as under: "130. Commissioner competent to perform any function or

functions.-(1) In respect of any function to be performed by a Commissioner under any provision of this Act in relation to an assessee, the Commissioner referred to therein shall,- (a) in a case where only one Commissioner has jurisdiction over such assessee be such Commissioner; (b) in a case where two or more Commissioners have concurrent jurisdiction over such assessee, be the Commissioner empowered to perform such function by the Board.

(2) Subject to the provisions of sub-section (1), for the purposes of sections 132, 253, 254, 256, 263 and 264 the Commissioner referred to therein shall, in relation to an assessee, be the Commissioner having for the time being jurisdiction over the assessee." 3 Prior to the omission, section 130A, as amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975, read as under: "130A. Income-tax Officer competent to perform any function or functions.-In respect of any function to be performed by an Income-tax Officer under any provision of this Act in relation to an assessee, the Income-tax Officer referred to therein shall,- (a) in a case where only one Income-tax Officer has jurisdiction over such assessee, be such Income-tax Officer; (b) in a case where two or more Income-tax Officers have concurrent jurisdiction over such assessee, be the Income-tax Officer empowered to perform such function by the Board or, as the case may be, the Income-tax Officer to whom such function has been assigned by an order of the Commissioner or of the Inspecting Assistant Commissioner authorised by the Commissioner in this behalf; -> -> ----------------------------------------------------------------------- 1.497 131 Power regarding discovery, production of evidence, etc. 131. Power regarding discovery, production of evidence, etc.

(1) The 2[Assessing] Officer, 3[Deputy commissioner (Appeals)], 4[Deputy Commissioner] 5[Commissioner (appeals)] and 6[Chief Commissioner or Commissioner] shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil the same powers as are vested in a court under the Code of Civil Procedure 1908 (5 of 1908), when trying a suit in respect of the following matters, namely:- (a) discovery and inspection; (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath, (c) compelling the production of books of account and other documents; and (d) issuing commissions. 7[(1A) 8[If the Director General or Director or Deputy Director or Assistant Director, or the authorised officer referred to in sub-

section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section,] has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purposes of making any enquiry or investigation relating thereto, it shall be competent

for his to exercise the powers conferred under sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority.

9[(2) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] ---------------------------------------------------------------------- -> -> (c) in a case where two or more Income-Tax Officers have concurrent jurisdiction over such assessee in relation to any function, be the Income-Tax Officers empowered to perform such function by the Board or, as the case may be, the Income-Tax Officers to whom such function has been

assigned by an offer of commissioner under sub-section (2) of

section 124 or, as the case may be under sub-section (2) of section 125A. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "Appellate Assistant Commissioner", ibid. 4 Substituted for "Inspecting Assistant Commissioner", ibid. 5 Inserted by the Finance (No. 2) Act , 1977, w.e.f. 10-7-1978. 6 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

8 Substituted for "If the Assistant Director of Inspection" by the Finance Act, 1988, w.e.f., 1-6-1988.

9 Prior to the omission, sub-section (2) read as under:

"(2) Without prejudice to the provisions of any other law for the time being in force, where a person to who a summons is issued either to attend to give evidence or produce books of account or other documents at a certain place and time, intentionally omits to attend or produce the books of account or documents at the place or time, the income-tax authority may impose upon him such fine not exceeding five hundred rupee as it thinks fit, and the fine so levied may be recovered in the manner provided in Chapter XVIII-D." 1.498

(3) Subject to any rules made in this behalf, any authority

referred to in sub-section (1) 1[or sub-section (1A)] may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act: Provided that an 2[Assessing] Officer 4[or an 4 [Assistant Director]] shall not- (a) impound any books of account or other documents without recording his reasons for so doing, or (b) retain in his custody any such books or documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the 5[6 [Chief Commissioner or Director General or Commissioner or Director therefore, as the case may be.]] 132 Search and seizure8 7[132. Search and seizure8

9(1) Where the 10[Director General or Director] or the 11[Chief Commissioner or Commissioner] 12[or any such] 13[Deputy Director] or 14 [Deputy] Commissioner as may be empowered in this behalf by the Board], in consequence of information in his possession, has reason to believe that-

(a) any person to whom a summons under sub-section (1) of section 37 ----------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

4 Substituted for "Assistant Director of Inspection" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Substituted for "Commissioner", ibid. 6 Substituted for "Chief Commissioner or Commissioner therefore" by the Finance Act, 1988, w.e.f. 1-6-1988. 7 Substituted by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3- 1965. The Amendment Act provided for a validating provision for pre- 1965 searches as under: "6. Validation of certain searches made.-Any search of a building or place by an Inspecting Assistant Commissioner or Income- tax Officer purported to have been made in pursuance of sub-section

(1) of section 132 of the principal Act, (i.e., the Income-tax Act, 1961), before the commencement of this Act, shall be deemed to have been made in accordance with the provisions of that sub-section as amended by this Act as if those provisions were in force on the day the search was made and shall not be called in question before any court of law or any other authority merely on the ground- (i) that the Inspecting Assistant Commissioner or the Income-tax Officer made such search with the assistance of any other person; or (ii) that no proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or the principal Act, (i.e., the Income- tax Act, 1961), was pending against the person concerned when the search was authorised under the said sub-section." Earlier, section 132 was substituted by the Finance Act, 1964, w.e.f. 1-4-1964. 10 Substituted for "Director of Inspection" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 11 Substituted for "Commissioner", ibid. 12 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

13 Substituted for "Deputy Director of Inspection" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 14 Substituted for "Inspecting Assistant", ibid. ----------------------------------------------------------------------- 1.499 of the Indian Income-tax Act, 1922 (11 of 1922) or under

subsection (1) of section 131 of this Act, or a notice under

sub-section (4) of section 22 of the Indian Income-tax Act,

1922 (11 of 1922), or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property 1[which has not been, or would not be disclosed] for the purposes of the Indian Income-tax Act, 1922 (11 of 1922) or this Act (hereinafter in this section referred to as the undisclosed income or property), 2[then,- (A) the 3[Director General or Director] or the 4[Chief Commissioner or Commissioner], as the case may be, may authorise any 5[Deputy Director], 6[Deputy] Commissioner, 7[Assistant Director], 8[Assistant Commissioner or Income-tax Officer], or (B) such 9[Deputy Director] or 10[Deputy] Commissioner, as the case may be, may authorise any 11[Assistant Director], 12

[Assistant Commissioner or Income-tax Officer],

Board to take action under clauses (i) to (v) of sub-section (1) are or is kept in any building, place, vessel, vehicle or aircraft not mentioned in the Commissioner] may, notwithstanding any thing contained in section 8[120], authorise the said officer to take action under any of the clauses aforesaid in respect of such building, place, vessel, vehicle or aircraft. ]

(2) The authorised officer may requisition the services of any police officer or of any officer of the Central Government or of both, to assist him for all or any of the purposes specified in sub-section

(1) 9[or sub-section (1A) and it shall be the duty of every such officer to comply with such requisition.

(3) The authorised officer may, where it is not practicable to seize any such books of account other documents money bullion, jewellery or other valuable article or thing, 10[for reasons other

than those mentioned in the second provision to sub-section (1), ] serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section. 11[Explanation.- For the removal of doubts, it is hereby declared that serving of an order as aforesaid under this sub-section shall not be deemed to be seizure of such books of account, other documents, money, bullion, jewellery or other documents, money, bullion, jewellery or other valuable article or thing under clause (iii) of

sub-section (1).]

(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is fond to be in possession or control of any books of account, documents, money, bullion, jewellery to ----------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

1975. See rule 112(2)(c) and Form No. 45B. 2 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "Director of Inspection", ibid. 4 Substituted for "Commissioner", ibid. 5 Substituted for "Inspecting Assistant", ibid. 6 Substituted for "Inspecting Assistant", ibid. 7 Substituted for "Commissioner", ibid. 8 Substituted for "121" by the Direct Tax Laws (Amendment) Act, 1987 (as amended by the Finance Act, 1988, w.e.f. 1-4-1988. 9 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

10 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 11 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1.502 other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act. 1[Explanation.-For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.] 2[(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.]

(5) 3[Where any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in sections 132A and

132B referred to as the assets) is seized under sub-section (1) or sub-section (1A) ,4 [as a result of a search initiated or requisition "made before the 1st day of July, 1995] the 7[Assessing] Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiry as may be prescribed,6 shall within 7 Lone hundred and twenty] days of the seizure, make an order, with the previous approval of the 8[Deputy] Commissioner,-] (i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him; ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

1975. See rule 112(2)(c) and Form No. 45B. 3 Substituted, ibid. 4 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Substituted for "ninety" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. 8 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.503 (ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act; 1[(iia) determining the amount of interest payable and the amount of penalty impossible in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act, as if the order had been the order of regular assessment;] (iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of

the Acts specified in clause (a) of sub-section (1) of section 230A in respect of which such person is in default or is deemed to be in default, and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii), 2[ (iia)] and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized: Provided that if, after taking into account the materials available with him, the 3[Assessing] Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized 4 [and may also determine the interest or penalty, if any, payable or impassable accordingly]: Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in clauses (ii), 5[(iia)] and (iii) or any part thereof, the 6[Assessing] Officer may, with the previous approval of the 7[Chief Commissioner or Commissioner], release the assets or such part thereof as he may deem fit in the circumstances of the case.

(6) The assets retained under sub-section (5) may be dealt with in accordance with the provisions of 8[section 132B].

(7) If the 9[Assessing] Officer is satisfied that the seized assets or any part thereof were held by such person, for or on behalf of any other person, the 10[Assessing) Officer may proceed under sub-

section (5) against such other person and all the provisions of this section shall apply accordingly. ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Ibid. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

5 Ibid. 6 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Substituted for "Commissioner", ibid. 8 Substituted for "section 132A" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. 9 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 ibid. ----------------------------------------------------------------------- 1.504

(8) The books of account or other documents seized under sub- section (1A) shall not be retained by the authorised officer seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the 2[Chief Commissioner or Commissioner] for such retention is obtained. Provided that the 3[ Chief Commissioner or Commissioner ] shall not authorise the retention of the books of account and other documents for a period exceeding their days after all the proceedings under the India Income-Tax Act 1922 (11 of 1922) or this Act in respect of the years for which the books of account or other documents are relevant are completed.

4[(8A) An order under sub-section (3) shall not be in force for a period exceeding sixty days from the date of the order, except where the authorised officer, for reasons to the recorded by him in writing, extends the period of operation of the order beyond sixty days, after obtaining the approval of the 5[Director or, as the case may be, Commissioner] or such extension: Provided that the 6[Director or, as the case may be, Commissioner shall not approve the extension of the period for any period beyond the expiry of thirty days after the completion of all the proceedings under this Act in respect of the years for which the books of account, other documents, money , bullion, jewellery or other valuable articles or things are relevant.]

(9) The person from whose custody any books of account or other

documents are seized under sub-section (1) 7[or sub-section (IA)] may make copies thereof, or take extracts there form, in the presence of the authorised officer or any other person empowered by him in this behalf, at such place and time as the authorised officer may appoint in this behalf. 8[(9A) Where the authorised officer has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c) of sub-

section (1), the books of account or other documents or assets seized under that sub-section shall be handed over by the authorised officer to the 9[Assessing ] Officer having jurisdiction over such person , within a period of fifteen days of such seizure and thereupon the

powers exercisable by the authorised officer under sub-section (8) or

sub-section (9) shall be exercisable by such 10[Assessing] Officer.]

(10) If a person legally entitled to the books of account or other ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Substitute for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Ibid. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987,w.e.f. 1-4-

5 Substituted for "Commissioner" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 6 Ibid. 7 Inserted by the Taxation Laws (Amendment) Act, 1975 , w.e.f. 1-10-1975. 8 Ibid. 9 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 Ibid. ------------------------------------------------------------------------- 1.505

documents seized under sub-section (1) 1[or sub-section (IA)] objects for any reason to the approval given by the 2[Chief Commissioner or

Commissioner] under sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents.

(11) If any person objects for any reason to an order made under

sub-section (5), he may, within thirty days of the date of such order, make an application to 3[the 4[Chief Commissioner or Commissioner]], stating therein the reasons for such objection and requesting for appropriate relief in the matter.

5[(11A) Every application referred to in sub-section (11) which is pending immediately, before the 1st day of October, 1984, before an authority notified under that sub-section as it stood immediately before that day shall stand transferred on that day to the 6[Chief Commissioner or Commissioner] may proceed with such application from the stage at which it was on that day:

(12) On receipt of the application under sub-section (10) the

Board, or on receipt of the application under sub-section (11) 8[the 9[Chief Commissioner or Commissioner]], may after giving the applicant an opportunity of being heard, pass such orders as it 10[or he] thinks fit.

11[(13) The Provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches and seizure shall apply, so for as may

be, to searches and seizure under sub-section (1) or sub-section (1A).]

12(14) The Board may make rules in relation to any search or seizure under this section; in particular, and without prejudice to the generality of the foregoing power, such rules may provide for the procedure to be followed by the authorised officer- (i) for obtaining ingress into 13[any building, place, vessel, vehicle ----------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment), Act, 1975, w.e.f. 1-10-1975. 2 Substituted for " Commissioner " by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "such authority, as may be notified in this behalf by the Central Government in the Official Gazette hereafter in this section referred to as the notified authority" by the Taxation Laws (Amendment), Act, 1984, w.e.f. 1-10-1984. 4 Substituted for "Chief Commissioner or Commissioner" by the Direct Tax :was (Amendment), Act,1987, w.e.f. 1-4-1988. 5 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

6 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Ibid. 8 Substituted for " the notified authority" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1984. 9 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1988. 10 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

11 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f.1- 10-1975. 13 Substituted for "such building or place" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. ----------------------------------------------------------------------- 1.506 or aircraft] to be searched where free ingress thereto is not available; (ii) for ensuring safe custody of any books of account or other documents or assets seized. Explanation 1.-In computing 1[the period referred to in sub-

section (5) for the purposes of that sub-section], any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. Explanation 2.-In this section, the word "proceeding" means any proceeding in respect of any year, whether under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year 2[132A. Powers to requisition books of account, etc.3

(1) Where the 4[Director- General or Director] or the 5[Chief Commissioner or Commissioner], in consequence of information in his possession, has reason to believe that-

(a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922),

or under subsection (1) of section 131 of this Act, or a

notice under sub-section (4)of section 22 of the Indian

Income-tax Act, 1922, or under subsection (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents, as required by such summons or notice and the said books of account or other documents have been taken into custody by any officer or authority under any other law for the time being in force, or (b) any books of account or other documents will be useful for, or relevant to, any proceeding under the Indian Income- tax Act, 1922 (11 of 1922), or under this Act and any person to whom a ---------------------------------------------------------------------- Substituted for "the period of one hundred and twenty days for

the purposes of subsection (5)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, the italicised words were substituted for "ninety" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

4 Substituted for "Director of Inspection" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Substituted for "Commissioner", ibid. ----------------------------------------------------------------------- 1.507 summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, such books of account or other documents on the return of such books of account or other documents by any officer or authority by whom or which such books of account or other documents have been taken into custody under any other law for the time being in force, or (c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force, then, the 1[Director General or Director] or the 2 [Chief Commissioner or Commissioner] may authorise any 3[Deputy Director], 4[Deputy Commissioner, 5[Assistant Director], 6 [Assistant Commissioner or

Income-tax Officer] (hereafter in this section and in sub-section (2) of section 278D referred to as the requisitioning officer) to require the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer.

(2) On a requisition being made under sub-section (1), the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, of that sub-section shall deliver the books of account, other documents or assets to the requisitioning officer either forthwith or when such officer or authority is of the opinion that it is no longer necessary to retain the same in his or its custody.

(3) Where any books of account, other documents or assets have been delivered to the requisitioning officer, the provisions of sub-

sections (4A) to (14) (both inclusive) of section 132 and section 132B shall, so far as may be, apply as if such books of account, other

documents or assets had been seized under sub-section (1) of section 132 by the requisitioning officer from the custody of the person referred to in clause (a) or clause (b) or clause (c), as the case may

be, of sub-section (1) of this section and as if for the words "the authorised officer" occurring in any of the aforesaid sub-sections

(4A) to (14), the words "the requisitioning officer" were substituted.] 7[8[132B]. Application of retained assets

(1) The assets retained under sub-section (5) of section 132 may be dealt with in the following manner, namely:- ---------------------------------------------------------------------- 1 Substituted for "Director of Inspection" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988 2 Substituted for "Commissioner", ibid. 3 Substituted for "Deputy Director of Inspection", ibid. 4 Substituted for "Inspecting Assistant", ibid. 5 Substituted for "Assistant Director of Inspection" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted for "or Income-tax Officer" by the Direct Tax Laws (Amendment) Act, 1987, (as amended by the Finance Act, 1988) w.e.f. 1- 4-1988. 7 Inserted as section 132A by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3-1965. 8 Renumbered for "132A" by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1-10-1975. ------------------------------------------------------------------------ 1.508 (i) The amount of the existing liability referred to in clause (iii) of the said sub-section and the amount of the liability determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in clause (i) of that sub-section relates 1[ (including any penalty levied or interest payable in connection with such assessment or reassessment)] and in respect of which he is in default or is deemed to be in default may be recovered out of such assets. (ii) If the assets consist solely of money, or partly of money and partly of other assets, the 2[Assessing] Officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied. (iii) The assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by 3[the Assessing Officer or, as the case may be, Tax Recovery Officer] under authorisation from the

4[Chief Commissioner or Commissioner] under sub-section (5) of section 226 and 3[the Assessing Officer or, as the case may be, Tax Recovery Officer] may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule.

(2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act.

6(3) Any assets or proceeds thereof which remain after the

liabilities referred to in clause(i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.

7(4) (a) The Central Government shall pay simple interest at the rate of 8[fifteen] per cent per annum on the amount by which the aggregate of money retained under section 132 and of the proceeds, if any, of the assets. ----------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f 1-10-

2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988. 3 Substituted for "the Income-tax Officer" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 4 Substituted for "Commissioner", ibid, w.e.f 1-4-1988. 5 Substituted for "the Income-tax Officer", ibid, w.e.f. 1-4-1989. 8 Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for "nine" by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. ----------------------------------------------------------------------- 1.509 sold towards the discharge of the existing liability referred to in

clause (iii) of sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in clause

(i) of sub-section (1) of this section. (b) Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order

under sub-section (5) of section 132 to the date of the regular assessment or reassessment referred to in clause (i) of sub-section

(1) or, as the case may be, to the date of last of such assessments or reassessments.] 133 Power to call for information 133. Power to call for information The 2[Assessing] Officer, the 3[Deputy Commissioner (Appeals), 4[the 5[Deputy] Commissioner or the Commissioner (Appeals) may, for the purposes of this Act,--

(1) require any firm to furnish him with a return of the names and addresses of the partners of the firm and their respective shares;

(2) require any Hindu undivided family to furnish him with a return of the names and addresses of the manager and the members of the family;

(3) require any person whom he has reason to believe to be a trustee, guardian or agent to furnish him with a return of the names of persons for or of whom he is trustee, guardian or agent and of their addresses;

(4) require any assessee to furnish a statement of the names and addresses of all persons to whom he has paid in any previous year rent, interest, commission, royalty or brokerage or any annuity, not being any annuity taxable under the head "Salaries" amounting to more than 6[one thousand rupees, or such higher amount as may be prescribed], together with particulars of all such payments made;

(5) require any dealer, broker or agent or any person concerned in the management of a stock of commodity exchange to furnish a statement of the names and addresses of all persons to whom he or the exchange has paid any sum in connection with the transfer, whether by way of sale, exchange or otherwise, of assets, or on whose behalf or from whom he or the exchange has received any such sum, together with particulars of all such payments and receipts;

(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified ------------------------------------------------------------------------ 1 2 Substituted for " Income-tax" by the Direct Tax Laws (Amendment) Act 1987, w.e.f. 1-4-1988. 3 Substituted for "Appeals Assistant Commissioner", ibid. 4 Substituted for "or the Inspecting Assistant Commissioner" by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 5 Substituted for " Inspecting Assistant " by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted for "four hundred rupees", ibid, w.e.f. 1-4-1989. ------------------------------------------------------------------------ 1.510 in the manner specified by the 1[Assessing] Officer, the 2[Deputy Commissioner (Appeals)] 3[the 4 [Deputy] Commissioner or the Commissioner (Appeals)], giving information in relation to such points or matters as, in the opinion of the 5[Assessing] Officer, the 6[Deputy Commissioner (Appeals)] 7[ the 8[Deputy] Commissioner of the Commissioner (Appeals)] will be useful for, or relevant to, any 9[inquiry or] proceeding under this Act:

10[Provided that the powers referred to in clause (6), may also be exercised by the Director-General, the Chief Commissioner, the Director and the Commissioner:] 11[Provided further that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax-authority below the rank of Director or Commissioner without the prior approval of- the Director or, as the case may be, the Commissioner.] 12[133A. Power of survey 13

(1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter- (a) any place within the limits of the area assigned to him, or (b) any place occupied by any person in respect of whom he exercises jurisdiction, 14 [or] 15[(c) any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place,] at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "Appellate Assistant Commissioner", ibid. 3 Substituted for "or the Inspecting Assistant Commissioner" by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 4 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Substituted for "Income-tax", ibid. 6 Substituted for "Appellate Assistant Commissioner", ibid. 7 Substituted for "or the Inspecting Assistant Commissioner" by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 8 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 9 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 10 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 11 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 12 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 10-1975. It was originally inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 14 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 15 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. ------------------------------------------------------------------------- 1.511 be attending in any manner to, or helping in, the carrying on of such business or profession- (i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, (ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and (iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act. Explanation.-For the purposes of this sub-section, a place where a business or profession is carried on shall also include any other place, whether any business or profession is carried on therein or not, in which the person carrying on the business or profession states that any of his books of account or other documents or any part of his cash or stock or other valuable article or thing relating to his business or profession are or is kept.

(2) An income-tax authority may enter any place of business or

profession referred to in sub-section (1) only during the hours at which such place is open for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset.

(3) An income-tax authority acting under this section may,- (i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom (ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him, (iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.

(4) An income-tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing.

(5) Where, having regard to the nature and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, the income-tax authority is of the opinion that it is necessary or expedient so to do, he may, at any time after such function, ceremony or event, require the assessee by whom such expenditure has been incurred or any person who, in the opinion of the income-tax authority, is likely to possess information as respects the expenditure incurred, to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act and may have the statements of the assessee or any other person recorded and any statement so recorded may thereafter be used in evidence in any proceeding under this Act.

(6) If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded either refuses 1.512 or evades to do so, the income-tax authority shall have all the powers

under 1[sub-section (1) of section 131] for enforcing compliance with the requirement made. Explanation.-In this section,- (a) "income-tax authority" means a 2[ Commissioner a Deputy Commissioner, a Director, a Deputy Director]. an 3[Assistant Director ] or 4[Assessing] Officer, and for the purposes of

clause (i) of of sub-section (1), clause (i) of sub-section

(3) and sub-section (5), includes an Inspector of Income-Tax, 5[if so authorised by any such authority]; (b) "proceeding" means any proceeding under this Act in respect of any year which may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year.] 6[133B. Power to collect certain information 7

(1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may, for the purpose of collecting any information which may be useful for, or relevant to the purposes of this Act, enter-- (a) any building or place within the limits of the area assigned to such authority; or (b) any building or place occupied by any person in respect of whom he exercises jurisdiction; at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession to furnish such information as may be prescribed, -----------------------------------------------------------------------

1 Substituted for "sub-section (1) and (2) of section 131" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Substituted for "Deputy Commissioner" by the Finance Act, 1995, w.e.f. 1-7-1995. Earlier, the italicised word was substituted for " Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for " Assistant Director of Inspection" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for "Income-tax", ibid. 5 Substituted for "if so authorised by the Income-tax Officer, ibid, w.e.f. 1-4-1989. 6 Inserted by the Finance Act, 1986, w.e.f. 13-5-1986. ------------------------------------------------------------------------ 1.513

(2) An income-tax authority may enter any place of business or

profession referred to in sub-section (1) only during the hours at which such place is open for the conduct of business or profession.

(3) For the removal of doubts, it is hereby declared that an income-tax authority acting under this section shall, on no account, remove or cause to be removed from the building or place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing. Explanation.-In this section, "income-tax authority" means a 1[Deputy] Commissioner, an 2[Assistant Director] or an 3[Assessing] Officer, and includes an Inspector of Income-tax who has been authorised by the 4 [Assessing] Officer to exercise the powers conferred under this section in relation to the area in respect of which the 5[Assessing] Officer exercises jurisdiction or part thereof.] 134 Power to inspect registers of companies 134. Power to inspect registers of companies The 6[Assessing] Officer, the 7[Deputy Commissioner (Appeals)], 8[the 9[Deputy] Commissioner or the Commissioner (Appeals)], or any person subordinate to him authorised in writing in this behalf by the 10[Assessing] Officer, the 11[Deputy Commissioner (Appeals)], 12[the 13[Deputy] Commissioner or the Commissioner (Appeals)],. may inspect, and if necessary take copies, or cause copies to be taken, of any register of the members, debenture holders or mortgagees of any company or of any entry in such register. 135 Power of 14[Director General or Director], 15[Chief Commissioner or Commissioner] and 16[Deputy] Commissioner 135. Power of 14[Director General or Director], 15[Chief Commissioner or Commissioner] and 16 [Deputy] Commissioner The 17[Director General or Director], the 16[Chief Commissioner or ---------------------------------------------------------------------- 1 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "Assistant Director of Inspection", ibid. 3 Substituted for "Income-tax", ibid. 7 Substituted for "Appellate Assistant Commissioner", ibid. 8 Substituted for "or the Inspecting Assistant Commissioner" by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 9 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 11 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 12 Substituted for "or the Inspecting Assistant Commissioner" by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 13 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 14 Substituted for "Director of Inspection", ibid. 15 Substituted for "Commissioner", ibid. 16 Substituted for "Inspecting Assistant", ibid. 17 Substituted for "Director of Inspection", ibid. 18 Substituted for "Commissioner", ibid. ------------------------------------------------------------------------ 1.514 Commissioner] and the 1[Deputy] Commissioner shall be competent to make any enquiry under this Act, and for this purpose shall have all the powers that an 2[Assessing] Officer has under this Act in relation to the making of enquiries. 136 Proceedings before income-tax authorities to be judicial proceedings 136. Proceedings before income-tax authorities to be judicial proceedings Any proceeding under this Act before an income-tax authority shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purposes of section 196 of the Indian Penal Code, 18603 (45 of 1860) 4 [and every income-tax authority shall be deemed to be a Civil Court for the purposes of section 195, but not for the purposes of Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974)]. D.-Disclosure of information 137 Disclosure of information prohibited. [137. Disclosure of information prohibited.-Omitted by the Finance Act, 1964, w.e.f 1-4-1964.] 138 Disclosure of information respecting assessees 5[138. Disclosure of information respecting assessees 6[( 1)(a) The Board or any other income-tax authority specified by it by a general or special order7 in this behalf may furnish or cause to be furnished to- (i) any officer, authority or body performing any functions under any law relating to the imposition of any tax, duty or cess, or to dealings in foreign exchange as defined in section 2(d) of the Foreign Exchange Regulation Act, 19478 (7 of 1947); or (ii) such officer, authority or body performing functions under any other law as the Central Government may, if in its opinion it is necessary so to do in the public interest, specify by notification9 in the Official Gazette in this behalf, any such information 10[received or obtained by any income-tax authority in the performance of his functions under this Act], as may, in the opinion of the Board or other income-tax authority, be necessary for the purpose of enabling the officer, authority or body to perform his or its functions under that law. ----------------------------------------------------------------------- 1 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "Income-tax", ibid. 4 Inserted by the Finance Act, 1985, w.r.e.f. 1-4-1974. 5 Substituted by the Finance Act, 1964, w.e.f. 1-4-1964. 6 Substituted by the Finance (No. 2) Act, 1967 w.e.f. 1-4-1967. 10 Substituted for "relating to any assessee in respect of any assessment made under this Act or the Indian Income-tax Act, 1922 (11 of 1922)" by the Direct Tax Laws (Amendment) Act , 1987, w.e.f. 1-4-

------------------------------------------------------------------------ 1.515 1(b) Where a person makes an application to the 2[Chief Commissioner or Commissioner] in the prescribed form for any information relating to any assessee 3[received or obtained by any income-tax authority in the performance of his functions under this Act], the 4[Chief Commissioner or Commissioner] may, if he is satisfied that it is in the public interest so to do, furnish or cause to be furnished the information asked for 5[* * *] and his decision in this behalf shall be final and shall not be called in question in any court of law.]

6(2) Notwithstanding anything contained in sub-section (1) or any other law for the time being in force, the Central Government may, having regard to the practices and usages customary or any other relevant factors, by order notified in the Official Gazette, direct that no information or document shall be furnished or produced by a public servant in respect of such matters relating to such class of assessees or except to such authorities as may be specified in the order.] ------------------------------------------------------------------ 2 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "in respect of any assessment made under this Act or the Indian Incometax Act, 1922 (11 of 1922), on or after the 1st day of April, 1960", ibid, w.e.f. 1-4-1989. 4 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 The words "in respect of that assessment only" omitted, ibid. ------------------------------------------------------------------------ 1.516 CHAP PROCEDURE FOR ASSESSMENT CHAPTER XIV PROCEDURE FOR ASSESSMENT 139 Return of income2 1 139. Return of income 2

3[(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Explanation.-In this sub-section, "due date" means- (a) where the assessee is a company, the 4 [30th day of November] of the assessment year; (b) where the assessee is a person, other than a company,- (i) in a case where the accounts of the assessee are required under ------------------------------------------------------------------- 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (1), as amended by the Finance Act, 1963, w.r.e.f. 1-4-1962; Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967; Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and the Finance Act, 1972, w.e.f. 1-4-1972, read as under:

"(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed- (a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later; (b) in the case of every other person, before the 30th day of June of the assessment year: Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and notwithstanding that the date is so extended, interest shall be chargeable in accordance with the

provisions of sub-section (8)." 4 Substituted for "31st day of December" by the Finance Act, 1994, w.e.f. 1-4-1994. ----------------------------------------------------------------------- 1.517 this Act or any other law to be audited 1[* * *] 2[or where the report of an accountant is required to be furnished under section 80HHC or section 80HHD], or in the case of a co- operative society, the 31st day of October of the assessment year; (ii) in a case where the total income referred to in this sub-section includes any income from business or profession, not being a case falling under sub-clause (i), the 31st day of August of the assessment year; (iii) in any other case, the 30th day of June of the assessment year.] 3[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.] 4[Omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.] ----------------------------------------------------------------------- 1 The words "or in the case of a partner of a firm where the accounts of the firm are required to be so audited" omitted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, these words were inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 3 Prior to the omission, sub-section (1A), as inserted by the Finance Act, 1974, w.e.f. 1-4-1975 and subsequently amended, as annotated below, read as under:

"(1A) Notwithstanding anything contained in sub-section (1), no person need furnish under that sub-section a return of his income or the income of any other person in respect of whose total income he is assessable under this Act, if his income or, as the case may be, the income of such other per-son during the previous year consisted only of income chargeable under the head "Salaries" or of income chargeable under that head and also income of the nature referred to in any one

or more of clauses (i) to (ix) of subsection (1) of section 80L and the following conditions are fulfilled, namely:- (a) where he or such other person was employed during the previous year by a company, he or such other person was at no time during the previous year a director of the company or a beneficial owner of shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; *[(b) his income or the income of such other person under the head "Salaries", exclusive of the value of all benefits or amenities not provided for by way of monetary payment, does not exceed [twenty-four] thousand rupees]; (c) the amount of income of the nature referred to in

clauses (i) to (ix) of subsection (1) of section 80L, if any, does not, in the aggregate, exceed [the maximum amount allowable as deduction in his case under that section]; and (d) the tax deductible at source under section 192 from the income chargeable under the head "Salaries" has been deducted from that income." * Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1- 4-1985. Prior to the substitution, clause (b) read as under: "(b) his salary or the salary of such other person, exclusive of the value of all benefits or amenities not provided for by way of monetary payment, does not exceed eighteen thousand rupees;" 140 Return by whom to be signed 140. Return by whom to be signed The return under section 139 shall be signed and verified- 1[(a) in the case of an individual,- (i) by the individual himself; (ii) where he is absent from India, by the individual himself or by some person duly authorised by him in this behalf; (iii) where he is mentally incapacitated from attending to his affairs, by his guardian or any other person competent to act on his behalf; and (iv) where, for any other reason, it is not possible, for the individual to sign the return, by any person duly authorised by him in this behalf: Provided that in a case referred to in sub-clause (ii) or subclause (iv), the person signing the return holds a valid power of attorney from the individual -to do so, which shall be attached to the return;] ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, clause (a) read as under: "(a) in the case of an individual, by the individual himself; where the individual is absent from India, by the individual concerned or by some person duly authorised by him in this behalf; and where the individual is mentally incapacitated from attending to his affairs, by his guardian or by any other person competent to act on his behalf." ------------------------------------------------------------------------ 1.529 (b) in the case of a Hindu undivided family, by the karta, and, where the karta is absent from India or is mentally incapacitated from attending to his affairs, by any other adult member of such family; 1[(c) in the case of a company, by the managing director thereof, or where for any unavoidable reason such managing director is not able to sign and verify the return, or where there is no managing director, by any director thereof: 2[Provided that where the company is not resident in India, the return may be signed and verified by a person who holds a valid power of attorney from such company to do so, which shall be attached to the return: Provided further that,- (a) where the company is being wound-up, whether under the orders of a court or otherwise, or where any person has been appointed as the receiver of any assets of the company, the return shall be signed and verified by the liquidator

referred to in sub-section (1) of section 178; (b) where the management of the company has been taken over by the Central Government or any State Government under any law, the return of the company shall be signed and verified by the principal officer thereof;] (cc) in the case of a firm, by the managing partner thereof, or where for any unavoidable reason such managing partner is not able to sign and verify the return, or where there is no managing partner as such, by any partner thereof, not being a minor; (d) in the case of a local authority, by the principal officer thereof;] 3[(dd) in the case of a political party referred to in sub-section (4B) of section 139, by the chief executive officer of such party (whether such chief executive officer is known as secretary or by any other designation);] (e) in the case of any other association, by any member of the association or the principal officer thereof; and (f) in the case of any other person, by that person or by some person competent to act on his behalf. 4[140A. Self-assessment5

6[(1) Where any tax is payable on the basis of any return required to ----------------------------------------------------------------------- 1 Substituted for clauses (c) and (d) by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 4 Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1- 4-1971. Earlier, it was inserted by the Finance Act, 1964, w.e.f. 1- 4-1964. 6 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. ------------------------------------------------------------------------ 1.530 be furnished under 1[section 139 or section 142 or, as the case may be, section 148], after taking into account the amount of tax, if any, already paid under any provision of this Act, 2[the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.] 3[Explanation.-Where the amount paid by the assessee under this subsection falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable.]

(2) After a regular assessment under section 143 or section 144

has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment.

4 [(3) If any assessee fails to pay the whole or any part of such tax or interest or both in accordance with the provisions of sub-

section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid, and all the provisions of this Act shall apply accordingly.]

5[(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant ass 141 Provisional assessment. [141. Provisional assessment.-Omitted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.] 1[141A. Provisional assessment for refund.-Omitted by the Direct Tax ---------------------------------------------------------------------- 1 Prior to the omission, section 141A, as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971; Finance Act, 1974, w.e.f. 1-4-1975; Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976; Finance Act, 1976, w.e.f. 1-4-1976 and the Finance Act, 1988, w.e.f. 1-4-1988, read as under:

"141A. Provisional assessment for refund.-(1) Where a return has been furnished under section 139 and the assessee claims that the tax paid or deemed to have been paid under the provisions of Chapter XVIIB or Chapter XVIIC, exceeds the tax payable on the basis of the return and the accounts and documents accompanying it, the Assessing Officer, if he is of the opinion that the regular assessment of the assessee is not likely to be made within six months from the date of furnishing of the return, shall make in a summary manner within the said six months a provisional assessment of the sum refundable to the assessee, after making such adjustments to the income or loss declared in the return

as are required to be made under sub-section (2) with reference to such return, accounts and documents, and for the purposes of the

adjustments referred to in clause (iv) of sub-section (2), also with reference to the records of the assessments, if any, of past years.

(2) In making any assessment under this section, the Assessing Officer shall make the following adjustments to the income or loss declared in the return, that is to say, he shall- (i) rectify any arithmetical errors in the return accounts

and documents refer-red to in sub-section (1); (ii) allow any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents is, prima facie, admissible, but is not claimed in the return; (iii) disallow any deduction, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts and documents, is, prima face, inadmissible; (iv) give due effect to the allowance referred to in sub-

section (2) of section 32, the deduction referred to in

clause (ii) of sub-section (3) of section 32A or clause

(ii)of sub-section (2) of section 33 or clause (ii) of sub-

section (2) of section 33A or clause (i) of sub-section (2)

of section 35 or sub-section (1) of section 35A or sub-

section (1) of section 35D or sub-section (1) of section 35E

or the first proviso to clause (ix) of sub-section (1) of

section 36, any loss carried forward under sub-section (1) of

section 72 or sub-section (2) of section 73 or sub-section

(1) or sub-section (3) of section 74 or sub-section (3) of

section 74A and the deficiency referred to in sub-section (3) of section 80J, as computed, in each case, in the regular assessment, if any, for the earlier assessment year or years.

(3) A firm may be assessed under sub-section (1) as an unregistered firm, except in the following cases, where it shall be assessed as a registered firm- (a) where the firm was assessed as a registered firm for the latest assessment year for which its assessment has been completed, and it has before the expiry of the period laid down in Chapter XVIB filed its application for registration

or declaration under sub-section (7) of section 184 for the assessment year for which the provisional assessment is to be made; (b) where no regular assessment has been made on the firm for any assessment year preceding the assessment year for which the provisional assessment is to be made, and the firm has before the expiry of the period laid down in Chapter XVIB filed its application for registration or declaration as aforesaid, for the assessment year for which the provisional assessment is to be made. ----------------------------------------------------------------------- 1.532 Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. It was inserted by the Finance Act, 1968, w.e.f. 1-4-1968. Original section was inserted by the Finance Act, 1963, w.e.f. 1-4-1963 and omitted by the Finance Act, 1964, w.e.f. 1-4-1964.] 142 Inquiry before assessment 142. Inquiry before assessment

(1) For the purpose of making an assessment under this Act, the 1[Assessing] Officer may serve on any person who has made a return under section 139 2 [or in whose case the time allowed under sub-

section (1) of that section for furnishing the return has expired] a notice requiring him, on a date to be therein specified,- 3[(i)where such person has not made a return 4 [within the

time allowed under sub-section (1) of section 1391, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or] 5[(ii)] to produce or cause to be produced, such accounts or documents as the 6[Assessing] Officer may require, or 7[(iii)] to furnish in writing and verified in the prescribed manners information in such form and on such points or matters (including a statement of all assets and liabilities of the -----------------------------------------------------------------------

-> -> (4) After a regular assessment has been made, any amount

refunded on provisional assessment made under sub-section (1) shall be dealt with in the manner specified hereunder, namely:- (a) where the sum refundable on regular assessment is equal

to or exceeds the amount refunded under sub-section (1), the amount so refunded shall be deemed to have been refunded towards the regular assessment; (b) where no refund is due on regular assessment or the

amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.

(5) Nothing done or suffered by reason or in consequence of any provisional assessment made under this section shall prejudice the determination, on the merits, of any issue which may arise in the course of the regular assessment.

(6) There shall be no right of appeal against a provisional

assessment made under sub-section (1)." 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "or to whom a notice has been issued under sub-

section (2) of section 139 (whether a return has been made or not)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. The italicised words were substituted for "or upon whom a notice has been served" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 4 Substituted for "before the end of the relevant assessment year" by the Finance Act, 1990, w.e.f. 1-4-1990. 5 Renumbered for clause (i) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 6 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Renumbered for clause (ii) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ------------------------------------------------------------------------ 1.533 assessee, whether included in the accounts or not) as the 1[Assessing] Officer may require: Provided that- (a) the previous approval of the 2[Deputy] Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts; (b) the 3[Assessing] Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.

(2) For the purpose of obtaining full information in respect of the income or loss of any person, the 4 [Assessing] Officer may make such inquiry as he considers necessary. 5[(2A) 6 If, at any stage of the proceedings before him, the 7[Assessing] Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the 9[Chief Commissioner or Commissioner], direct the assessee to get the accounts audited by an accountant as defined in

the Explanation below sub-section (2) of section 288, nominated by the 9[Chief Commissioner or Commissioner] in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the 10[Assessing] Officer may require.11 (2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise. (2C) Every report under sub-section (2A) shall be furnished by the assessee to the 12[Assessing] Officer within such period as may be specified by the 13[Assessing] Officer: Provided that the 14[Assessing] Officer may, on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "Income-tax", ibid. 4 Ibid. 5 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

7 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 8 Substituted for "Commissioner", ibid. 9 Ibid. 10 Substituted for "Income-tax", ibid. 12 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------- 1.534 so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee. (2D) The expenses of, and incidental to, any audit under sub- section (2A) (including the remuneration of the accountant) shall be determined by the 1[Chief Commissioner or Commissioner] (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVIID for the recovery of arrears of tax.]

(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section

(2) 2[or any audit under sub-section (2A)] and proposed to be utilised for the purpose of the assessment.

3[(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.] 143 Assessment6 4[5 143. Assessment6 ----------------------------------------------------------------------- 1 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 143, as substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and amended by the Finance Act, 1974, w.e.f. 1-4-1975; Finance Act, 1976, w.e.f. 1-4-1976; Finance (No. 2) Act, 1980, w.e.f. 1-4-1980 and the Finance Act, 1987, w.e.f. 1-4-1988, read as under:

"143. Assessment.-(1)(a) Where a return has been made under section 139, the Assessing Officer may, without requiring the presence of the assessee or the production by him of any evidence in support of the return, make an assessment of the total income or loss of the assessee after making such adjustments to the income or loss declared in the return as are required to be made under clause (b), with reference to the return and the accounts and documents, if any, accompanying it, and for the purposes of the adjustments referred to in sub-clause (iv) of clause (b), also with reference to the record of the assessments if any, of past years, and determine the sum payable by the assessee or refundable to him on the basis of such assessment. (b) In making an assessment of the total income or loss of the assessee under clause (a), the Assessing Officer shall make the following adjustments to the income or loss declared in the return, that is to say, he shall,- (i) rectify any arithmetical errors in the return, accounts and documents referred to in clause (a);

[(ii) * * *]

[(iii) * * *]

section (2) of section 32, the deduction referred to in

clause (ii) of sub-section (3) of section 32A or clause (ii)

of sub-section (2) of section 33 or clause (ii) of sub-

section (2) of section 33A or clause (i) of sub-section (2)

of section 35 or sub-section (1) of -> -> ------------------------------------------------------------------------ 1.535 -------------------------------------------------------------------------

-> -> section 35A or sub-section (1) of section 35D or

sub-section (1) of section 35E or the first proviso to clause

(ix) of sub-section (1) of section 36, any loss carried

forward under sub-section (1) of section 72 or sub-section

(2) of section 73 or sub-section (1) or sub-section (3) of

section 74 or sub-section (3) of section 74A and the

deficiency referred to in sub-section (3) of section 80J, is computed, in each case, in the regular assessment, if any, for the earlier assessment year or years.

(2) Where a return has been made under section 139, and-

(a) an assessment having been made under sub-section (1), the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an application to the Assessing Officer objecting to the assessment, or (b) whether or not an assessment has been made under sub-

section (1), the Assessing Officer considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the Assessing Officer shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Assessing Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return: Provided that, in a case where an assessment has been made under

subsection (1), the notice under this sub-section [except where such notice is in pursuance of an application by the assessee under clause (a)] shall not be issued by the Assessing Officer unless the previous approval of the Deputy Commissioner has been obtained to the issue of such notice: Provided further that in a case where the assessment made under

sub-section (1) is objected to by the assessee by an application under clause (a), the assessee shall not be deemed to be in default in respect of the whole or any part of the amount of the tax demanded in pursuance of the assessment under that sub-section, which is disputed by the assessee, in so far as such amount does not relate to any adjustment referred to in sub-clause (i) of clause (b) of sub-section

(1), and further no interest shall be chargeable under sub-section (2) of section 220 in respect of such disputed amount.

(3) On the day specified in the notice issued under sub-section

(2) or as soon after-wards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered,- (a) in a case where no assessment has been made under sub-

section (1), the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and deter-mine the sum payable by him or refundable to him on the basis of such assessment; (b) in a cast where an assessment has been made under sub-

section (1), if either such assessment has been objected to by the assessee by an application under clause (a) of sub-

section (2) or the Assessing Officer is of opinion that such assessment is incorrect, inadequate or incomplete in any material respect, the Assessing Officer shall, by an order in writing, make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment. Explanation.-For the purposes of the section,-

(1) an assessment under sub-section (1) shall be deemed to be incorrect, inadequate or incomplete in a material respect, if- (a) the amount of the total income as determined under sub-

section (1) is greater or smaller than the amount of the total income on which the assessee is properly chargeable under this Act to tax; or (b) the amount of the tax payable as determined under sub-

section (1) is greater or smaller than the amount of the tax properly payable under this Act by the assessee; or -> -> ------------------------------------------------------------------------ 1.536

(1)(a) Where a return has been made under section 139, or in

response to a notice under sub-section (1) of section 142,- (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of

sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee: Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely:- ----------------------------------------------------------------------- -> -> (c) the amount of any loss as determined under

sub-section (1) is greater or smaller than the amount of the loss, if any, determinable under this Act on a proper computation; or (d) the amount of any depreciation allowance, development rebate or any other allowance or deduction as determined

under sub-section (1) is greater or smaller than the amount of the depreciation allowance, development rebate or, as the case may be, other allowance or deduction properly allowable under this Act; or (e) the amount of the refund as determined under sub-

section (1) is greater or smaller than the amount of the refund, if any, due under this Act on a proper computation; or (f) the status in which the assessee has been assessed

under sub-section (1) is different from the status in which the assessee is properly assessable under this Act.

(2) "status", in relation to an assessee, means the classification of the assessee as an individual, a Hindu undivided

family, or any other category of persons referred to in clause (31) of section 2, and where the assessee is a firm, its classification as a registered firm or an unregistered firm." 5 Para 2 of the Income-tax (Removal of Difficulties) Order, 1989 states as under: "2. Applicability of section 143 of the Income-tax Act, 1961, as it stood before the commencement of the Direct Tax Laws (Amendment) Act, 1987.-The provisions of section 143 of the Income-tax Act, 1961, as they stood before the commencement of the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1988, and any earlier assessment year., 1.537 (i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified; (ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents, is prima facie admissible but which is not claimed in the return, shall be allowed; (iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed: 1[Provided further that where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments:] 2[3[Provided also] that an intimation for any tax or interest due under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable.]

(b) Where as a result of an order made under 4[sub-section (3) of this section or section 144 or] section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, or any order of settlement made

under sub-section (4) of section 245D relating to any earlier assessment year and passed subsequent to the filing of the return referred to in clause (a), there is any variation in the carry forward loss, deduction, allowance or relief claimed in the return, and as a result of which,- (i) if any tax or interest is found due, an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and (ii) if any refund is due, it shall be granted to the assessee: Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such order was passed. 5[(c) Where the assessee is 6[* * *] or a member of an association of persons or body of individuals and as a result of the adjustments made under the first proviso to clause (a) of sub-section

(1) in the income or loss declared in the return made by the 7[* * *] association or body, as the case may be, or as a result of an order

made under sub-section (3) of this section or section 144 or section

147 or section 154 or section 155 or sub-section (1) or sub-section

(2) or sub-section (3) or sub-section (5) of section 185 or sub-

section (1) or sub-section (2) of section 186 or section ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Substituted for "Provided further" by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 5 Ibid. 6 The words "a partner of a firm" omitted by the Finance Act, 1992, w.e.f. 1-4-1993. 7 The word "firm," omitted, ibid. ----------------------------------------------------------------------- 1.538 250 or section 254 or section 260 or section 262 or section 263 or

section 264, or any order of settlement made under sub-section (4) of section 245D, passed subsequent to the filing of the return referred to in clause (a), there is any variation in his share in the income or loss of the 1[* * *] association or body, as the case may be, or in the manner of inclusion of his share in the returned income, then,- (i) if any tax or interest is found due, an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and (ii) if any refund is due, it shall be granted to the assessee: Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such adjustments were made or any such order was passed.] 2[(1A)3[(a) Where as a result of the adjustments made under the

first proviso to clause (a) of sub-section (1),- (i) the income declared by any person in the return is increased; or (ii) the loss declared by such person in the return is reduced or is converted into income, the Assessing Officer shall,- (A) in a case where the increase in income under sub-clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub-

section (1) by an additional income-tax calculated at the rate of twenty per cent. on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause

(a) of sub-section (1); (B) in a case where the loss so declared is reduced under sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent of ----------------------------------------------------------------------- 1 The word "firm," omitted by the Finance Act, 1992, w.e.f. 1-4- 1993, 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Substituted by the Finance Act, 1993, w.r.e.f. 1-4-1989. Prior to the substitution, clause (a) read as under: "(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a)

of sub-section (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall,- (i) further increase the amount of tax payable under

subsection (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of

sub-section (1);

(ii) where any refund is due under subsection (1). reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under subclause (i)." The italicised word was inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.539 the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-clause (i) of clause (a) of

sub-section (1);

(C) where any refund is due under sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under sub-clause (A) or sub- clause (B), as the case may be.]

(b) Where as a result of an order under 1[sub-section (3) of this section or] section 154 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which additional income-tax is payable under clause (a) has been increased or reduced, as the case may be, the additional income-tax shall be increased or reduced accordingly, and,- (i) in a case where the additional income-tax is increased, the Assessing Officer shall serve on the assessee a notice of demand under section 156; (ii) in a case where the additional income-tax is reduced, the excess amount paid, if any, shall be refunded. 2[Explanation.-Omitted by the Finance Act, 1993, w.r.e.f. 1-4-1989.]] 3[(1B) Where an assessee furnishes a revised return under sub-

section (5) of section 139 after the issue of an intimation, or the

grant of refund, if any, under sub-section (1) of this section, the

provisions of sub-sections (1) and (1A) of this section shall apply in relation to such revised return and- (i) the intimation already sent for any income-tax, additional income-tax or interest shall be amended on the basis of the said revised return and where any amount payable by way of income-tax, additional income-tax or interest specified in the said intimation has already been paid by the assessee then, if any such amendment has the effect of- (a) enhancing the amount already paid, the intimation amended under this clause shall be sent to the assessee specifying the excess amount payable by him and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1989. 2 Prior to the omission, the Explanation to sub-section (1A) read as under: "Explanation.-For the purposes of this sub-section, "tax payable on such excess amount" means,- (i) in any case where the amount of adjustments made under

the first proviso to clause (a) of sub-section (1) exceed the total income, the tax that would have been chargeable had the amount of the adjustments been the total income; (ii) in any other case, the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments." The italicised words was inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989. ------------------------------------------------------------------------ 1.540 (b) reducing the amount already paid, the excess amount paid shall be refunded to the assessee; (ii) the amount of the refund already granted shall be enhanced or reduced on the basis of the said revised return and where the amount of refund already granted is- (a) enhanced, only the excess amount of refund due to the assessee shall be paid to him; (b) reduced, the excess amount so refunded shall be deemed to be the tax payable by the assessee and an intimation shall be sent to the assessee specifying the amount so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly: Provided that an assessee, who has furnished a revised return

under sub-section (5) of section 139 after the service upon him of the

intimation under sub-section (1) of this section, shall be liable to pay additional income-tax in relation to the adjustments made under

the first proviso to clause (a) of sub-section (1) and specified in the said intimation, whether or not he has made the said adjustments in the revised return.]

(2) 1[Where a return has been made under section 139, or in

response to a notice under sub-section (1) of section 142, the Assessing Officer shall, if he] considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, 2[* * *] serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return: 3[Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.]

(3) On the day specified in the notice issued under sub-section

(2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment.]

4[(4) Where a regular assessment under sub-section (3) of this section or section 144 is made,- -----------------------------------------------------------------------

1 Substituted for "In a case referred to in sub-section (1), if the Assessing Officer" by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 2 The words "he shall" omitted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. Prior to the substitution, the proviso read as under: " Provided that no notice under this sub-section shall be served on the assessee after the expiry of the financial year in which the return is furnished or the expiry of six months from the end of the month in which the return is furnished, whichever is later." 4 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.541 (a) any tax or interest paid by the assessee under sub-

section (1) shall be deemed to have been paid towards such regular assessment; (b) if no refund is due on regular assessment or the amount

refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.

(5) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.] 1[Explanation.-An intimation sent to the assessee under sub-

section (1) or sub-section (1B) shall be deemed to be an order for the purposes of 2[sections 246 and 264].] 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 2 Substituted for "section 264" by the Finance Act, 1994, w.e.f. 1-6-1994. ----------------------------------------------------------------------- 1.542 (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State industrial investment corporation. As far as payments referred to at (a) above the assessee can enclose the challan, etc. by way of evidence. If it is not possible in any case he should enclose a certificate from an accountant verifying that the payment of tax, etc. and claimed as deduction had been made by the due date for the filing of the return. As regards sums mentioned at (b) above the evidence required would be a certificate from an accountant. As regards payment of interest referred to at (d) the evidence required would be either a certificate from the institution concerned or a certificate from an accountant. 3. Furnishing of evidence of payment of any sum by way of tax, duty, etc. along with the return is a necessary requirement for allowance of deduction of that sum under section 43B. The sums

disallowed as prima facie inadmissible under section, 143(1)(a) in the absence of requisite evidence of the payment cannot be subsequently allowed under section 154. But where the sums referred to in the first proviso under section 43B had in fact been paid on or before the due dates mentioned therein, but the evidence therefore had been omitted to be furnished along with the return, the Assessing Officers can entertain applications under section 154 for rectification of the intimation

under section 143(1)(a) or orders under section 143(3), as the case may be, and decide the same on merits. 4. The Income-tax Officers should give each assessee a different timing for hearing. 5. In Punjab the letter of authorisation presented by the Income-tax Practitioners and chartered accountants before the Income- tax authorities may be governed by the Court Fee Act in view of the decision of the erstwhile Punjab Chief Court in Ganpaty Prem Singh (1 5 Indian Cases 122). 6. The Assessing Officers should make all efforts to see that the assessment orders are passed immediately after the hearing is over. In complicated cases or those involving the handling of voluminous materials, it may not be possible to pass an order immediately after the hearing. Even in such cases the order should be passed within fourteen working days after the date of last hearing. 7. In cases chosen for sample scrutiny, if the assessment has

already been completed under section 143(1) by the computer, the

proceedings should be reopened under section 143(2)(b) in scrutiny. 8. Assessments in the following types of cases will be

completed under section 143(1) on the basis of the returns after linking them with the assessment reports: (i) all cases other than company and trust cases with returned income/loss upto Rs. 1 lakh; (ii) company cases with returned income/loss upto Rs. 25,000 and paid up capital not exceeding Rs. 5 lakhs; (however the first assessment in all new company cases will be a scrutiny assessment); (iii) all trust cases and and cases of charitable institutions having income below Rs. 1 lakh before applying the provisions of section 1 1 provided the corpus of the trust does not exceed Rs. 5 lakhs. (the first assessment in all trust cases will however be on scrutiny basis). ----------------------------------------------------------------------- 1.543 144 Best judgment assessment 144. Best judgment assessment

1[(1)] If any person- (a) fails to make the return required 2[under sub-section

(1) of section 139] and has not made a return or a revised

return under subsection (4) or sub-section (5) of that section,] or (b) fails to comply with all the terms of a notice issued

under subsection (1) of section 142 3[or fails to comply with a direction issued under sub-section (2A) of that section], or (c) having made a return, fails to comply with all the

terms of a notice issued under sub-section (2) of section 143, the 4[Assessing] Officer, after taking into account all relevant material which the 5[Assessing] Officer has gathered, 6[shall, after giving the assessee an opportunity of being heard, make the assessment] of the total income or loss to the best of his judgment and determine the sum payable by the assessee 7[* * *] on the basis of such assessment: 8[Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall not be necessary to give such

opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.]

9[(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.] 10[144A. Power of 11[Deputy] Commissioner to issue directions in certain cases 12[* * *] A 13[Deputy] Commissioner may, on his own motion or on a ------------------------------------------------------------------------ 1 Renumbered by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989.

2 Substituted for by any notice given under sub-section (2) of section 139" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

3 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 ibid. 6 Substituted for "shall make the assessment", ibid, w.e.f. 1-4-

7 The words "or refundable to the assessee" omitted, ibid. 8 Inserted, ibid. 9 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 10 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-1-

11 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

12 "(1)" omitted, ibid, w.e.f. 1-4-1989. 13 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, ------------------------------------------------------------------------ 1.544 reference being made to him by the 1[Assessing] Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the 2[Assessing] Officer to enable him to complete the assessment and such directions shall be binding on the 3[Assessing] Officer: Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. Explanation.-For the purposes of this 4[section] no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.

5[(2) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]] 6[144B. Reference to Deputy Commissioner in certain cases.-Omitted ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Ibid. 4 Substituted for "sub-section" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

5 Prior to the omission, sub-section (2) read as under:

"(2) The provisions of this section shall be in addition to, and

not in derogation of, the provisions contained in sub-section (3) of section 119." 6 Prior to the omission, section 144B, as amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under:

"144B. Reference to Deputy Commissioner in certain cases.-(1) Notwithstanding anything contained in this Act, where in an assessment

to be made under sub-section (3) of section 143, the Assessing Officer proposes to make, before the 1st day of October, 1984, any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board

under subsection (6), the Assessing Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.

(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Assessing Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Assessing Officer may allow on an application made to him in this behalf.

(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Assessing Officer the acceptance of the variation, the Assessing Officer shall complete the assessment on the basis of the draft order.

(4) If any objections are received the Assessing Officer shall forward the draft order together with the objections to the Deputy Commissioner and the Deputy Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment: Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard.

(5) Every direction issued by the Deputy Commissioner under sub- section -> -> ----------------------------------------------------------------------- 1.545 by the Direct Tax Laws Amendment) Act, 1987, w.e.f. 1-4-1989. It was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.] 145 Method of accounting1 145. Method of accounting1

(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee: Provided that in any case where the accounts are correct and complete to the satisfaction of the 2[Assessing] Officer but the method employed is such that, in the opinion of the 4[Assessing] Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the 4[Assessing] Officer may determine: 5[Provided further that where no method of accounting is regularly employed by the assessee, any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the assessee:] 6[Provided also that nothing contained in this sub-section shall preclude an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year.]

(2) Where the 7[Assessing] Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting, has been regularly employed by the assessee, the 8[Assessing] Officer may make an assessment in the manner provided in section 144. -----------------------------------------------------------------------

-> -> (4) shall be binding on the Assessing Officer.

(6) For the purposes of sub-section (1), the Board, may, having regard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amount as it deems fit: Provided that different amounts may be fixed for different areas: Provided further that the amount fixed under this sub-section shall, in no case, be less than twenty-five thousand rupees.

(7) Nothing in this section shall apply to a case where a Deputy Commissioner exercises the powers or performs the functions of an Assessing Officer in pursuance of an order made under section 125 or section 125A." 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Ibid. 5 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 6 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989. 7 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 8 Ibid. ----------------------------------------------------------------------- 1.546 The following section 145 is being substituted for the above section by the Finance Act, 1995, w.e.f. 1-4-1997:

"145. Method of accounting.-(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other

sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

(2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.

(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where

the method of accounting provided in sub-section (1) or accounting

standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." 146 Reopening of assessment at the instance of the assessee. 1[146. Reopening of assessment at the instance of the assessee.- Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989.] ----------------------------------------------------------------------- 1 Prior to the omission, section 146, as amended by the Finance Act, 1963, w.e.f. 28-4-1963; Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976; Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "146. Reopening of assessment at the instance of the assessee.-

(1) Where an assessee assessed under section 144 before the 1st day of October, 1984 makes an application to the Assessing Officer, within one month from the date of service of a notice of demand issued in consequence of the assessment, for the cancellation of the assessment on the ground- (i) that he was prevented by sufficient cause from making

the return required under sub-section (2) of section 139, or (ii) that he did not receive the notice issued under sub-

section (1) of section 142 or sub-section (2) of section 143, or (iii) that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with. the terms of any notice referred to in clause (ii), the Assessing Officer shall, if satisfied about the existence of such ground, cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of section 143 or section 144.

(2) Every application made under sub-section (1) shall be disposed of within -> -> ------------------------------------------------------------------------ 1.547 147 Income escaping assessment2 1[147. Income escaping assessment2 If the Assessing Officer 3[has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in ----------------------------------------------------------------------- -> -> ninety days from the date of receipt thereof by the Assessing Officer: Provided that in computing the period of ninety days aforesaid, any delay in disposing of the application which is attributable to the assessee shall be excluded." 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 147, as amended by the Direct Tax Laws (Amendment) Act,. 1987, w.e.f. 1-4-1988, read as under: "147. Income escaping assessment.-If-- (a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in-his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). Explanation 1.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where income chargeable to tax has been under-assessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income- tax Act, 1922 (11 of 1922); or (d) where excessive loss or depreciation allowance has been computed. Explanation 2.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section." 3 Substituted for ", for reasons to be recorded by him in writing, is of the opinion" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.548

response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but- (i) income chargeable to tax has been under-assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.] 1.549 148 Issue of notice where income has escaped assessment2 1[148. Issue of notice where income has escaped assessment2

3[(1)] Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.]

4 [(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.] 149 Time limit for notice 149. Time limit for notice

5[(1) No notice under section 148 shall be issued for the relevant assessment year,-

(a) in a case where an assessment under sub-section (3) of section 143 or section 147 has been made for such assessment year,- (i) if four years have elapsed from the end of the relevant assessment year, unless the case falls under sub-clause (ii) or sub-clause (iii); (ii) if four years, but not more than seven years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or ----------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 148, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under:

"148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice containing all or any of the requirements which may be included

in a notice under sub-section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." 3 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Ibid. 5 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (1) read as under:

"(1) No notice under section 148 shall be issued, (a) in cases falling under clause (a) of section 147- (i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii); (ii) for the relevant assessment year, where eight years but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year. (b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year." ----------------------------------------------------------------------- 1.550 is likely to amount to rupees fifty thousand or more for that year; (iii) if seven years, but not more than ten years, have elapsed from the end of the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to 1[* * * ]rupees one lakh or more for that year; (b) in any other case,- (i) if four years have elapsed from the end of the relevant assessment year, unless the case falls under sub-clause (ii) or sub-clause (iii); (ii) if four years, but not more than seven years, have elapsed from the end of the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees twenty-five thousand or more for that year; (iii) if seven years, but not more than ten years, have elapsed from the end of the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year. Explanation.-In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.].

(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.

(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessmen year. 150 Provision for cases where assessment is in pursuance of an order on appeal, etc. 150. Provision for cases where assessment is in pursuance of an order on appeal, etc.

(1) Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any ----------------------------------------------------------------------- 1 The words "more than" omitted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.551 authority in any proceeding under this Act by way of appeal, reference or revision 1 [or by a court in any proceeding under any other law].

(2) The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken. 151 Sanction for issue of notice 2[151. Sanction for issue of notice

(1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 3[by an Assessing Officer, who is below the rank of Assistant Commissioner, unless the Deputy Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice]: Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case failing under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Deputy Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Deputy Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.] 152 Other provisions 152. Other provisions

(1) In an assessment, reassessment or recomputation made under section 147, the tax shall be chargeable at the rate or rates at which it would have been charged had the income not escaped assessment.

(2) Where an assessment is reopened 4[under section 147], the assessee may, if he has not impugned any part of the original assessment ------------------------------------------------------------------------ 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

2 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 151, as amended by the Direct Tax Laws (Amendment) Act, 1987, read as under:

"151. Sanction for issue of notice.-(1) No notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice.

(2) No notice shall be issued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice." 3 Substituted for "except by an Assessing Officer of the rank of Assistant Commissioner or Deputy Commissioner" by the Finance Act, 1990, w.e.f. 1-4-1990. 4 Substituted for "in circumstances falling under clause (b) of section 147" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

------------------------------------------------------------------------- 1.552 order for that year either under sections 246 to 248 or under section 264, claim that the proceedings under section 147 shall be dropped on his showing that he had been assessed on an amount or to a sum not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made: Provided that in so doing he shall not be entitled to reopen matters concluded by an order under section 154, 155, 260, 262 or 263. 153 Time limit for completion of assessments and reassessments 153. Time limit for completion of assessments and reassessments

1[(1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry of- (a) two years from the end of the assessment year in which the income was first assessable; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier

assessment year, is filed under sub-section (4) or sub-

section (5) of section 139, whichever is later.]

2[(2) No order of assessment, reassessment or recomputation shall be ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1989, w.e.f. 1-4-1989. Prior to

the substitution, subsection (1), as amended by the Finance Act, 1968, w.e.f. 1-4-1968 and amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984, read as under:

"(1) No order of assessment shall be made under section 143 or section 144 at any time after- (a) the expiry of- (i) four years from the end of the assessment year in which the income was first assessable, where such assessment year is an assessment year commencing on or before the 1st day of April, 1967; (ii) three years from the end of the assessment year in which the income was first assessable, where such assessment year is the assessment year commencing on the 1st day of April, 1968; (iii) two years from the end of the assessment year in which the income was first assessable, where such assessment year is an assessment year commencing on or after the 1st day of April, 1969; or (b) the expiry of eight years from the end of the assessment year in which the income was first assessable, in

a case falling within clause (c) of sub-section (1) of section 271; or (c) the expiry of one year from the date of the filing of a

return or a revised return under sub-section (4) or sub-

section (5) of section 139; or (d) the expiry of six months from the end of the month in

which an application under clause (a) of sub-section (2) of section 143 is made by the assessee, whichever is latest." It was also substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but the substituted provision never came into effect. See also Instruction No. 888, dated 1-10-1975, reproduced in Bharat's Direct Taxes Circulars, 1991 edn., p. 1477. 2 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (2) read as under:

"(2) No order of assessment, reassessment or recomputation shall be made under section 147- (a) where the assessment, reassessment or recomputation is to be made under clause (a) of that section, after the expiry of four years from the end of the assessment year in which the notice under section 148 was served; -> -> ------------------------------------------------------------------------ 1.553 made under section 147 after the expiry of two years from the end of the financial year in which the notice under section 148 was served: Provided that where the notice under section 148 was served on or before the 31st day of March, 1987, such assessment, reassessment or recomputation may be made at any time up to the 31st day of March, 1990.]

1[(2A) Notwithstanding anything contained in sub-sections (1) and

(2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment under section, 146 or in pursuance of an order, under section 250, section 254, section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of two years from the end of the financial year in which the order under section 146 cancelling the assessment is passed by the 2[Assessing] Officer or the order under section 250 or section 254 is received by the 4[Chief Commissioner or Commissioner] or, as the case may be, the order under section 263 or section 264 is passed by the 4 [Chief Commissioner or Commissioner].]

(3) The provisions of sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, 5[subject to the provisions of sub-section (2A),] be completed at any time- (i) where a fresh assessment is made under section 146; (ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section- 250, 254, 260, 262, 263 or 264 6[or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act]; (iii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147. 7 [Explanation 1.-In computing the period of limitation for the purposes of this section- ----------------------------------------------------------------------- -> -> (b) where the assessment, reassessment or recomputation is to be made under clause (b) of that section, after- (i) the expiry of four years from the end of the assessment year in which the income was first assessable, or (ii) the expiry of one year from the date of service of the notice under section 148, whichever is later." 1 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "Commissioner", ibid. 4 Ibid. 5 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

6 Inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-

7 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 1-1976 as regards clauses (i), (ii) and (iv) and w.e.f. 1-4-1976 as regards clauses (iii) and (v). ------------------------------------------------------------------------ 1.554 (i) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso- to section 129, or (ii) the period during which the assessment proceeding is stayed by an order or injunction of any court, or (iii)the period commencing from the date on which the 1[Assessing] Officer directs the assessee to get his accounts audited under subsection (2A) of section 142 and ending with the date on which the assessee furnishes a report of such audit under that sub-section, or 2[(iv) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] 3[(iva)the period (not exceeding sixty days) commencing from the date on which the 4 [Assessing] Officer received the

declaration under sub-section (1) of section 158A and ending

with the date on which the order under sub-section (3) of that section is made by, him, or] (v) in a case where an application made before the Income- tax Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which such application is made and ending with the date on which the order under sub-section

(1) of section 245D is received by the Commissioner under

sub-section (2) of that section, shall be excluded:] 5 [Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-

sections (1), (2) and (2A) available to the Assessing Officer for making an order of assessment, reassessment or recomputation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly,] Explanation 2.-Where, by an order 6[referred to in clause (ii) of

subsection (3)], any income is excluded, from the total income of the assessee for an assessment year, then, an assessment of such income for another ---------------------------------------------------------------------- 1 Substituted for me-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Prior to the omission, clause (iv), as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "(iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Assessing Officer

forwards the draft order under subsection (1) of section 144B to the assessee and ending with the date on which the Assessing Officer receives the directions from the Deputy

Commissioner under sub-section (4) of that section, or, in a case where no objections to the draft order are received from the, assessee, a period of thirty days, or" 3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991. 6 Substituted for "under section 250, 254 260, 262, 263 or 264" by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964. ------------------------------------------------------------------------- 1.555 assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. Explanation 3.-Where, by an order 1[referred to in clause (ii) of

subsection (3)], ;any income is excluded from the total income-of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed. 154 Rectification of mistake2 154. Rectification of mistake2

3[(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to, in section 1 16 may,- (a) amend any order passed by it under the provisions of this Act;

(b) amend any intimation sent by it under sub-section (1) of section 143, or enhance or reduce the amount of refund granted by it under that sub-section.] 4[(1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred

to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the,, time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.]

(2) Subject to the other provisions of this section, the authority concerned--

(a) may make an amendment under sub-section (1) of its own motion, and (b) shall make such amendment for rectifying any-such mistake which has been brought to its notice by the assessee, and where the authority concerned is the 5[Deputy Commissioner (Appeals)] ----------------------------------------------------------------------- 1 Substituted for "under section 250, 254, 260, 262, 2 63 or 264" by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (1), as substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984:

"(1) With a view to rectifying any mistake apparent from the record, an income-tax authority referred to in section 116 may amend any order passed by it under the provisions of this Act."

Earlier, the original sub-section (1) was amended by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964; Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 4 Inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-

5 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.556 1[or the Commissioner (Appeals)], by the 2[Assessing] Officer also. 3[Omitted by the Finance Act, 1994, w.e.f. 1-6-1994.]

(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.

(4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned.

(5) Subject to the provisions of section 241, where any such amendment has the effect of reducing the assessment, the 4 [Assessing] Officer shall make any refund which may be due to such assessee.

(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made, the 5[Assessing] Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.

(7) Save as otherwise provided in section 155 or sub-section (4) of section 186, no amendment under this section shall be made after the expiry of four years 6[from the end of the financial year in which the order sought to be amended was passed.] ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Prior to the omission, the proviso, as inserted by the Finance Act, 1992, w.e.f. 14-5-1992, read as under: "Provided that the Assessing Officer shall make an amendment for rectifying any mistake, which has been brought to his notice by the assessee in relation to an intimation referred to in clause (b) of

sub-section (1), within a period of three months from the end of the month in which it is so brought to his notice and if no such amendment is made within the said period of three months, the assessee may appeal to the Deputy Commissioner (Appeals) or, as the case may be, Commissioner (Appeals) against such intimation and the provisions of section 246 and section 249 shall have effect as if the said intimation were an order for the purposes of those sections." 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 ]bid. 6 Substituted for "from the date of the order sought to be amended" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-16-1984. ----------------------------------------------------------------------- 1.557 2. Audit objections pointed out by the Revenue Audit parties should be attended to on top priority and Board's letters relating to Audit paras and PAC matters should be replied to within a fortnight of the receipt of the letter. If any date has been fixed for sending the reply it should be sent by the prescribed date. 3. In all cases where a valid application under clause (b) of

sub-section (2) of section 154 had been filed by the assessee within the statutory time limit but was not disposed of by the authority

concerned within the time limit specified under sub-section (7) of section 154 it may be disposed of by that authority even after the expiry of the statutory time limit on merits and in accordance with law 4. Where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake had occurred in any of the completed assessments in his case the application shall be acted upon provided,the same has been filed within time and is otherwise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit the same may also be treated on par with the applications which may either be pending or received after the issue of this circular. 5. Since the word "order" in the expression "from the date of

the order sought to be amended" in section 154(7) was not qualified in any way, it did not necessarily mean the original order; it could be any order including the amended or rectified order. [Hind Wire

Industries Ltd v CIT (1995) 212 ITR 639 (SC)] 155 Other amendments 155. Other amendments

(1) 1[Where, in respect of any completed assessment of a partner in a firm for the assessment year commencing on the 1st day of April, 1992, or any earlier assessment year,] it is found- (a) on the assessment or reassessment of the firm, or (b) on any reduction or enhancement made in the income of the firm under this section, section 154, section 250, section 254, section 260, section 262, section 263 or section 264, 2[or]

3[(C) on any order passed under sub-section (4) of section 245D on the application made by the firm,] that the share of the partner in the income of the firm has not been included in the assessment of the partner or, if included, is not correct, the 4[Assessing] Officer may amend the order of assessment of the partner with a view to the inclusion of the share in the assessment or the correction thereof, as the case may be; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in ----------------------------------------------------------------------- 1 Substituted for "Where, in respect of any completed assessment of a partner in a firm" by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, the above expression was substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was restored to its original form by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 2 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

3 Ibid. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.558

sub-section (7) of that section being reckoned 1[from the end of the financial year in which the final order was passed] in the case of the firm. 2[(1A) Where in respect of any completed assessment of a firm it is found- (a) on the assessment or reassessment of the firm, or (b) on any reduction or enhancement made in the income of the firm under this section, section 154, section 250, section 254, section 260, section 262, section 263 or section 264, or

(c) on any order passed under sub-section (4) of section 245D on the application made by the firm, that any remuneration to any partner is not deductible under clause (b) of section 40, the Assessing Officer may amend the order of assessment of the partner with a view to adjusting the income of the partner to the extent of the amount not so deductible; and the provisions of section 154 shall,-so far as may be, apply-thereto, the

period of four years specified in sub-section (7) of that section being reckoned from the end of the financial year in which the final order was passed in the case of the firm.]

(2) Where in respect-of any completed assessment of a member of an association of persons or-of a body of individuals it is found- (a) on the assessment or reassessment of the association or body, or (b) on any reduction or enhancement made in the income of the association or body under this section, section 154, section 250, section 254, section 260, section 262, section 263 or section 264, 3[or]

4[(C) on any order passed under subsection (4) of section 245D on the application made by the association or body,] that the share of the member in the income of the association or body, as the case may be, has not been included in the assessment of the member or, if included, is not correct, the 5[Assessing] Officer may amend the order-of assessment of the member with a view to the inclusion of the share in the assessment or the correction thereof, as the case may be; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of that section. being reckoned 6[from the end of the financial year in which the final order was passed] in the case of the association or body, as the case may be.

7[ (3) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] ----------------------------------------------------------------------- 1 Substituted for "from the date of the final order passed" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. 2 Inserted by-the Finance Act, 1992, w.e.f. 1-4-1993. 3 Inserted by the Taxation Laws, (Amendment) Act, 1984, w.e.f. 1-10-1984. 4 Ibid. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted for "from the date of the final order, passed" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984.

7 Prior to the omission, sub-section (3), as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: -> -> ------------------------------------------------------------------------ 1.559

(4) Where as a result of proceedings initiated under section 147, a loss or depreciation has been recomputed and in consequence thereof it is necessary to recompute the total income of the assessee for the succeeding year or years to which the loss or depreciation allowance has been carried forward and set off under the provisions of

sub-section (1) of section 72, or sub-section (2) of section 73, or

sub-section (1) 1[or sub-section (3)] of section 74, 2[or sub-section

(3) of section 74A,] the 3[Assessing] Officer may proceed to recompute the total income in respect of such year or years and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of that section being reckoned 4 [from the end of the financial year in which the order was passed] under section 147. 5[(4A) Where an allowance by way of investment allowance has been made wholly or partly to an assessee in respect of a ship or an aircraft or any machinery or plant in any assessment year under section 32A and subsequently- (a) at any time before the expiry of eight years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to any person other than 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 6 (1 of 1956), or in connection with any amalgamation or succession referred to in

sub-section (6) or sub-section (7) of section 32A; or (b) at any time before the expiry of ten years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, the assessee does not utilise the amount credited to the reserve

account under sub-section (4) of section 32A for the purposes of acquiring a new ship or a new aircraft or new machinery or plant [other than machinery or plant

-> -> "(3) Where the excess profits tax or the business profits tax payable by an assessee has been modified in appeal, revision or any other proceeding, or where any excess profits tax has been assessed after the completion of the corresponding .assessment for income-tax and in consequence thereof, it is necessary to amend the total income of the assessee chargeable to income-tax, the Assessing Officer may make the necessary amendment and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in

sub-section (7) of that section being reckoned from the date of the order making modifying the assessment of such excess profits tax or business profits tax, as the case may be. Explanation.-For the purposes of this sub-section, where the

assessee is a firm, the provisions of sub-section (1) shall also apply as they apply to the amendment of the assessment of the partners of the firm." 1 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Finance Act, 1974, w.e.f. 1-4-1975. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for "from the date of the order passed" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. 5 Inserted by the Finance Act, 1976, w.e.f. 1-4-1976. 1.560 of the nature referred to in clauses (a), (b) and (d) of the

1[second] proviso to sub-section,(1) of section 32A] for the purposes of the business of the undertaking; or (c) at any time before the expiry of the ten years referred to in clause (b), the assessee utilises the amount credited

to the reserve account under sub-section (4) of section 32A- (i) for distribution by way of dividends or profits; or (ii) for remittance outside India as profits or for the creation of any asset outside India; or (iii) for any other purpose which is not a purpose of the business of the undertaking, the investment allowance originally allowed shall be deemed to have been wrongly allowed, and the 2[Assessing] Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of that section being reckoned,- (i) in a case referred to in clause (a), from the end of the previous year in which the sale or other transfer took place; (ii) in a case referred to in clause (b), from the end of the ten years referred to in that clause; (iii) in a case referred to in clause (c), from the end of the previous year in which the amount was utilised. Explanation.-For the purposes of clause (b), "new ship" or "new aircraft" or "new machinery or plant" shall have the same meanings as

in the 3[Explanation below sub-section (2) of section 32A].]

4(5) Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship, machinery or plant installed after the 31st day of December, 1957, in any assessment year under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), and subsequently- (i) at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than 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 5 (1 of 1956), or in connection with any

amalgamation or succession referred to in sub-section (3) or

sub-section (4) of section 33; or ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

3 Substituted for "Explanation to clause (vi) of sub-section (1) of section 32" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 1.561 (ii) at any time before the expiry of the eight years

referred to in subsection (3) of section 34, the assessee utilises the amount credited to the reserve account under clause (a) of that sub-section- (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; or (c) for any other purpose which is not a purpose of the business of the undertaking; the development rebate originally allowed shall be deemed to have been wrongly allowed, and the 1[Assessing] Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be,

apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year, in which the sale or transfer took place or the money was so utilised.] 2[(5A) Where an allowance by way of development allowance has been made wholly or partly to an assessee in respect of the cost of planting in any area in any assessment year under section 33A and subsequently- (i) at any time before the expiry of eight years from the end of the previous year in which such allowance was made, the land is sold or otherwise transferred by the assessee to any person other than 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 3 (1 of 1956), or in connection with any

amalgamation or succession referred to in sub-section (5) or

sub-section (6) of section 33A; or (ii) at any time before the expiry of the eight years

referred to in subsection (3) of section 33A, the assessee utilises the amount credited to the reserve account under clause (ii) of that subsection- (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; or (c) for any other purpose which is not a purpose of the business of the under-taking, the development allowance originally allowed shall be deemed to have been wrongly allowed, and the 4 [Assessing] Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of that section being reckoned ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.562 from the end of the previous year in which the sale or transfer took place or the money was so utilised.] 1[Explanation.-For the purposes of this sub-section, where an assessee having any leasehold or other right of occupancy in any land transfers such right, he shall be deemed to have sold or otherwise transferred such land.] 2[(5B) Where any deduction in respect of any expenditure on scientific research has been made in any assessment year under sub- section (2B) of section 35 and the assessee fails to furnish a certificate of completion of the programme obtained from the prescribed authority within one year of the period allowed for its completion by such authority, the deduction originally made in excess of the expenditure actually incurred shall be deemed to have been wrongly made, and the 3[Assessing] Officer may notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be,

apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the period allowed for the completion of the programme by the prescribed authority expired.]

4[ (6) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]

(7) Where, as a result of any proceeding under this Act, in the assessment for any year of a company in whose case an order under section 104 has been made for that year, it is necessary to recompute the ,distributable income of that company, the 5[Assessing] Officer may proceed to recompute the distributable income. and determine the 6[ tax] payable on the basis of such recomputation and make the necessary ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1975, w.r.e.f. 1-4-1965. 2 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992. It was inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

4 Prior to the omission, sub-section (6), as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under:

"(6) Where any such debt or part of debt as is referred to in

clause (vii) of subsection (1) of section 36 is written off as irrecoverable in the accounts of the assessee for a previous year and the Assessing Officer is satisfied that such debt or part thereof became a bad debt in an earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which the debt or part is written off, the Assessing Officer may, notwithstanding anything contained in this Act, allow such debt or part as a deduction for such earlier previous year, if the assessee accepts such a finding of the Assessing Officer, and recompute the total income of the assessee for such earlier previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in

sub-section (7) of that section being reckoned from the end of the financial year in which the assessment relating to the previous year in which the debt is written off is made." 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted for "super-tax" by the Finance Act, 1965, w.e.f. 1-4-

------------------------------------------------------------------------ 1.563 amendment; and the provisions of section 154 shall, so far as may be,

apply thereto, the period of four years specified in sub-section (7) of that section being reckoned 1[from the end of the financial year in which the final order was passed] in the case of the company in respect of that proceeding. 2[(7A) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1992.] 3[(7B) Where, in the assessment for any year, the capital gain arising from the transfer of a capital asset is not charged under section 45 by virtue of the provisions of clause (iv) or, as the case may be, clause (V) of section 47, but is deemed under section 47A to be income chargeable under the head "Capital gains" of the previous year in which the transfer took place by reason of- (i) such capital asset being converted by the transferee company into, or being treated by it, as stock-in-trade of its business; or (ii) the parent company or its nominees or, as the case may be, the holding company. ceasing to hold the whole of the share capital of the subsidiary company, at any time before the expiry of the period of eight years from the date of such transfer, the 4[Assessing] Officer may, notwithstanding anything contained in this Act, recompute the total income of the transferor company for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of that section being reckoned from the end of the previous year in which the capital asset was so converted or treated or in which the parent company or its nominees or, as the case may be, the holding company ceased to hold the whole of the share capital of, the subsidiary company.] ---------------------------------------------------------------------- 1 Substituted for "from the date of the final order passed" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. 2 Prior to the omission, sub-section (7A), as inserted by the Finance Act, 1978, w.r.e.f. 1-4-19-74 and amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "(7A) Where, in the assessment for any year, the capital gain arising from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, is computed under section 48 and the compensation for such acquisition or the consideration for such transfer is enhanced or further enhanced by any court, tribunal or other authority, the computation or, as the case may be, computations made earlier shall be deemed to have been wrongly made and the Assessing Officer shall, notwithstanding anything contained in this Act, recompute, in accordance with section 48 the capital gain arising from such transfer by taking the compensation or the consideration enhanced or further enhanced, as the case may be, to be the full value of the consideration received or accruing as a result of such transfer and shall make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the

period of four years specified in subsection (7) of that section being reckoned from the end of the previous year in which the additional compensation or consideration was received by the assessee." 3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.564

1[(8) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.] 2[(8A) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]

3[(9) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.] 4[(9A)Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. ------------------------------------------------------------------------

1 Prior to the omission, sub-section (8), as amended by the Finance Act, 1978, w.r.e.f. 1-4-1974; Finance Act, 1982, w.e.f. 1-4-1983; Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984; Finance Act, 1986, w.e.f. 1-4-1987 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under:

"(8) Where, in the assessment for any year, a capital gain arising from the transfer of any such capital asset as is referred to in section 54 is charged to tax and within a period of two years after the date of the transfer, the assessee purchases, or within three years from that date constructs, a residential house, the Assessing Officer shall amend the order of assessment so as to exclude the amount of the capital pin not chargeable to tax under the provisions

of sub-section (1) of section 54; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years

specified in subsection (7) of that section being reckoned from the end of the financial year in which the assessment was made." Prior to the omission, sub-section (8A), as inserted by the Finance Act, 1978, w.r.e.f. 1-4-1974 and amended by the Finance Act, 1982, w.e.f. 1-4-1983; Finance Act, 1986, w.e.f. 1-4-1987 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under. "(8A) Where, in the assessment for any year, a capital gain arising from the transfer by way of compulsory acquisition under any law of any such capital asset as is referred to in section 54 is charged to tax and if the compensation for such acquisition is enhanced or further enhanced, as the case may be, by any court, tribunal or other authority, and the assessee purchases, within a period of two years after the date of receipt of the additional compensation or constructs, within a period of three years after that date, a residential house, the Assessing Officer shall amend the order of assessment so as to exclude the amount of capital gain not

chargeable to tax under the provisions of sub-section (2) of section 54; and the provisions of section 154 shall, so far as may be, apply

thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the additional compensation was received by the assessee."

3 Prior to the omission, sub-section (9), as inserted by the Finance Act, 1973, w.r.e.f. 1-4-1970 and amended by the Finance Act, 1978, w.r.e.f. 1-4-1974; Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1988, read as under:

"(9) Where, in the assessment year for any year, a capital gain arising from the transfer of any such capital asset as is referred to in section 54B is charged to tax and within a period of two years after the date of the transfer, the assessee purchases any other land for being used for agricultural purposes, the, Assessing Officer shall amend the order of assessment so as to exclude the amount to the capital gain not chargeable to tax under the provisions of sub-section

(1) of section 54B; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of that section being reckoned from the end of the financial year in which the assessment was made." 4 Prior to the omission, sub-section (9A), as inserted by the Finance Act, 1978, w.r.e.f. 1-4-1974 and amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under. "(9A) Where, in the assessment for any year, a capital gain arising from the transfer by way of compulsory acquisition under any law of any such capital -> -> ----------------------------------------------------------------------- 1.565 1-4-1992.]

4[(10) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.] 2[( 10A) Where, in the assessment for any year, a capital gain arising from the transfer of a 3[long-term capital asset] is charged to tax and within a period of six months after the date of such transfer, the assessee has made any investment or deposit in any

specified asset within the meaning of Explanation 1 to sub-section (1) of section 54E, the 4[Assessing] Officer shall amend the order of assessment so as to exclude the amount of the capital gain not chargeable to tax under the provisions ---------------------------------------------------------------------- -> > asset as is referred to in section 54B is charged to tax and if the compensation for such acquisition is enhanced or further enhanced, as the case may be, by any court, tribunal or other authority, and within a period of two years after the receipt of the additional compensation, the assessee purchases any land for being used for agricultural purposes, the Assessing Officer shall amend the order of assessment so as to exclude the amount of capital gain not chargeable

to tax under the provisions of sub-section (2) of section 54B; and the provisions of section 154 shall, so far as may be, apply thereto, the

period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the additional compensation was received by the assessee."

1 Prior to the omission, sub-section (10), as inserted by the Finance Act, 1973, w.e.f. 1-4-1974 and amended by the Finance Act, 1978, w.r.e.f. 1-4-1974; Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1988, read as under:

"(10)(a) Where, in the assessment for any year, a capital gain arising from the transfer by way of compulsory acquisition of any such capital asset as is referred to in section 54D is charged to tax and within a period of three years after the date of the transfer, the assessee purchases any other land or building or any right in any other land or building or constructs any other building for the purposes of shifting or reestablishing the industrial undertaking referred to in that section or setting up another industrial undertaking, the Assessing Officer shall amend the order of assessment so as to exclude the amount of the capital gain not Chargeable to tax

under the provisions of sub-section (1) of section 54D; and the provisions of section 154 shall, so far as may be, apply thereto, the

period of four years specified in sub-section (7) of that section being reckoned from the end of the financial year in which the assessment was made. (b) Where, in the assessment for any year, a capital gain arising from the transfer by way of compulsory acquisition of any such capital asset as is referred to in section 54D is charged to tax and if the compensation for such acquisition is enhanced or further enhanced, as the case may be, by any court, tribunal or other authority, and within a period of three years after the date of receipt of the additional compensation, the assessee purchases any land or building or any right in any land or building or constructs any building for the purpose of shifting or re-establishing the

undertaking referred to in sub-section (1) of that section or setting up any other industrial undertaking, the Assessing Officer shall amend the order of assessment so as to exclude the amount of capital gain

not chargeable to tax under the provisions of sub-section (2) of section 54D; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section

(7) of that section being reckoned from the end of the previous year in which the additional compensation was received by the assessee." Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. Substituted for "capital asset, not being a short-term capital asset" by the Finance Act, 1987, w.e.f. 1-4-1988. Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.566

of 1[sub-section (1) of] section 54E; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years

specified in sub-section (7) of that section being 2[reckoned from the end of the financial year in which the assessment was made]. 3[(10B) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.] 4[(10C) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1992.]

5[(11) Where in the assessment for any year, a capital gain arising ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1978, w.r.e.f. 1-4-1974. 2 Substituted for "reckoned from the date of the assessment" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. 3 Prior to the omission, sub-section (10B), as inserted by the Finance Act, 1978, w.e.f. 1-4-1978 and amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "(10B) Where; in the assessment for any year, a capital gain arising from the transfer, being a transfer by way of compulsory acquisition or a transfer the ,consideration for which was determined or approved by the Central Government or the Reserve Bank of India, of any capital asset, not being a short-term capital asset, is charged to tax and if the compensation or, as the case may be, consideration for such transfer is enhanced or further enhanced, as the case may be, by any court, tribunal or other authority, and within a period of six months after the receipt of the additional compensation or consideration, the assessee invests or deposits the whole or any part of the additional compensation or consideration in any specified asset

referred to in Explanation 1 of sub-section (1) of section 54E, the Assessing Officer shall amend the order of assessment so as to exclude the amount of capital gain not chargeable to tax under the provisions

of sub-section (3) of section 54E; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years

specified in sub-section (7) of that section being reckoned-from the end of the previous year in which the additional compensation or consideration was received by the assessee." 4 Prior to the omission, sub-section (10C), as inserted by the Finance Act, 1982, w.e.f. 1-4-1983, and amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "(10C) Where in the assessment for any year a capital gain arising from the transfer of any such capital asset as is referred to in section 54F is charged to tax and within a period of one year after the late of the transfer the assessee purchases, or within three years from that date constructs, a residential house, the Assessing Officer shall amend the order of assessment so as to exclude the a mount of the capital gain not chargeable to tax under the provisions of sub-

section (1) of section 54F; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in

sub-section (7) of that section being reckoned from the end of the financial year in which the assessment was made." 5 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

Earlier, sub-section (11) was inserted by the Finance Act, 1974, w.e.f. 1-4-1974 and was omitted by the Finance Act, 1985, w.e.f. 1-4- 1986. Prior to the omission, sub-section (1 1) read as under:

"(11) Where in the assessment for any year, the deduction under section 8ON in respect of any income, being the whole or any part of income by way of dividends as is referred to in that section, has not been allowed on the ground that such income has not been received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign, exchange outside India, has not been brought into India, by or on behalf of the assessee in accordance with any law for, the time being in force for regulating payments and dealings in foreign exchange and I subsequently such income or part thereof is received in, or brought into India in the manner aforesaid, the Income-tax -> -> ---------------------------------------------------------------------- 1.567 from the transfer of any original asset as is referred to in section 54H is charged to tax and within the period extended under that section the assessee acquires the new asset referred to in that section or, as the case may be, deposits or invests the amount of such capital gain within the period so extended, the Assessing Officer shall amend the order of assessment so as to exclude the amount of the capital gain not chargeable to tax under any of the sections referred to in section 54H; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of section 154 being reckoned from the end of the previous year in which the compensation was received by the assessee.]

1[(12) Where in the assessment for any year commencing before the 1st day of April, 1988, the deduction under section 80-0 in respect of any income, being the whole or any part of income by way of royalty, commission, fees or any similar payment as is referred to in that section, has not been allowed on the ground that such income has not been received in convertible foreign exchange -in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India has not been brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange and subsequently such income or part thereof has been or is received in, or brought into, India in the manner aforesaid, the Assessing Officer shall amend the order of assessment so as to allow deduction under section 80-0 in respect of such income or part thereof as is so received in, or brought info, India; and the provisions of section 154 shall, so far as may be,

apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which- such income is so received in, or brought into, ---------------------------------------------------------------------- -> -> Officer shall amend the order of assessment so as to allow deduction under section 8ON in respect of such income or part thereof as is so received in, or brought into India; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four

years specified in sub-section (7) of that section being reckoned from the date on which such income is so received in, or brought into India." 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

Earlier sub-section (12) was inserted by the Finance Act, 1974, w.e.f. 1-4-1974 and was omitted by the Finance Act, 1987, w.e.f. 1-4-1988.

Prior to the omission, sub-section (12) read as under:

"(12) Where in the assessment for any year, the deduction under section 80-0 in respect of any income, being the whole or any part of income by way of royalty, commission, fees or any similar payment as is referred to in that section, has not been allowed on the ground that such income has not been received in convertible foreign exchange in India, or having been receive(. in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, has not been brought into India,. by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange and subsequently such income or pail thereof is received in, or brought into, India,. in the manner aforesaid, the Income-tax Officer shall amend the order of assessment so as to allow deduction under section 80-0 in respect of such income or part thereof as is so received in, or brought into India; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-

section (7) of that section being reckoned from the date on which such income is so received in or brought into, India." ---------------------------------------------------------------------- 1.568 India; so, however, that the period from the 1st day of April, 1988, to the 30th day of September, 1991, shall be excluded in computing the period of four years.]

1[(13) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] 2[Explanation.-For the purposes of this section,- (a) "additional compensation" shall have the meaning

assigned to it in clause (1) of the Explanation to sub-

section (2) of section 54; (b) "additional consideration", in relation to the transfer of any capital asset the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, means the difference between the amount of consideration for such transfer as enhanced by any court, tribunal or other authority and the amount of consideration which would have been payable if such enhancement had not been made.] 156 Notice of demand3 156.Notice of demand3 When any tax, interest, penalty, fine or any other sum 4[* * * ]is payable in consequence of any order passed under this Act, the 5[Assessing] officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. 157 Intimation of loss 157. Intimation of loss When, in the course of the assessment of the total income of any assessee, it is established that a loss has taken place which the assessee is entitled to have carried forward and set off under the

provisions of subsection (1) of section 72, subsection (2) of section

73, 6[sub-section (1) -----------------------------------------------------------------------

1 Prior to the omission, sub-section (13), as inserted by the Finance Act, 1975, w.e.f. 1-4-1975, read as under:

"(13) Where in the assessment for any year, any provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason has not been allowed as a deduction in the computation of the income of the assessee under the head "Profits and gains of business or profession" on the ground that all the conditions specified in sub-

clause (ii)(2) and sub-clause (ii)(3) of clause (b) of sub-section (7) of section 40A had not been complied with before the assessment was made and subsequently the assessee complies with such of those conditions as had not been complied with, the disallowance originally made shall be deemed to have been wrongly made and the Assessing Officer shall, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years

specified in subsection (7) of that section being reckoned from the end of the financial year ending on the 3 1st day of March, 1977." 2 Inserted by the Finance Act, 1978, w.r.e.f. 1-4-1974. 3 See rules 15 and 38 and Form Nos. 7 and 28. 4 The words "(including annuity deposit referred to in Chapter XXIIA)" omitted by the Finance Act, 1966, w.e.f. 1-4-1967. Earlier these words were inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1968.

6 Substituted for "or sub-section (1) of section 74" by the Finance Act, 1974, w.e.f. 1-4-1975. ------------------------------------------------------------------------ 1.569

1[or sub-section (3)] of section 74 or sub-section (3) of section 74A], the 2[Assessing] Officer shall notify to the assessee by an order in writing the amount of the loss as computed by him for the

purposes of sub-section (1) of section 72, sub-section (2) of section

73, 3[sub-section ( 1 ) 4 [or subsection (3)] of section 74 or sub-

section (3) of section 74A]. 158 Intimation of assessment of firm 158. Intimation of assessment of firm 5[Whenever, in respect of the assessment year commencing on the 1st day of April, 1992, or any earlier assessment year, a registered firm is assessed], or an unregistered firm is assessed under the provisions of clause (b) of section 183, the 6 [Assessing] Officer shall notify to the firm by an order in writing the amount of its total income assessed and the apportionment thereof between the several partners. --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

3 Substituted for "or sub-section (1) of section 74" by the Finance Act, 1974, w.e.f. 1-4-1975. 4 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 5 Substituted for "Whenever a registered firm is assessed" by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, this expression was substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989 but was restored to its original form by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 6 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.570 CHAP SPECIAL PROVISION FOR AVOIDING REPETITIVE APPEALS 1[CHAPTER XIVA SPECIAL PROVISION FOR AVOIDING REPETITIVE APPEALS 158A. Procedure when assessee claims identical question of law is pending before High Court or Supreme Court2

(1)Notwithstanding anything contained in this Act, where an assessee claims that any question of law arising in his case for an assessment year which is pending before the 3[Assessing] Officer or any appellate authority (such case being hereafter in this section referred to as the relevant case) is identical with a question of law arising in his case for another assessment year which is pending before the High Court on a reference under section 256 or before the Supreme Court on a reference under section 257 or in appeal under section 261 (such case being hereafter in this section referred to as the other case), he may furnish to the 4 [Assessing] Officer or the appellate authority, as the case may be, a declaration in the prescribed form and verified in the prescribed manner, that if the 5

[Assessing] Officer or the appellate authority, as the case may be,

(2) Where a declaration under sub-section (1) is furnished to any appellate authority, the appellate authority shall call for a report from the 6[Assessing] Officer on the correctness of the claim made by the assessee and, where the 7[Assessing] Officer makes a request to the appellate authority to give him an opportunity of being heard in the matter, the appellate authority shall allow him such opportunity.

(3)The 8[Assessing] Officer or the appellate authority, as the case may be, may, by order in writing,- (i) admit the claim of the assessee if he or it is satisfied that the question of law arising in the relevant case is identical with the question of law in the other case; or (ii) reject the claim if he or it is not so satisfied.

(4) Where a claim is admitted under sub-section (3),- ----------------------------------------------------------------------- 1 inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.571 (a) the 1[Assessing] Officer or, as the case may be, the appellate authority may make an order disposing of the relevant case without awaiting the final decision on the question of law in the other case; and (b) the assessee shall not be entitled to raise, in relation to the relevant case, such question of law in appeal before any appellate authority or for a reference before the High Court under section 256 or-the Supreme Court under section 257 or in appeal before the Supreme Court under section 261.

(5) When the decision on the question of law in the other case becomes final, it shall be applied to the relevant case and the 2[Assessing] Officer or the appellate authority, as the case may be, shall, if necessary, amend the order referred to in clause (a) of sub-

section (4) conformably to such decision.

(6) An order under sub-section (3) shall be final and shall not be called in question in any-proceeding by way of appeal, reference or revision under this Act. Explanation.-In this section,- (a) "appellate authority" means the 3[Deputy Commissioner (Appeals)], the Commissioner (Appeals) or the Appellate Tribunal; (b) "case", in relation to an assessee, means any proceeding under this Act for the assessment of the total income of the assessee or for the imposition of any penalty or fine on him.] ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Substituted for "Appellate Assistant Commissioner", ibid. ---------------------------------------------------------------------- 1.572 CHAP SPECIAL PROCEDURE FOR ASSESSMENT OF SEARCH CASES 1[CHAPTER XIVB SPECIAL PROCEDURE FOR ASSESSMENT OF SEARCH CASES 158B. Definitions In this Chapter, unless the context otherwise requires,- (a) "block period" means the period of ten previous years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and includes, in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition; (b) "undisclosed incomes". includes, any money, bullion, jewellery or other valuable article or thing or any income based on any entry in other documents or transactions, where such money billion jewellery, valuable article, thing, entry in the document or transaction represents which has not been or would disclosed for the purposes of this Act 158BA. Assessment of undisclosed income as a result of search

(1)Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under of account, other documents or any assets are section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.

(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.

(3) Where the assessee proves to the satisfaction of the Assessing Officer that any part of income referred to in sub-section

(1) relates to an assessment year for which the previous year has not

ended or the dare of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period. ----------------------------------------------------------------------- 1 Inset-Led by the Finance Act, 1995, w.e.f 1-7-1995. Earlier Chapter XIVB was inserted by the Direct Tax Laws (Amendment) Act, IS 87, w.e.f. 1-4-1989. It dealt altogether with a different subject, namely, charge of additional income-tax in certain cases. It was omitted by the Direct Tax Laws (Amendment) Act, 1989 with effect from the same date and is thus of only academic interest. ----------------------------------------------------------------------- 1.573 158BB. Computation of undisclosed income of the block period

(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV)on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with Assessing Officer, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,- (a) where assessments under section 143 or section 144 or section 147 have been concluded, on the basis of such assessments; (b) where returns of income have been filed under section 139 or section 147 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns; (c) where the due date for filing a return of income has expired but no return of income has been filed, as nil,. (d) where the previous year has not ended or the date

of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years; (e) where any order of settlement has been made under

sub-section (4) of section 245D, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment. Explanation.-For the purposes of determination of undisclosed income,- (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or

unabsorbed depreciation under sub-section (2) of section 32; (b) of a firm, or its partners, the method of computation of undisclosed income and its allocation to the partners shall be in accordance with the method adopted for determining the assessed income or returned income for each of the previous years falling within the block period; (c) assessment under section 143 includes

determination of income under sub-section (1) or subsection (1B) of section 143.

(2) In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition.

(3) The burden of proving to the satisfaction of the Assessing Officer that 1.574 any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee.

(4) For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed

depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment tinder this Chapter, but may be carried forward for being set off in the regular assessments. 158BC. Procedure for block assessment Where any search has been conducted tinder section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,- (a) the Assessing Officer shall serve a notice to such person requiring him to furnish, within such time, not being less than fifteen days, as may be specified in the notice, a return in the prescribed form and verified in the

same manner as a return under clause (i) of subsection (1) of section 142 setting forth his total income including the undisclosed income for the block period: Provided that no notice under section 148 is required to be issued for the purposes of proceeding tinder this Chapter; (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142,

subsections (2) and (3) of section 143 and section 144 shall, so far as may be, apply; (c) the Assessing officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment; (d) the assets seized under section 132 or requisitioned under section 132A shall be retained to the extent necessary and the provisions of section 132B shall apply subject to such modifications as may be necessary and the references to regular assessment" or "reassessment" in section 132B shall be construed as references to "block assessment". 158BD. Undisclosed income of any other person Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or Whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and the provisions of this Chapter shall apply accordingly. 158BE. Time limit for completion of block assessment

(1) The order under section 158BC shall be passed within one year from 1.575 the end of the month in which the last of the authorisations. for search under section 132 or for requisition tinder section 132A, as the case may be, in the case of an assessee, was executed.

(2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be one year from the end of the month in which the notice under this Chapter was served on such other person. 158BF. Certain interests and penalties not to be levied or imposed No interest under the provisions of sections 234A, 234B or 234C

or penalty under the provisions of clause (c) of sub-section (1) of section 271 or section 271A or section 271B shall. be levied or imposed upon the assessee. in respect of the undisclosed income determined in the block assessment. 158BG. Authority competent to make the block assessment The order of assessment for the block period shall be passed by an Assessing Officer not below the rank of an Assistant Commissioner.- Provided that no such order shall be passed without the previous approval of the Commissioner. 158BH. Application of other provisions of this Act Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter.] 1.576 CHAP LIABILITY IN SPECIAL CASES CHAPTER XV LIABILITY IN SPECIAL CASES A.-Legal representatives 159 Legal representatives 159. Legal representatives

(1) Where a person dies, his legal representatives shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.

(2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section 147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of

subsection (1),- (a) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased; (b) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and (c) all the provisions of this Act shall apply accordingly.

(3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee.

(4) Every legal representative shall be personally liable for any tax payable by him in his capacity as legal representative if, while his liability for tax remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with.

(5) The provisions of sub-section (2) of section 161, section 162 and section 167 shall, so far as may be and to the extent to which they are not inconsistent with the provisions of this section, apply in relation to a legal representative.

(6) The liability of a legal representative under this section

shall, subject to the provisions of subsection (4) and sub-section

(5), be limited to the extent to which the estate is capable of meeting the liability. B.-Representative assessees General provisions 160 Representative assessee 160. Representative assessee

(1) For the purposes of this Act, Representative assessee" means- (i) in respect of the income of a nonresident specified in

1[* * *] subsection (1) of section 9, the agent of the non- resident, including a person who is treated as an agent under section 163; (ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot; --------------------------------------------------------------------- 1 The words "clause (i) of" omitted by the Finance Act, 1976, w.e.f. 1-6-1976. --------------------------------------------------------------------- 1.577 (iii) in respect of income which the Court of Wards, the Administrator General, the Official Trustee or any receiver or manager (including any person whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court,, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator General, Official Trustee, receiver or manager; (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees; 1[(v) in respect of income which a trustee appointed under an oral trust receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees. Explanation 1.-A trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] shall be deemed, for the purposes of clause (iv), to be a trust declared by a duly executed, instrument in writing if a statement in writing, signed by the trustee or trustees, setting out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the 2[Assessing] Officer,- (i) where the trust has been declared before the, 1st day of June, 1981, within a period of three months from that day; and (ii) in any other case, within three months from the date of declaration of the trust. Explanation 2.-For the purposes of clause (v), "oral trust" means a trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing.]

(2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act. 161 Liability of representative assessee3 161. Liability of representative assessee3

(1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 198 1, w. e. f. 1-4-1981. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1988. ITA-37 ---------------------------------------------------------------------- 1.578 in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him.

1[(1A) Notwithstanding anything contained in sub-section (1), where any income in respect of which the person mentioned in clause

(iv) of subsection (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate: Provided that the provisions of this sub-section shall not apply where such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him. 2[Omitted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991.]

(2) Where any person is, in respect of any income, assessable under this Chapter in the capacity of a representative assessee, he shall not, in respect of that income, be assessed under any other provision of this Act. 162 Right of representative assessee to recover tax paid 162. Right of representative assessee to recover tax paid

(1) Every representative assessee who, as such, pays any sum under this Act, shall be entitled to recover the sum so paid from the person on whose behalf it is paid, or to retain out of any moneys that may be in his possession or may come to him in his representative capacity, an amount equal to the sum so paid.

(2) Any representative assessee, or any person who apprehends that he may be assessed as a representative assessee, may retain out of any money payable by him to the person on whose behalf he is liable to pay tax (hereinafter in this section referred to as the principal), a sum equal to his estimated liability under this Chapter, and in the event of any disagreement between the principal and such representative assessee or person as to the amount to be so retained, such representative assessee or person may secure from the 3[Assessing] Officer a certificate stating the amount to be so retained pending final settlement of the liability, and the certificate so obtained shall be his war-rant for retaining that amount.

(3) The amount recoverable from such representative assessee or person at the time of final settlement shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may, at such time, have in his hands additional assets of the principal. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 2 Prior to the omission, Explanation read as under: "Explanation.-For the purposes of this sub-section, "maximum marginal rate" shall have the meaning assigned to it in Explanation 2 below sub-

section (3) of section 164" 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.579 163 Who may be regarded as agent 163. Who may be regarded as agent

(1) For the purposes of this Act, "agent", in relation to a non- resident, includes any person in India- (a) who is employed by or on behalf of the non-resident; or (b) who has any business connection with the non-resident; or (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or (d) who is the trustee of the non-resident; and includes also any other person who, whether a resident or non- resident, has acquired by means of a transfer, a capital asset in India: Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non- resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:- (i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and (ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal.

(2) No person shall be treated as the agent of a non-resident unless he had had an opportunity of being heard by the 1[Assessing] Officer as to his liability to be treated as such. 164 Charge of tax where share of beneficiaries unknown3 2[164. Charge of tax where share of beneficiaries unknown3

( 1 ) 4 [Subject to the provisions of sub-sections (2) and (3), where] any income in respect of which the persons mentioned in clauses

(iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "pail of relevant income" and "beneficiaries", respectively), 5[tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate:] Provided that in a case where- ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 4 Restored to its original expression by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 5 Substituted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. ---------------------------------------------------------------------- 1.580 1[(i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an 2[association of persons] or is a beneficiary under any other trust; or] (ii) the relevant income or part of relevant income is receivable under 3[a trust declared by any person by will and such trust is the only trust so declared by him]; or (iii) the relevant income or pail of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the 4[Assessing] Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or (iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, tax shall be charged 5[on the relevant income or part of relevant income as if it] were the total income of an 6[association of persons]: 7[Provided further that where any income in respect of which the

person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, the preceding proviso shall apply only if such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, ,and such trust is the only trust so declared by him.]

8[(2) In the case of relevant income which is derived from property ---------------------------------------------------------------------- 1 Substituted for "(i) none of the beneficiaries has any other income chargeable under this Act; or, ibid. 2 Restored to its original expression by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 3 Substituted for "a trust declared by will" by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Substituted for "as if the relevant income or part of relevant income" by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. 6 Restored to its original expression by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 7 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 8 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. ----------------------------------------------------------------------- 1.581 held under trust wholly for charitable or religious purposes, 1[or

which is of the nature referred to in sub-clause (iia) of clause (24) of section 2], 2[or which is of the nature referred to in sub-section (4A) of section 11,] tax shall be charged on so much of the relevant income as is not exempt under section 11 3[or section 12], as if the relevant income not so exempt were the income of an association of persons: 4 [Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section

(1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate.]]

5[(3) In a case where the relevant income is derived from property held under trust in part only for charitable or religious purposes 6[or is of the nature referred to in sub-clause (iia) of clause 24 of section 2 ] 7 [or is of the nature referred to in sub- section (4A) of section 11] and either the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) 8[is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are indeterminate or unknown, the tax chargeable on the relevant income shall be the aggregate of- (a) the tax which would be chargeable on that part of the relevant income which is applicable to charitable or religious purposes (as reduced by the income, if any, which is exempt under section 11) as if such part (or such part as so reduced) were the total income of an association of persons; and (b) the tax on that part of the relevant income which is applicable to purposes other than charitable or religious purposes, and which is either not specifically receivable on behalf or for the benefit of any one person or in respect of which the shares of the beneficiaries are indeterminate or unknown, at the maximum marginal rate:] Provided that in a case where- 9[(i) none of the beneficiaries in respect of the part of the relevant income which is not applicable to charitable or religious purposes has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 2 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 3 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 4 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 5 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1- 4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 6 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 7 Inserted by the Finance Act, 1983, w.e.f. 6-10-1984. 8 Substituted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. 9 Substituted for "(i) none of the beneficiaries in respect of the pail of the relevant income which is not applicable to charitable or religious purposes has any other income chargeable under this Act; or" by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. ------------------------------------------------------------------------ 1.582 (ii) the relevant income is receivable under 1[a trust declared by any person by will and such trust is the only trust so declared by him]; or (iii) the relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the 2[Assessing] Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust, to the extent it is not for charitable or religious purposes, was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance, tax shall be charged 3[on the relevant income] as if the relevant income (as reduced by the income, if any, which is exempt under section 1 1) were the total income of an association of persons:] 4[Provided further that where the relevant income consists of, or includes, profits and gains of business, the preceding proviso shall apply only if the income is receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him: Provided also that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section

(1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate.]] 5[Explanation 1.-For the purposes of this section,- (i) any income in respect of which the persons mentioned in

clause (iii) and clause (iv) of sub-section (1) of section 160 are liable as representative assessee or any part thereof shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previous year is expressly stated in the order of the court or the instrument of trust or wakf deed, as the case may be, and is identifiable as such on the date of such order, instrument or deed; (ii) the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is received shall be deemed to be indeterminate or unknown unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in ----------------------------------------------------------------------- 1 Substituted for "a trust declared by will" by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. 4 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 5 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. ------------------------------------------------------------------------ 1.583 the order of the court or the instrument of trust or wakf deed, as the case may be, and are ascertainable as such on the date of such order, instrument or deed. 1[Explanation 2.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989.] 2[164A. Charge of tax In case of oral trust Where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be charged on such income at the maximum marginal rate. Explanation.-For the purposes of this section,- 3[(i) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989.] (ii) "oral trust" shall have the meaning assigned to it in

Explanation 2 below sub-section (1) of section 160.] 165 Case where part of trust income is chargeable 165. Case where part of trust income is chargeable Where part only of the income of a trust is chargeable under this Act, that proportion only of the income receivable by a beneficiary from the trust which the part so chargeable bears to the whole income of the trust shall be deemed to have been derived from that part. D.-Representative assessees Miscellaneous provisions 166 Direct assessment or recovery not barred4 166. Direct assessment or recovery not barred4 Nothing in the foregoing sections in this Chapter shall prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income. ----------------------------------------------------------------------- 1 Prior to ,he omission, the Explanation, as inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980, read as under: "Explanation 2.-In this section, "maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year." 2 Inserted by the Finance Act, 1981, w.e.f. 1-4-1981. 3 Prior to the omission, clause (i) of the Explanation read as under: "(i) "maximum marginal rate" shall have the meaning assigned to

it in Explanation 2 below sub-section (3) of section 164;" 1.584 167 Remedies against property in cases of representative assessees 167. Remedies against property in cases of representative assessees The 1[Assessing] Officer shall have the same remedies against all property of any kind vested in or under the control or management of any representative assessee as he would have against the property of any person liable to pay any tax, and in as full and ample a manner, whether the demand is raised against the representative assessee or against the beneficiary direct. 2[DD.-Firms, association of persons and body of individuals 167A.Charge of tax in the case of a firm In the case of a firm which is assessable as a firm, tax shall be charged on its total income at the maximum marginal rate.] ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2. Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. The Chapter sub-heading "DD.Association of persons special cases" was inserted by the Finance Act, 1981, w.e.f. 1-4-1981. It was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was reintroduced as "DD.-Association of persons and body of individuals" by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. Section 167A was omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Prior to the omission, section 167A, as substituted by the Finance Act, 1985, w.e.f. 1-4- 1985, read as under: "167A. Charge of tax where shares of members unknown.-Where the individual shares of the members of an association of persons (other than a company or cooperative society) in the whole or any part of the income of such association are indeterminate or unknown, tax shall be charged on the total income of the association at the maximum marginal rate. Explanation.-For the purposes of this section,- (a) maximum marginal rate" shall have the meaning assigned

to it in Explanation 2 below sub-section (3) of section 164; (b) the individual shares of the members of an association of persons in the whole or any part of the income of such association shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or at any time thereafter." Section 167A was originally inserted by the Finance Act, 1981, w.e.f. 1-4-1981. ---------------------------------------------------------------------- 1.585 1[167B. Charge of tax where shares of members in association of persons or body of individuals unknown, etc.2

(1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co- operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate: Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate.

(2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under

sub-section (1)],- (i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate; (ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate. Explanation.-For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter.] E.-Executors 168 Executors 168. Executors

(1) Subject as hereinafter provided, the income of the estate of deceased person shall be chargeable to tax in the hands of the executor,- (a) if there is only one executor, then, as if the executor were an individual; or (b) if there are more executors than one, then, as if the executors were an association of persons; ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, the Direct Tax Laws (Amendment) Act, 1987 had inserted section 167B with effect from the same date but it was substituted before coming into effect. 1.586 and for the purposes of this Act, the executor shall be deemed to be resident or non-resident according as the deceased person was a resident or non-resident during the previous year in which his death took place.

(2) The assessment of an executor under this section shall be made separately from any assessment that may be made on him in respect of his own income.

(3) Separate assessments shall be made under this section on the total income of each completed previous year or part thereof as is included in the period from the date of the death to the date of complete distribution to the beneficiaries of the estate according to their several interests.

(4) In computing the total income of any previous year under this section, any income of the estate of that previous year distributed to, or applied to the benefit of, any specific legatee of the estate during that previous year shall be excluded; but the income so excluded shall be included in the total income of the previous year of such specific legatee. Explanation.-In this section, "executor" includes an administrator or other person administering the estate of a deceased person. 169 Right of executor to recover tax paid 169. Right of executor to recover tax paid The provisions of section 162 shall, so far as may be, apply in the case of an executor in respect of tax paid or payable by him as they apply in the case of a representative assessee. F.-Succession to business or profession 170 Succession to business otherwise than on death 170. Succession to business otherwise than on death

(1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,- (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession.

(2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.

(3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the 1[Assessing] Officer shall record a finding to that effect ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.587 and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid.

(4)Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assessed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section. Explanation.-For the purposes of this section, "income" includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession-as a result of the succession. G.-Partition 171 Assessment after partition of a Hindu undivided family 171. Assessment after partition of a Hindu undivided family

(1) A Hindu family hitherto assessed as undivided shall be deemed for the purposes of this Act to continue to be a Hindu undivided family, except where and in so far as a finding of partition has been given under this section in respect of the Hindu undivided family.

(2) Where, at the time of making an assessment under section 143 or section 144, it is claimed by or on behalf of any member of a Hindu family assessed as undivided that a partition, whether total or partial, has taken place among the members of such family, the 1[Assessing] Officer shall make an inquiry thereinto after giving notice of the inquiry all the members of the family.

(3) On the completion of the inquiry, the 2[Assessing] Officer shall record a finding as to whether there has been a total or partial partition of the joint family property, and, if there has been such a partition, the date on which it has taken place.

(4) Where a finding of total or partial partition has been recorded by the 3[Assessing] Officer under this section, and the partition took place during the previous year,- (a) the total income of the joint family in respect of the period up to the date of partition shall be assessed as if no partition had taken place; and (b) each member or group of members shall, in addition to any tax for which he or it may be separately liable and

notwithstanding anything contained in clause (2) of section 10, be jointly and severally liable for the tax on the income so assessed.

(5) Where the finding of total or partial partition has been re- corded by the 4[Assessing] Officer under the section, and the partition took place after the expiry of the previous year, the total income of the previous year of the joint family shall be assessed as if no partition had taken place; and ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.588

the provisions of clause (b) of sub-section (4) shall, so far as may be, apply to the case.

(6) Notwithstanding anything contained in this section, if the 1[Assessing] Officer finds after completion of the assessment of a Hindu undivided family, that the family has already effected a partition whether whether total or partial, the 2[Assessing] Officer shall proceed to recover the tax from every person who was a member of the family before the partition, and every such person shall be jointly and severally liable for the tax on the income so assessed.

(7) For the purposes of this section, the several liability of any member or group of members thereunder shall be computed according to the portion of the joint family property allotted to him or it at the partition, whether total or partial.

(8) The provisions of this section shall, so far as may be, apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to the date of the partition, whether total or partial, of a Hindu undivided family as they apply in relation to the levy and collection of tax in respect of any such period.

3[(9) Notwithstanding anything contained in the foregoing provisions of this section, where a partial partition has taken place after the 31st day of December, 1978, among the members of a Hindu undivided family hitherto assessed as undivided,- (a) no claim that such partial partition has taken place

shall be inquired into under sub-section (2) and no finding

shall be recorded under sub-section (3) that such partial partition had taken place and any finding recorded under sub-

section (3) to that effect whether before or after the 18th day of June, 1980, being the date of introduction of the Finance (No. 2) Bill, 1980, shall be null and void; (b)such family shall continue to be liable to be assessed under this Act as if no such partial partition had taken place; (c) each member or group of members of such family immediately before such partial partition and the family shall be jointly and severally liable for any tax, penalty, interest, fine or other sum payable under this Act by the family in respect of any period, whether before or after such partial partition; (d) the several liability of any member or group of members aforesaid shall be computed according to the portion of the joint family property allotted to him or it at such partial partition, and the provisions of this Act shall apply accordingly.] Explanation.-In this section,- (a) "partition" means- (i) where the property admits of a physical division, a physical division of the property, but a physical division of the income ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. ----------------------------------------------------------------------- 1.589 without a physical division of the property producing the income shall not be deemed to be a partition; or (ii) where the property does not admit of a physical division, then such division as the property admits of, but a mere severance of status shall not be deemed to be a partition; (b) "partial partition" means a partition which is partial as regards the persons constituting the Hindu undivided family, or the properties belonging to the Hindu undivided family, or both. 172 Shipping business of non-residents 172. Shipping business of non-residents

(1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India 1[* * *].

(2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, 2[seven and a half] per cent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage.

(3) Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the 3[Assessing] Officer a return of the full amount paid or payable to the owner or charterer or any person on his behalf, on account of the carriage of all passengers, livestock, mail or goods shipped at that port since the last arrival of the ship thereat: Provided that where the 4 [Assessing] Officer is satisfied that it is not possible for the master of the ship to furnish the return required by this sub-section before the departure of the ship from the port and provided ----------------------------------------------------------------------- 1 The words "unless the Income-tax Officer is satisfied that there is an agent of the nonresident from whom the tax will be recoverable under the other provisions of this Act" omitted by the Finance Act, 1975, w.e.f. 1-6-1975. 2 Substituted for "one-sixth", ibid. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988. 4 ibid. ---------------------------------------------------------------------- 1.590 the master of the ship has made satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf, the 1[Assessing] Officer may, if the return is filed within thirty days of the departure of the ship, deem the filing of the return by the person so authorised by the master as sufficient compliance with this sub-section.

(4) On receipt of the return, the 2[Assessing] Officer shall

assess the income referred to in sub-section (2) and determine the sum payable as tax thereon at the rate or rates 3[in force] applicable to the total income of a company which has not made the arrangements referred to in section 194 and such sum shall be payable by the master of the ship.

(5) For the purpose of determining the tax payable under sub-

section (4), the 4 [Assessing] Officer may call for such accounts or documents as he may require.

(6) A port clearance shall not be granted to the ship until the Collector of Customs or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof.

(7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be. I.-Recovery of tax in respect of non-residents 173 Recovery of tax in respect of non-resident from his assets 173. Recovery of tax in respect of non-resident from his assets

Without prejudice to the provisions of sub-section (1) of section 161 or of section 167, where the person entitled to the income

referred to in clause (i) of sub-section (1) of section 9 is a non- resident, the tax chargeable thereon, whether in his name or in the name of his agent who is liable as a representative assessee, may be recovered by deduction under any of the provisions of Chapter XVIIB and any arrears of tax may be recovered also in accordance with the provisions of this Act from any assets of the non-resident which are, or may at any time come, within India. ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988. 2 Ibid. 3 Substituted for "for the time being" by the Finance (No. 2) Act, 1967, w.e.f 1-4-1967. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.591 174 Assessment of persons leaving India 174. Assessment of persons leaving India

(1) Notwithstanding anything contained in section 4, when it appears to the 1[Assessing] Officer that any individual may leave India during the current assessment year or shortly after its expiry and that he has no present intention of returning to India, the total income of such individual for the period from the expiry of the previous year for that assessment year up to the probable date of his departure from India shall be chargeable to tax in that assessment year.

(2) The total income of each completed previous year or part of any previous year included in such period shall be chargeable to tax at the rate or rates in force in that assessment year, and separate assessments shall be made in respect of each such completed previous year or part of any previous year.

(3) The 2[Assessing] Officer may estimate the income of such individual for such period or any part thereof, where it cannot be readily determined in the manner provided in this Act.

(4) For the purpose of making an assessment under sub-section

(1), the 3[Assessing] Officer may serve a notice upon such individual requiring him to furnish, within such time, not being less than seven days, as may be specified in the notice, a return in the same form and verified in the same manner 4 [as a return under clause (i) of sub-

section (1) of section 142], setting forth his-total income for each completed previous year comprised in the period refer-red to in sub-

section (1) and his estimated total income for any part of the previous year comprised in that period; and the provisions of this Act shall, so far as may be, and subject to the provisions of this section, apply as if the notice were a 5[notice issued under clause

(i) of sub-section (1) of section 142].

(5) The tax chargeable under this section shall be in addition to the tax, if any, chargeable under any other provision of this Act.

(6) Where the provisions of sub-section (1) are applicable, any notice issued by the 6 [Assessing] Officer under 7[clause (i) of

sub-section (1) of section 142 or]. section 148 in respect of any tax chargeable under any other provision of this Act may, notwithstanding

anything contained in 8[clause (i) of sub-section (1) of section 142 or] section 148, as the case may be, required the furnishing of the return by such individual within ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Ibid.

4 Substituted for "as a return under sub-section (2) of section 139", ibid, w.e.f. 1-4-1989.

5 Substituted for "notice issued under sub-section (2) of section 139", ibid, w.e.f. 1-4-1989. 6 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

7 Substituted for "sub-section (2) of section 139 or sub-section

(1) of", ibid, w.e.f.1-4-1989. 8 Ibid. ----------------------------------------------------------------------- 1.592 such period, not being less than seven days, as the 1[Assessing] Officer may think proper. K.-Persons trying to alienate their assets 175 Assessment of persons likely to transfer property to avoid tax 175. Assessment of persons likely to transfer property to avoid tax Notwithstanding anything contained in section 4, if it appears to the 2[Assessing] Officer during any current assessment year that any person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets with a view to avoiding payment of any liability under the provisions of this Act, the total income of such person for the period from the expiry of the previous year for that assessment year to the date when the 3[Assessing] Officer commences proceedings under this section shall be chargeable to tax in that

assessment year, and the provisions of sub-sections (2), (3), (4), (5)

and (6) of section 174 shall, so far as may be, apply to any proceedings in the case of any such person as they apply in the case of persons leaving India. L.-Discontinuance of business, or dissolution 176 Discontinued business4 176. Discontinued business4

(1) Notwithstanding anything contained in section 4, where any business or profession is discontinued in any assessment year, the income of the period from the expiry of the previous year for that assessment year up to the date of such discontinuance may, at the discretion of the 5[Assessing] Officer, be charged to tax in that assessment year.

(2) The total income of each completed previous year or part of any previous year included in such period shall be chargeable to tax at the rate or rates in force in that assessment year, and separate assessments shall be made in respect of each such completed previous year or part of any previous year.

(3) Any person discontinuing any business or profession shall give to the 6[Assessing] Officer notice of such discontinuance within fifteen days thereof. 7.[(3A) Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance.]

(4) Where any profession is discontinued in any year on account of the cessation of the profession by, or the retirement or death of, the person carrying on the profession, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Ibid. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988. 6 Ibid. 7 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f 1-4-

1.593 accordingly in the year of receipt, if such sum would have been included in the total income of the aforesaid person had it been received before such discontinuance.

(5) Where an assessment is to be made under the provisions of this section, the 1[Assessing] Officer may serve on the person whose income is to be assessed or, in the case of a firm, on any person who was a partner of such firm at the time of its discontinuance or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a

notice under 2[clause (i) of subsection (1) of section 142] and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under 3[clause (i) of sub-section

(1) of section 142].

(6) The tax chargeable under this section shall be in addition to the tax, if any, chargeable under any other provision of this Act.

(7) Where the provisions of sub-section (1) are applicable, any notice issued by the 4[Assessing] Officer under 5[clause (i) of sub-

section (1) of section 142 or] section 148 in respect of any tax chargeable under any other provisions of this Act may, notwithstanding

anything contained in 6[clause (i) of sub-section (1) of section 142 or] section 148, as the case may be, require the furnishing of the return by the person to whom the aforesaid notices are issued within such period, not being less than seven days, as the 7[Assessing] Officer may think proper. 177 Association dissolved or business discontinued 177. Association dissolved or business discontinued

(1) Where any business or profession carried on by an association of persons has been discontinued or where an association of persons is dissolved, the 8[Assessing] Officer shall make an assessment of the total income of the association of persons as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions relating to the levy of a penalty or any other sum ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

2 Substituted for "sub-section (2) of section 139" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Ibid. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

5 Substituted for "sub-section (2) of section 139 or sub-section

(1) of" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 6 Ibid. 7 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 8 Ibid. ITA-38 ----------------------------------------------------------------------- 1.594 chargeable under any provision of this Act shall apply, so far as may be, to such assessment.

(2) Without prejudice to the generality of the foregoing sub- section, if the 1[Assessing) Officer or the 2 [Deputy Commissioner (Appeals)] 3[or the Commissioner (Appeals)] in the course of any proceeding under this Act in respect of any such association of persons as is referred to in that subsection is satisfied that the association of persons was guilty of any of the acts specified in Chapter XXI, he may impose or direct the imposition of a penalty in accordance with the provisions of that Chapter.

(3) Every person who was at the time of such discontinuance or dissolution a member of the association of persons, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum.

(4) Where such discontinuance or dissolution takes place after any proceedings in respect of an assessment year have commenced, the proceedings may be continued against the persons referred to in sub-

section (3) from the stage at which the proceedings stood at the time of such discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply accordingly.

(5) Nothing in this section shall affect the provisions of sub-

section (6) of section 159. 178 Company in liquidation 178. Company in liquidation

(1) Every person- (a) who is the liquidator of any company which is being wound up, whether under the orders of a court or otherwise; or (b) who has been appointed the receiver of any assets of a company,(hereinafter referred to as the liquidator) shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the 4 [Assessing]. Officer who is entitled to assess the income of the company.

(2) The 5 [Assessing] Officer shall, after making such inquiries or calling for such information as he may deem fit, notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator the amount which, in the opinion of the 6 [Assessing] Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company.

7[(3) The liquidator- ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "Appellate Assistant Commissioner", ibid. 3 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 ibid. 6 Ibid. 7 Substituted by the Finance Act, 1965, w.e.f. 1-4-1965. ------------------------------------------------------------------------ 1.595 (a) shall not, without the leave of the 1[Chief Commissioner or Commissioner], part with any of the assets of the company or the properties in his hands until he has been

notified by the 2[Assessing] Officer under sub-section (2); and (b) on being so notified, shall set aside an amount equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands: Provided that nothing contained in this sub-section shall debar the liquidator from parting with such assets or properties for the purpose of the payment of the tax payable by the company or for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation or for meeting such costs and expenses of the winding-up of the company as are in the opinion of the 3[Chief Commissioner or Commissioner] reasonable.

(4) If the liquidator fails to give the notice in accordance

with subsection (1) or fails to set aside the amount as required by

sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay: Provided that if the amount of any tax payable by the company is

notified under sub-section (2), the personal liability of the liquidator under this sub-section shall be to the extent of such amount.]

(5) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally.

(6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force. 4[M.-Private companies] 179 Liability of directors of private company in liquidation [179. Liability of directors of private company in liquidation

5[(1)]-Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), 6[where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company] cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless ----------------------------------------------------------------------- 1 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "Income-tax", ibid. 3 Substituted for "Commissioner", ibid. 4 Substituted for "M.-Private company in liquidation" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. 5 Inserted, ibid. 6 Substituted for "when any private company is wound up after the commencement of this Act, and any tax assessed on the company, whether before or in the course of or after its liquidation, in respect of any income of any previous year, ibid. ----------------------------------------------------------------------- 1.596 he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.

1[(2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered,

then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962.] N.-Special provisions for certain kinds of income 180 Royalties or copyright fees for literary or artistic work2 180. Royalties or copyright fees for literary or artistic work2 Where the time taken by the author of a literary or artistic work in the making thereof is more than twelve months, the amount received or receivable by him during any previous year on account of any lump sum consideration for the assignment or grant of any of his interests in the copyright of that work or of royalties or copyright fees (whether receivable in lump sum or otherwise), in respect of that work, shall, if he so claims, be allocated for purposes of assessment in such manner and to such period as may be prescribed. Explanation.-For the purposes of this section, the expression "author" includes a joint author, and the expression "lump sum", in regard to royalties or copyright fees, includes an advance payment on account of such royalties or copyright fees which is not returnable. 3[180A. Consideration for know-how Where the time taken by an individual, who is resident in India, for developing any know-how is more than twelve months, he may elect that the gross amount of any lump sum consideration received or receivable by him during the previous year for allowing use of such know-how shall be treated for the purposes of charging income-tax for that year and for each of the two immediately preceding previous years as if one-third thereof were included in his income chargeable to tax for each of those years respectively and if he so elects, notwithstanding anything contained in any other provision of this Act,- (a) such gross amount shall be so treated, and (b) the assessments for each of the two preceding previous years shall, if made, be accordingly rectified under section

154, the period of four years specified in sub-section (7) of that section being reckoned from the end of the financial year in which the assessment relating to the previous year in which the amount was received or receivable by such individual is made. Explanation.-For the purposes of this section, the expression "know how" has the meaning assigned to it in section 35AB.] ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

3 Inserted by the Finance Act, 1985, w.e.f. 1-4-1986. ---------------------------------------------------------------------- 1.597 1[* * *] 181 Interest on tax-free securities of a State Government. 2[181. Interest on tax-free securities of a State Government.-Omitted by the Finance Act, 1988, w.e.f 1-4-1989.] ----------------------------------------------------------------------- 1 The chapter sub-heading "O.-Liability of State Governments" omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 2 Prior to the omission, section 181, as amended by the Finance Act, 1965, w.e.f. 1-4-1965, read as under: "181. Interest on tax-free securities of a State Government.- Income-tax shall be payable by a State Government on the interest on any security issued by it tax-free at such rate not exceeding twenty- five per cent as may be notified by the Central Government in the Official Gazette from time to time." ----------------------------------------------------------------------- 1.598 CHAP SPECIAL PROVISIONS APPLICABLE TO FIRMS CHAPTER XVI SPECIAL PROVISIONS APPLICABLE TO FIRMS 1[A.-Assessment of firms] 182 Assessment of registered firms. 2[182. Assessment of registered firms.-Omitted by the Finance Act, 1992, w.e.f 1-4-1993.] 183 Assessment of unregistered firms. 3[183. Assessment of unregistered firms.-Omitted by the Finance ---------------------------------------------------------------------- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1- 4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 2 Prior to the omission, section 182, read as under:

"182. Assessment of registered firms*.-(1) Notwithstanding anything contained in sections 143 and 144 and subject to the

provisions of sub-section (3), in the case of a registered firm, after assessing the total income of the firm,- (i) the income-tax payable by the firm itself shall be determined; and (ii) the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly.

(2) If such share of any partner is a loss, it shall be set off against his other income or carried forward and set off in accordance with the provisions of sections 70 to 75.

(3) When any of the partners of a registered firm is a non-resident, the tax on his share in the income of the firm shall be assessed on the firm at the rate or rates which would be applicable if it were assessed on him personally, and the tax so assessed shall be paid by the firm.

(4) A registered firm may retain out of the share of each partner in the income of the firm a sum not exceeding thirty per cent thereof until such time as the tax which may be levied on the partner in respect of that share is paid by him; and where the tax so levied cannot be recovered from the partner, whether wholly or in part, the firm shall be liable to pay the tax, to the extent of the amount retained or could have been so retained." Earlier, section 182 was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 3 Prior to the omission, section 183, as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under. "183. Assessment of unregistered firms.-In the case of an unregistered Assessing Officer- (a) may determine the tax payable by the firm itself on the basis of income of the firm; or (b) if, in his opinion, the aggregate amount of the tax payable by the were assessed as a registered firm and the tax payable by the partners individually if the firm were so assessed would be greater than the aggregate amount of the tax payable by the firm under clause (a) and the tax which would be payable by the partners individually, may proceed to

make the assessment under sub-section (1) of section 182 as if the firm were a registered firm; and, where the procedure specified in this clause is applied to any unregistered firm,

the provisions of sub-sections (2), (3) and (4) of section 182 shall apply thereto as they apply in relation to a registered firm." Earlier, section 183 was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.1-4-1989, but reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. ---------------------------------------------------------------------- 1.599 Act, 1992, w.e.f. 1-4-1993.] 184 Assessment as a firm 1[184. Assessment as a firm

(1) A firm shall be assessed as a firm for the purposes of this Act, if- (i) the partnership is evidenced by an instrument; and (ii) the individual shares of the partners are specified in that instrument.

(2) A certified copy of the instrument of partnership referred

to in sub-section (1) shall accompany the return of income of the firm of the previous year relevant to the assessment year commencing on or after the 1st day of April, 1993, in respect of which assessment as a firm is first sought. Explanation.-For the purposes of this sub-section, the copy of the instrument of partnership shall be certified in writing by all the partners (not being minors) or, where the return is made after the dissolution of the firm by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased.

(3) Where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every subsequent year if there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the assessment as a firm was first sought.

(4) Where any such change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year and all the provisions of this section shall apply accordingly.

(5)Notwithstanding anything contained in the foregoing provisions of this section, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall not be assessed as such for the said assessment year and, thereupon, the firm shall be assessed in the same manner as an association of persons, and all the provisions of this Act shall apply accordingly. ----------------------------------------------------------------------- 1 Substituted for the chapter sub-heading "B.-Registration of firms" and the following sections 184, 185 and 186 by the Finance Act, 1992, w.e.f. 1-4-1993. Section 184: Prior to the substitution, section 184, as originally enacted and subsequently amended, as annotated below, read as under: *[B.-Registration of firms

"184. Application for registration.-(1) An application for registration of a firm for the purposes of this Act may be made to the Assessing Officer on behalf of any firm, if- (i) the partnership is evidenced by an instrument; and (ii) the individual shares of the partners are specified in that instrument.

(2) Such application may, subject to the provisions of this section, be made either during the existence of the firm or after its dissolution.

(3) The application shall be made to the Assessing Officer having jurisdiction to assess the firm, and shall be signed- (a) by all the partners (not being minors) personally; or (b) in the case of a dissolved firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the -> -> ----------------------------------------------------------------------- 1.600 -> ->legal representative of any such partner who is deceased. Explanation.-In the case of any partner who is absent from India or is a lunatic or an idiot, the application may be signed by any person duly authorised by him in this behalf, or, as the case may be, by a person entitled under law to represent him.

(4) The application shall be made before the end of the previous year for the assessment year in respect of which registration is sought: Provided that the Assessing Officer may entertain an application made after the end of the previous year, if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of the previous year.

(5) The application shall be accompanied by the original instrument evidencing the partnership, together with a copy thereof: Provided that if the Assessing Officer is satisfied that for sufficient reason the original instrument cannot conveniently be produced, he may accept a copy of it certified in writing by all the partners (not being minors), or, where the application is made after the dissolution of the firm, by all the persons referred to in clause

(b) of subsection (3), to be a correct copy, or a certified copy of the instrument; and in such cases the application shall be accompanied by a duplicate copy of the original instrument.

(6) The application shall be made in the prescribed form and shall contain the prescribed particulars.

(7) Where registration is granted [or is deemed to have been granted] to any firm for any assessment year, it shall have effect for every subsequent assessment year: Provided that- (i) there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted; and **[(ii) the firm furnishes, before the expiry of the time

allowed under [sub-section (1) of section 139] for furnishing the return of income for such subsequent assessment year, a declaration to that effect, in the prescribed form and verified in the prescribed manner, so, however, that where the Assessing Officer is satisfied that the firm was prevented by sufficient cause from furnishing the declaration within the time so allowed, he may allow the firm to furnish the declaration at any time before the assessment is made.

(8)Where any such change has taken place in the previous year, the firm shall apply for fresh registration for the assessment year concerned in accordance with the provisions of this section." * Restored to their original provision by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, the chapter sub- heading and,sections 184, 185 and 186 were substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.

Assessment when section 184 not complied with. 185. Assessment when section 184 not complied with Where a firm does not comply with the provisions of section 184 for any assessment year, the firm shall be assessed for that assessment year in the same manner as an association of persons, and all the provisions of this Act shall apply accordingly.]

Cancellation of registration. [186. Cancellation of registration.-Substituted along with sections 184 and 185 for sections 184 and 185 by the Finance Act, 1992, w.e.f. 1-4-1993.] ---------------------------------------------------------------------- -> -> Earlier, the Explanation was inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 1-4-

Change in constitution of a frim 1. 187. Change in constitution of a firm 1

(1) Where at the time of making an assessment under section 143 or section 144 it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment. 2[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

(2) For the purposes of this section, there is a change in the constitution of the firm- (a) if one or more of the partners cease to be partners or one or more new partners are admitted, in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners after the change; or (b)- where all the partners continue with a change in their respective shares or in the shares of some of them: 3[Provided that nothing contained in clause (a) shall apply to a case where the firm is dissolved on the death of any of its partners.]

Succession of one firm by another firm. 188. Succession of one firm by another firm Where a firm carrying on a business or profession is succeeded by another firm, and the case is not one covered by section 187, separate assessments shall be made on the predecessor firm and the successor firm in accordance with the provisions of section 170. 4[188A. Joint and several liability of partners for tax payable by firm Every person who was, during the previous year, a partner of a firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable along with the firm for the amount of tax, penalty or other sum payable by the firm for the assessment year to which such previous year is relevant, and all the provisions of this Act, so far as may be, shall apply to the assessment of such tax or imposition or levy of such penalty or other sum.]

Firm dissolved or business discontinued. 189. Firm dissolved or business discontinued

(1) Where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the 5[Assessing] Officer shall ----------------------------------------------------------------------- 2 Prior to the omission, the proviso read as under: "Provided that- (i) the income of the previous year shall, for the purposes of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same; and (ii) when the tax assessed upon a partner cannot be recovered from him, it shall be recovered from the firm as constituted at the time of making the assessment." Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989, but reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1975. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 5 Substituted for 'Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.604 make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions relating to the levy of a penalty or any other sum chargeable under any provision of this Act, shall apply, so far as may be, to such assessment.

(2) Without prejudice to the generality of the foregoing sub- section,, if the 1[Assessing] Officer or the 2[Deputy Commissioner (Appeals)] 3[or the Commissioner (Appeals)] in the course of any proceeding under this Act in respect of any such firm as is referred to in that sub-section is satisfied that the firm was guilty of any of the acts specified in Chapter XXI, he may impose or direct the imposition of a penalty in accordance with the provisions of that Chapter.

(3) Every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum. 4 [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

(4)Where such discontinuance or dissolution takes place after any proceedings in respect of an assessment year have commenced, the proceedings may be continued against the person referred to in sub-

section (3) from the stage at which the proceedings stood at the time of such discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply accordingly.

(5) Nothing in this section shall affect the provisions of sub-

section (6) of section 159. 5[189A. Provisions applicable to past assessments of firms In relation to the assessment of any firm and its partners for the assessment year commencing on the 1st day of April, 1992, or any earlier assessment year, the provisions of this Chapter as they stood immediately before the 1st day of April, 1993, shall continue to apply.] ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for "Appellate Assistant Commissioner", ibid. 3 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 4 Prior to the omission, the Explanation, as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975, read as under: "Explanation.-The amount of tax referred to in this sub-section shall also include that part of the share of each partner in the income of the firm before its discontinuance or dissolution which the

firm could have retained under sub-section (4) of section 182 but which has not been so retained.' Earlier, the Explanation was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989, but was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, section 189A was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. ---------------------------------------------------------------------- 1.605 CHAP COLLECTION AND RECOVERY OF TAX CHAPTER XVII COLLECTION AND RECOVERY OF TAX A.-General

Deduction at source and advance payment 1. 190. Deduction at source and advance payment1

(1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction 2[or collection] at source or by advance payment, as the case may be, in accordance with the provisions of this Chapter.

(2) Nothing in this section shall prejudice the charge of tax on

such income under the provisions of sub-section (1) of section 4.

Direct payment 3. 191. Direct payment 3 4[* * *] In the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and

Interest on securities 2. 1 193. Interest on securities 2 The person responsible for paying any income 3[by way of interest on ---------------------------------------------------------------------- 3 Substituted for "chargeable under the head 'Interest on securities' " by the Finance Act, 1988, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.609 securities] shall, 1[at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier] deduct income-tax * *] at the rates in force on the amount of the interest payable: 3[Omitted by the Finance Act, 1992, w.e.f 1-6-1992.1 4[Provided 5[* * *] that no tax shall be deducted from- (i) any interest payable on 41/4 per cent National Defence Bonds, 1972, where the bonds are held by an individual, not being a non-resident; or 6[(ia) any interest payable to an individual on 4 1/4 per cent National Defence Loan, 1968, or 4 2/4 per cent National Defence Loan, 1972; or] 7[(ib) any interest payable on National Development Bonds; or] 8[(ii) * * *] 9[(iia) any interest payable on 7-Year National Savings Certificates (IV Issue); or] 10[(iib) any interest payable on such debentures, issued by any institution or authority, or any public sector company, or any co-operative society (including a co-operative land mortgage bank or a co-operative land development bank), as the Central Government may, by notification" in the Official Gazette, specify in this behalf. ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1989, w.e.f. 1-6-1989. 2 The words "and super-tax" omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 3 Prior to the omission, the proviso, as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991, read as under: "Provided that where, in the case of a scheduled bank, the Central Government is satisfied that the total income of the bank justifies deduction of income-tax at a lower rate, it may, by notification in the Official Gazette, specify the rate at which deduction of income-tax shall be made in the case of such bank under this section and such notification shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, as may be specified in the notification:" 4 Substituted by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965. Earlier, it was inserted by the Taxation Laws (Amendment) Act, 1962, w.e.f. 13-12-1962. 5 The word "further" omitted by the Finance Act, 1992, w.e.f. 1-6- 1992. It was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-

6 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965. 7 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 8 Omitted by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to the omission, clause (ii) read as under: "(ii) any interest payable on National Savings Certificates (First Issue); or" 9 Inserted by the Finance Act, 1970, w.e.f. 1-4-1970. 10 Substituted by the Finance Act, 1986, w.e.f. 1-6-1986. Prior to the substitution, clause (iib), as inserted by the Finance Act, 1970, w.e.f. 1-4-1970, read as under: "(iib) any interest payable, on such debentures, issued by any co-operative society (including a co-operative land mortgage bank or a co-operative land development bank) or any other institution or authority, as the Central Government may, by notification in the Official Gazette, specify in this behalf; or" ----------------------------------------------------------------------- 1.610 1[Explanation.-* * *]] (iii) any interest payable on 61/2 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 cent Gold Bonds, 1980, held by him (including such bonds, if any, held on his behalf by any other person) did not in either case exceed ten thousand rupees at any time during the period to which the interest relates;] 2[(iiia) 'any interest payable on such securities of the Central Government or a State Government, to such class of persons, and subject to such conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf;] 4[(iv)any interest payable on any other security of the Central or State Government, where the security is 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- (a) he has not previously been assessed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); (b) his total income of the previous year in which the interest is due is not likely to exceed the maximum amount not chargeable to tax; and (c) the total nominal value of the securities held by him (including such securities, if any, as are held on his behalf by any other person) did not exceed two thousand five hundred rupees at any time during the said previous year;] 5[(v) any interest payable to an individual, who is resident in India, on debentures issued by a company in which the public are substantially interested, being debentures listed on a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder, if- (a) the interest is paid by the company by an account payee cheque; and (b) the amount of such interest or, as the case may be, the aggregate of the amounts of such interest paid or likely to be paid during the financial year by the company to such ---------------------------------------------------------------------- 1 Explanation omitted by the Finance Act, 1987, w.e.f. 1-4-1987. Prior to the omission, the Explanation, as substituted by the Finance Act, 1986, w.e.f. 1-6-1986, read as under: "Explanation.-For the purposes of this clause, "public sector company" means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); or" 2 Inserted by the Finance Act, 1982, w.e.f. 1-6-1982. 4 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. 5 Inserted by the Finance Act, 1984, w.e.f. 1-6-1984. ----------------------------------------------------------------------- 1.611 individual does not exceed [two thousand and five hundred rupees].] 2[Explanation 3[* * *].-For the purposes of -this section, where any income by way of interest on securities is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 4 [Omitted by the Finance Act, 1992, w.e.f 1-6-1992.]

Dividends 5. 194. Dividends 5 6The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or before making any distribution or payment to a shareholder, 7[who is resident in India,] of any dividend within the meaning of sub-clause (a) or sub-clause (b)

or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2, deduct from the amount of such dividend, income-tax 8[* * *] at the rates in force: 9[Provided that no such deduction shall be made in the case of a shareholder, being an individual, 10[* * *] of a company in which the public are substantially interested, if- ---------------------------------------------------------------------- 1 Substituted for "one thousand rupees" by the Finance Act, 1989, w.e.f. 1-6-1989. 2 Inserted, ibid. Earlier, the Explanation, as inserted by the Finance Act, 1965, w.e.f. 1-4-1965, was omitted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

3 The figure "(1)" omitted by the Finance Act, 1992, w.e.f. 1-6- 1992. it was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-

4 Prior to the omission, Explanation 2, as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991, read as under: "Explanation 2.-For the purposes of this section, the expression "scheduled bank,. shall have the meaning assigned to it in clause (ii)

of the Explanation to clause (viia) of sub-section (1) of section 36." 7 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 8 The words "and super-tax" omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 9 Substituted by the Finance Act, 1984, w.e.f. 1-6-1984. Earlier, the proviso was inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-10-1977. 10 The words "who is resident in India" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. ----------------------------------------------------------------------- 1.612 (a) the dividend is paid by such company by an account payee cheque; and (b) the amount of such dividend or, as the case may be, the aggregate of the amounts of such dividend distributed or paid or likely to be distributed or paid during the financial year by the company to the shareholder, does not exceed 1[two thousand five hundred rupees]: 2[Omitted by the Finance Act, 1993, w.e.f 1-6-1993.] 3[194A. Interest other than "Interest on securities"4

5(1) Any person, not being an individual or a Hindu undivided family, who. is responsible for paying to a resident any income by way of interest --------------------------------------------------------------------- 1 Substituted for "one thousand rupees" by the Finance Act, 1987, w.e.f. 1-6-1987. 2 Prior to the omission, the second proviso, as originally enacted and amended by the Finance Act, 1965, w.e.f. 1-4-1965; Finance (No. 2) Act, 1977, w.e.f. 1-10-1977 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "Provided further that where in the case of any shareholder, not being a company, the Assessing Officer gives a certificate in writing in the prescribed manner that to the best of his belief the total income of the shareholder will be less than the minimum liable to income-tax, the person responsible for paying any dividend to the shareholder shall, so long as the certificate is in force pay the dividend without any deduction." 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 1.613 other than income 1[by way of interest on securities], shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: 2[Omitted by the Finance Act, 1992, w.e.f. 1-6-1992.] 3[Explanation.-For the purposes of this section where any income by way of interest as aforesaid is credited to any account whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 4[Omitted by the Finance Act, 1992, w.e.f. 1-6- 1992.]

(3) The provisions of sub-section (1) shall not apply- 5[(i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by

the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed 6[two thousand five hundred rupees]: ----------------------------------------------------------------------- 1 Substituted for 'chargeable under the head "Interest on securities", by the Finance Act, 1988, w.e.f. 1-4-1989. 2 Prior to the omission, the proviso read as under: "Provided that no such deduction shall be made in a case where the person (not being a company or a registered firm) entitled to receive such income furnishes to the person responsible for making the payment- (a) an affidavit, or (b) a statement in writing, declaring that his estimated total income assessable for the assessment year next following the financial year in which the income is credited or paid will be less than the minimum liable to income- tax." 3 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987.

4 Prior to the omission, sub-section (2), as amended by the Finance Act, 1968, w.e.f. 1-4-1968, read as under-.

"(2) The statement in writing referred to in subsection (1) shall also contain such other particulars as may be prescribed. be verified in the prescribed manner, be signed in the presence of- (a) a Member of Parliament or a State Legislature; or (b) a Member of a District Council or a Metropolitan Council, a Municipal Corporation or Municipal Committee; or (c) a Gazetted Officer of the Central or a State Government; or (d) an officer of any banking company (including a co- operative bank) of the rank of sub-agent, agent or manager, and bear an attestation by such member or officer to the effect that the person who has signed the statement is known to him." 5 Substituted by the Finance Act, 1975, w.e.f. 1-4-1975. Section

20(2) of the Amendment Act made a special provision in regard to the amendment as under:

"(2) Notwithstanding the substitution of clause (i) of sub-

section (3) of section 194A of the Income-tax Act by sub-section (1) of this section, nothing in section 201 or section 276B of that Act shall apply to, or in relation to, any failure to deduct incometax under sub-section (1 ) of the said section 194A on any income by way of interest other than income chargeable under the head "Interest on securities" credited or paid on or after the 1st day of April, 1975, but before the 1st day of June, 1975, where the income so credited or paid at any one time does not exceed four hundred rupees." 6 Substituted for "one thousand rupees" by the Finance Act, 1987, w.e.f. 1-6-1987. ---------------------------------------------------------------------- 1.614 1[Provided that in respect of' the income credited or paid in respect of time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies(including any bank or banking institution referred to in section51 of that Act) or with a co-operative society engaged in carrying on the business of banking, the provisions of this clause shall have effect as if for the words "two thousand five hundred rupees", the words "ten thousand rupees" had been substituted and the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society, as the case may be;] (ii) to such income credited or paid before the 1st day of October, 1967; (iii) to such income credited or paid to- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co- operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or 2(f)such other institution, association or body 3 [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; 4[(iv) to such income credited or paid by a firm to a partner of the firm; (v) to such income credited or paid by a co-operative society 5[to a member thereof or] to any other co-operative society; 6[(Vi) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified' by it in this behalf in the Official Gazette;] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1995, w.e.f. 1-7-199.5 3 Inserted by the Finance Act, 1968, w.e.f. 1-4-1968. 4 Inserted by the Finance Act, 1968, w.e.f. 1-4-1968. It was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988 but was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 5 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. 6 Inserted by the Finance Act, 1970, w.e.f. 1-4-1970. 1.615 1[(vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act); (viia) to such income credited or paid in respect of,- (a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;] 2[(viii) to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964) or the Interest Tax Act, 1974 (45 of 1974).] ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1995, w.e.f. 1-7-1995. Prior to the substitution, clause (vii), as substituted for clauses (vii) and (viia) by the Finance Act, 1992, w.e.f. 1-6-1992, read as under: "(vii) to such income credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949, (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act), or with a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank);" Earlier, the above clause (vii) was substituted for clauses (vii) and (viia) by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991, which read as under: "(vii) to such income credited or paid in respect of deposits (other than time deposits) with a banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act); (viia) to such income credited or paid in respect of,- (a)deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (b)deposits (other than time deposits) with a co- operative society other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking; Explanation.-For the purposes of clauses (vii) and (viia), "time deposits" means deposits (excluding recurring deposits) repayable on the expiry of fixed periods." Clause (vii), as inserted by the Finance Act, 1970, w.e.f. 1- 4-1970, read as under: "(vii) to such income credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) or with a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank)." 2 Inserted by the Finance Act, 1975, w.e.f. 1-4-1975. ------------------------------------------------------------------------ 1.616 1[Explanation.-For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits (excluding recurring deposits) repayable on the expiry of fixed periods.]

2[(4) The person responsible for making the payment referred to

in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.] 3[Omitted by the Finance Act, 1992, w.e.f 1-6-1992.] 1[194B. Winnings from lottery or crossword puzzle2 3 The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle in an amount exceeding 4[five thousand rupees] shall, at the time of payment thereof, deduct income-tax thereon at the rates in force: Provided that no deduction shall be made under this section from any payment made before the 1st day of June, 1972.] 5[194BB. Winnings from horse race6 7 Any person, being a bookmaker or a person to whom a licence has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount ------------------------------------------------------------------------ 1 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 4 Substituted for "one thousand rupees" by the Finance Act, 1986, w.e.f. 1-6-1986. 5 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. d 1.618 exceeding 1[two thousand five hundred rupees] shall, at the time of payment thereof, deduct income-tax thereon at the rates in force: Provided that no deduction shall be made under this section from any payment made before the 1st day of June, 1978. 2[3 194C. Payments to contractors and sub-contractors 4

(1) Any person responsible for paying any sum to any resident ---------------------------------------------------------------------- 1 Substituted for "five thousand rupees" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. Earlier, these words were substituted for "two thousand and five hundred rupees" by the Finance Act, 1986, w.e.f. 1-6-1986. 2 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. ----------------------------------------------------------------------- 1.619 (hereafter in this section referred to as the contractor) for carrying out any work' (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; 2[or] 3[(e) any co-operative society;] 4[or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 5 (3 of 1956) 6[; or]] 7[j) any firm,] shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, 8[deduct an amount equal to- (i) one per cent in case of advertising, (ii) in any other case two per cent of such sum as income-tax on income comprised therein.]

(2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub- contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein. ------------------------------------------------------------------ 2 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 3 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 4 Inserted by the Finance Act, 1992, w.e.f. 1-6-1992. 6 Substituted for "," by the Finance Act, 1995, w.e.f. 1-7-1995. 7 Inserted, ibid. 8 Substituted for "deduct on amount equal to two per cent of such sum as income-tax on income comprised therein" by the Finance Act, 1995, w.e.f. 1-7-1995. ----------------------------------------------------------------------- 1.620

1[Explanation 1.-For the purposes of sub-section (2), the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India.] 2[Explanation 3[II].-For the purposes of this section, where any

sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 4[Explanation III.-For the purpose of this section, the expression "work" shall also include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering.]

(3) No deduction shall be made under sub-section (1) or sub-

section (2) from- (i) any sum credited or paid in pursuance of any contract the consideration for which does not exceed 5[twenty] thousand rupees; or (ii) any sum credited or paid before the 1st day of June, 1972; 6[or] 7[(iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the subcontractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society.]

8(4) Where the 9[Assessing] Officer is satisfied that the total income of the contractor or the sub-contractor justifies the deduction of incometax at any lower rate or no deduction of income-tax, as the case may be, the 10[Assessing] Officer shall, on an application made by the contractor or the sub-contractor in this behalf, give to him such certificate as may be appropriate. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 2 Inserted by the Finance Act, 1988, w.e.f. 1-6-1988. 3 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 4 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 5 Substituted for "ten" by the Finance Act, 1995, w.e.f. 1-7-199.5. Earlier, "ten" was substituted for five, by the Finance Act, 1982, w.e.f. 1-6-1982. 6 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 9 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 Ibid. ------------------------------------------------------------------------ 1.621

(5) Where any such certificate is given, the person responsible

for paying the sum referred to in sub-section (1) or sub-section (2) shall, until such certificate is cancelled by the 1[Assessing] Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be] 194D. Insurance commission 2 3 Any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that no deduction shall be made under this section from any such income credited or paid before the 1st day of June, 1973:] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. ----------------------------------------------------------------------- 1.623 1[Provided further that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to the payee,does not exceed five thousand rupees.] 2[194E. Payments to non-residents sportsmen or sports associations3 Where any income referred to in section 115BBA is payable to a nonresident sportsman (including an athlete) who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, at the time credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.] 4[194EE. Payments in respect of deposits under National Savings Scheme, etc.5 6 The person responsible for paying to any person any amount

referred to in clause (a) of sub-section (2) of section 80CCA shall, at the time of ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 2 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f., 1-11-1989. Earlier, section 194E, as inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, was omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 1.624 payment thereof, deduct income-tax thereon at the rate of twenty per cent: Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than two thousand five hundred rupees: Provided further that nothing contained in this section shall apply to the payment of the said amount to the heirs of the assessee.] 1[194F. Payments on account of repurchase of units by Mutual Fund or Unit Trust of India 2 The person responsible for paying to any person any amount

referred to in sub-section (2) of section 80CCB shall, at the time of payment thereof, deduct income-tax thereon at the rate of twenty per cent.] 3[194G. Commission, etc. on sale of lottery tickets4

5[(1)] Any person who is responsible for paying, on or after the 1st day of October, 1991 to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called) on such tickets in an amount exceeding one thousand rupees shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.

6[(2) Where the Assessing Officer is satisfied that the total income of any person who is or has been stocking, distributing, purchasing or selling lottery tickets justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application7 made by such person in this behalf, give to him such certificate as may be appropriate.

(3)Where any such certificate is given, the person responsible

for paying the income referred to in sub-section (1) shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.] Explanation.-For the purposes of this section, where any income is credited to any account, whether called "Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 5 Inserted by the Finance Act, 1992, w.e.f. 1-6-1992. ---------------------------------------------------------------------- 1.625 purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called), on such tickets in an amount exceeding Rs. 1,000 shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by issue of a cheque or a draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 10 (plus surcharge, referred in para 3). It is clarified in this regard that where any such income e.g. commission, remuneration, etc., is credited to any account, whether called "Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the tax will have to be deducted at source. The tax deducted at source should normally be paid to the credit of the Central Government within one week from the date of deduction. The person deducting the tax should furnish a tax deduction certificate in Form 16A and should also obtain the tax deduction account number. An annual return in Form 26H should be filed by 30th June. 1[194H. Commission, brokerage, etc. 2

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of October, 1991, 3[but before the 1st day of June, 1992] to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.

(2) The provisions of sub-section (1) shall not apply- (a) to such persons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue, by notification in the Official Gazette4, specify in this behalf; (b) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by

the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed two thousand five hundred rupees. Explanation.-For the purposes of this section,- (i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing; (ii) "professional services" means services rendered by a person in the course of carrying on a legal, medical, engineering or ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act. 1991, w.e.f. 1-10-1991. 3 Inserted by the Finance Act, 1992, w.e.f. 1-6-1992. ---------------------------------------------------------------------- 1.626 architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) where any income is credited to any account, whether called "Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 1[194-1. Rent 2 Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, 3[deduct income-tax thereon at the rate of- (a) fifteen per cent if the payee is an individual or a Hindu undivided family; and (b) twenty per cent in other cases:] Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thousand rupees. Explanation.-For the purposes of this section,- (i)"rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 3 Substituted for "deduct income-tax thereon at the rate of twenty per cent" by the Finance Act, 1995, w.e.f. 1-7-1995. ----------------------------------------------------------------------- 1.627 building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee; (ii) where any income is credited to any account, whether called "Suspense accounts" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.) 1[194J. Fees for professional or technical services

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of- (a) fees for professional services, or (b) fees for technical services, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein: Provided that no deduction shall be made under this section-(A) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or (B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of or to, the payee, does not exceed- (i) twenty thousand rupees, in the case of fees for professional services referred to in clause (a), or (ii) twenty thousand rupees, in the case of fees for technical services referred to in clause (b).

(2) Where the Assessing Officer is satisfied that the total income of any person in receipt of the sum referred to in sub-section

(1) justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by that person in this behalf, give to him such certificate as may be appropriate.

(3) Where any such certificate is given, the person responsible

for paying the sum referred to in sub-section (1) shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. ----------------------------------------------------------------------- 1.628 Explanation.-For the purposes of this section,- (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section

(1) of section 9;

(c) where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly. 194K. Income in respect of units

(1) Where any income is payable to a resident in respect of units of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of (a) twenty per cent, if the payee is a company, and (b) fifteen per cent in the case of other payees.

(2) The provisions of sub-section (1) shall not apply- (i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person responsible for making the payment to the account of or to, the payee does not exceed ten thousand rupees: Provided that the amount of ten thousand rupees shall be computed with reference to the income credited or paid,- (a) -in respect of a branch office of the Mutual Fund or of the Unit Trust of India, as the case may be, and (b) under a particular scheme under which the units have been issued; (ii) to such income credited or paid before the 1st day of July, 1995; (iii) to such income credited or paid in respect of units issued under such scheme already in operation of the Mutual Fund or of the Unit Trust of India, as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the plan of payment of income thereunder to the unit-holders; and (iv) to such income credited or paid in respect of units issued under any scheme of the Unit Trust of India to any institution or fund where such income is not liable to inclusion in its total income under the provisions of

sections 11 and 12 or clause (22) or clause (22A) or clause

(23) or clause (23AA) or clause (23C) of section 10. Explanation.-For the purposes of this section,- 1.629 (a) "Unit Trust of India" means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (b) where any income as aforesaid is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]

Other sums 1. 195. Other sums1

2[(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" 3[* * *]) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :4 5[Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.] Explanation.-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest Payable Account" or "Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]

(2) Where the person responsible for paying any such sum chargeable under this Act (other than 6[* * *] interest on securities, 7[* * *] and ------------------------------------------------------------------- 2 Substituted by the Finance Act, 1987, w.e.f. 1-6-1987. Prior to

the substitution, subsection (1), as amended by the Finance Act, 1965, w.e.f. 1-4-1965 and the Finance Act, 1975, w.e.f. 1-4-1975, read as under:

"195. Other sums.-(1) Any person responsible for paying to a non-resident, not being a company, or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India any interest, not being "Interest on securities", or any other sum, not being dividends, chargeable under the provisions of this Act, shall, at the time of payment unless he is himself liable to pay any income-tax thereon as an agent, deduct income-tax thereon at the rates in force: Provided that nothing in this sub-section shall apply to any payment made in the course of transactions in respect of which a person responsible for the payments is deemed under the proviso to

sub-section (1) of section 163 not to be an agent of the payee." 3 The words "or dividends" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 5 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.r.e.f. 1-6-1987. 6 The words " or dividends" omitted by the Finance Act, 1976, w..e.f. 1-6-1976. 7 The words ", dividend" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. --------------------------------------------------------------------- 1.630 salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application1 to the 2[Assessing] Officer to determine, 3[by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section

(1) only on that proportion of the sum which is so chargeable: 4[Omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.]

5[(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has

to be deducted under sub-section (1) may make an application in the prescribed form to the 6[Assessing] Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that subsection, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-

section (1).

(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the 7[Assessing] Officer before the expiry of such period, till such cancellation.

(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under

which, an (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. 1.631 2. Import of software.-Where a tax payer engaged in the business of export of software for computer application, imports any systems software, supplied by the manufacturer of the computer hardware along with the hardware itself, the lump sum payment made to the foreign supplier for acquisition of any right in relation to or for use of such systems software will not be liable to tax in India as payment by way of royalty or otherwise. Such lump sum payments will be allowed to be made without deduction of tax at source. 3. Payments to non-residents.-Where the amount payable to a non-resident is stipulated to be paid to him net of taxes the income chargeable to tax in the hands of the recipient is determined by grossing up the net of tax payment to such an amount as would after deducting the tax on such gross amount leave the stipulated net amount of income. Accordingly the sum chargeable to tax in the hands of the non-resident recipient would be this grossed up amount and it is with reference to this grossed up amount that tax has to be deducted as required by section 1985. 4. Where the person responsible for paying any sum to non- resident considers that the whole amount thereof would not be chargeable in the case of the recipient non-resident, he may make an application to the ITO for the determination of the appropriate portion of such payment which would be taxable and the respect of which tax is to be deducted at source . 1[195A. Income payable "net of tax" Where, under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement.]

Interest or dividend or other sims payable to Government, Reserve Bank or certain corporations. 2[196. Interest or dividend or other sums payable to Government, Reserve Bank or certain corporations Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to- (i) the Government, or (ii) the Reserve Bank of India, or (iii) a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income-tax on its income, or (iv) a Mutual Fund specified under clause (23D) of section 10, where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any other income accruing or arising to it.] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 2 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Earlier, it was substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. ------------------------------------------------------------------------ 1.632 1[196A. Income in respect of units of non-residents,

(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent.

(2) Notwithstanding anything contained in sub-section (1), no deduction of tax shall be made from any income payable in respect of units of the Unit Trust of India to a non-resident Indian or a non- resident Hindu undivided family, where the units have been acquired from the Unit Trust of India out of the funds in a Non-resident (External) Account maintained with any bank in India or by remittance of funds in foreign currency, in accordance, in either case, with the provisions of' the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the rules made thereunder. Explanation.-For the purposes of this section- (a) "foreign currency" shall have the meaning assigned to it in the Foreign Exchange Regulation Act, 19733 (46 of 1973); (b) "non-resident Indian" shall have the meaning assigned to it in clause (e) of section 115C; ------------------------------------------------------------------------ 1 Substituted by the Finance Act, 1995, w.e.f. 1-7-1995. Prior to the substitution, section 196A, as substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989 and subsequently amended read as under: "196A. Tax not to be deducted from any income payable to unit-

holders of Mutual Fund.-(1) Subject to the provisions of sub-section

(2), no deduction of tax shall be made from any income payable in respect of units of a Mutual Fund, specified under clause (23D) of section 10, to its unit-holders being persons other than foreign ,companies.

(2) Where any income referred to in sub-section (1) is payable to a unit-holder, being a foreign company, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of *[twenty] per cent.]

[(3) Notwithstanding anything contained in this Act. no deduction of tax shall be made from any income payable in respect of units issued under any scheme of the Unit ,Trust of India established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963), to any institution or fund where such income is not liable to inclusion in its total income under the provisions of sections 11 and 12 or

clause (22) or clause (22A) or clause (23) or clause (23AA) or clause (23C) of section 10" *Substituted for "twenty-five" by the Finance Act, 1994, w.e.f. 1-6-

Certificate for deduction at lower rate 1. 197. Certificate for deduction at lower rate 1

(1) 2 [Subject to rules made under sub-section (2A),] 3[where, in the case of any income of any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 4[194,] 194A, 194D, 5[, 194-I] 6[, 194K] and 195, the Assessing Officer is satisfied] that the total income 7[* * *] of the recipient justifies the deduction of income-tax 8[* * *] at any lower rates or no deduction of income-tax 9[* * *], as the case may be, the 10[Assessing] Officer shall, on an application" made by the assessee in this behalf, give to him such certificate as may be appropriate."

(2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the 13 [Assessing] Officer, deduct income-tax 14[* * *] at the rates specified in such certificate or deduct no tax, as the case may be. 15[(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of

a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.] ---------------------------------------------------------------------- 2 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. See also rules 28, 28AA and Form No. 15AA. 3 Substituted for "where, in the case of any income of any person other than a company,- (a) income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194A, 194D and 195, (b) being a non-resident, income-tax is required to be deducted at the time of payment at the rates in force under the provisions of section 194. the Assessing Officer is satisfied" by the Finance Act, 1992, w.e.f. 1-6-1992. Earlier, the substituted words were amended by the Finance Act, 1965, w.e.f 1-4-1965; Finance (No. 2) Act, 1967, w.e.f. 1-4-1967; Finance Act, 1972, w.e.f. 1-4-1972; Finance Act, 1973, w.e.f. 1-4- 1973; Finance Act, 1978, w.e.f. 1-4-1978; Finance Act, 1986, w.e.f. 1- 4-1987 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance Act, 1993, w.e.f. 1-6-1993. 5 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 6 Inserted by the Finance Act, 1995, w.e.f. 1-7-199.5. 7 The words "or the total world income" omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 8 The words "or super-tax" omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 9 ]bid. 10 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 13 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 14 The words "and super-tax" omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 15 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. ----------------------------------------------------------------------- 1.635

1[(3) Omitted by the Finance Act, 1986, w.e.f. 1-4-1987.] 2[ 197A. No deduction to be made in certain cases3 4( 1) Notwithstanding anything contained in section 193 or section 194 5[* * *] 6[or section 194EE], no deduction of tax shall be made under any of the said sections in the case of an individual, who is resident in India, if such individual furnishes to the person responsible for paying any income of the nature referred to in section 193 or section 194 7[8[* * *] or, as the case may be, section 194EE], a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that 9[the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil]. 10[(1A) Notwithstanding anything contained in section 194A or section ----------------------------------------------------------------------

1 Prior to the omission, sub-section (3), as substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968, read as under:

"(3) Where the principal officer of a company considers that, by reason of the provisions of section 80K, the whole or any portion of the dividend referred to in section 194 will be deductible in computing the total income of the recipient, he may, before paying the dividend to the shareholder or issuing any cheque or warrant in respect thereof, make an application to the Income-tax Officer to determine the appropriate proportion of the dividend to be deducted under the provisions of section 80K; and on such determination by the Income-tax Officer no tax shall be deducted on such proportionate amount."_ Inserted by the Finance Act, 1982, w.e.f. 1-6-1982. 5 The words "or section 194A" omitted by the Finance Act, 1992, w.e.f. 1-6-1992. 6 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 7 Substituted for "or, as the case may be, section 194A" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 8 The words "or section 194A" omitted by the Finance Act, 1992, w.e.f. 1-6-1992. 9 Substituted for "his estimated total income of the previous year in which such income is to be included in computing his total income will be less than the minimum liable to income-tax" by the Finance Act, 1990, w.e.f. 1-4-1990. 10 Substituted by the Finance Act, 1995, w.e.f. 1-7-199.5. Prior to the substitution, subsection (1A), as inserted by the Finance Act, 1992, w.e.f. 1-6-1992, read as under: "(1A) Notwithstanding anything contained in section 194A, no deduction of tax shall be made under that section in the case of a person (not being a company or a firm), if such person furnishes to the person responsible for paying any income of the nature referred to in that section, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his > -> ----------------------------------------------------------------------- 1.636 194K, no deduction of tax shall be made under either of the said sections in the case of a person (not being a company or a firm), if' such person furnishes to the person responsible for paying any income of the nature referred to in section 194A or section 194K, as the case may be, a declaration in writing in duplicate in the prescribed form I and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.]

(2) The person responsible for paying any income of the nature referred to in sub-section ( 1 ) 2 [or sub-section (1A)] shall deliver or cause to be delivered to the 3[Chief Commissioner or Commissioner]

one copy of the declaration referred to in sub-section (1) 4[or sub- section (1A)] on or before the seventh day of the month next following the month in which the declaration is furnished to him.]

Tax deducted is income received 198. Tax deducted is income received All sums deducted in accordance with the provisions of 5[sections 192 to 194, section 194A 6[, section 194B] 7[,section 194BB] 8[, section 194C] 9[, section 194D] 10[, section 194E] 11[,section 194EE, section 194F, section 194G, section 194H, 12[section 194-1,] 13[section 194J, section 194K,] section 195, section 196A 14[, section 196B 15[, section 196C and section 196D]]]] shall, for the purpose of computing the income of an assessee, be deemed to be income received. ---------------------------------------------------------------------- estimated total income of the previous year in which such income is to be 2 Inserted by the Finance Act,, 1992, w.e.f. 1-6-1992. 3 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance Act, 1992, w.e.f. 1-6-1992. 5 Substituted for "sections 192 to 195" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 6 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 7 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 8 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 9 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 10 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-11-1989. 11 Substituted for "section 195 and section 196A" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 12 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 13 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 14 Substituted for ", and section 196B" by the Finance Act, 1992, w.e.f. 1-6-1992. 15 Substituted for "and section 196C" by the Finance Act, 1993, w.e.f. 1-6-1993. ------------------------------------------------------------------------ 1.637

Credit for tax deducted 1. 199. Credit for tax deducted1 Any deduction made in accordance with the provisions of 2[sections 192 to 194, section 194A 3[, section 194B) 4[, section 194BB] 5[, section 194C] 6[, section 194D] 7[, section 194E] 8[, section 194EE, section 194F, section 194G, section 194H, 9[section 194-I,] 10[section 194J, section 194K,] section 195, section 196A 11[, section 196B 12[, section 196C and section 196D]]]] and paid to the Central Government shall be treated as a payment of 13 [tax] on behalf of the person from whose income the deduction was made, or of the owner of the security or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment 14[* * *] 15[made under this Act for the assessment year for which such income is assessable]: 16[Provided that- (i) in a case where such person or owner- or shareholder is a person, whose income is included under the provisions of section 60, section 61, section 64, section 93 or section 94 in the total income of another person, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person; (ii) 17in any other case, where the dividend on any share is assessable as the income of a person other than the shareholder, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person in such circumstances as may be prescribed: Provided further that where any security or share in a company is owned jointly by two or more persons not constituting a partnership, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, each such person in the same proportion in which the ---------------------------------------------------------------------- 2 Substituted for "sections 192 to 195" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 3 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 4 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 5 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 6 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 7 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-11-1989. 8 Substituted for "section 195 and section 196A" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 9 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 10 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 11 Substituted for ", and section 196B" by the Finance Act, 1992, w.e.f. 1-6-1992. 12 Substituted for "and section 196C" by the Finance Act, 1993, w.e.f. 1-6-1993. 13 Substituted for "income-tax or super-tax, as the case may be," by the Finance Act, 1965, w.e.f. 1-4-1965. 14 The words "(including a provisional assessment under section 141A), if any" omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, the italicised words were inserted by the Finance Act, 1968, w.e.f. 1-4-1968. 15 Substituted for "made for the immediately following assessment year under this Act" by the Finance Act, 1987, w.e.f. 1-6-1987. 16 Substituted by the Finance Act, 1968, w.r.e.f. 1-4-1962. ---------------------------------------------------------------------- 1.638 interest on such security or dividend on such share is assessable as his income.]

Duty of person deducting tax. 200. Duty of person deducting tax 1Any person deducting any sum in accordance with the provisions of 2[sections 192 to 194, section 194A 3[, section 194B] 4[, section 194BB] 5[, section 194C] 6[, section 194D] 7[, section 194E] 8[, section 194EE, section. 194F, section 194G, section 194H, 9[section 194-I,] 10[section 194J, section 194K,] section 195, section 196A 11[, section 196B 12[, section 196C and section .196D]]]] shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.

Consequences of failure to deduct or pay 13. 201. Consequences of failure to deduct or pay13

(1) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax: Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the 14[Assessing] Officer is satisfied that such person or principal officer or company, as the case may be, has 15[without good and sufficient reasons] failed to deduct and pay the tax. ---------------------------------------------------------------------- 2 Substituted for "sections 192 to 195" by the finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 3 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 4 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 5 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 6 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 7 Inserted by the Direct Tax Laws (Second Anendment) Act, 1989, w.e.f. 1-1 1-1989. 8 Substituted for "section 195 and section 196A" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 9 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 10 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 11 Substituted for ", and section 196B" by the Finance Act, 1992, w.e.f. 1-6-1992. 12 Substituted for "and section 196C" by the Finance Act, 1993, w.e.f. 1-6-1993. 14 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 15 Substituted for "wilfully" by the Finance Act, 1966, w.e.f. 1-4-

1.639

1[(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that subsection does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at 2[fifteen] per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.]

(2) Where the tax has not been paid as aforesaid after it is deducted, 3[the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be,

referred to in sub-section (1).]

Deduction only one mode of recovery. 202. Deduction only one mode of recovery The power to 4 [recover] tax by deduction under 5[sections 192 to 194, section 194A 6[, section 194B] 7[, section 194BB] 8[, section 194C] 9[, section 194D] 10[, section 194E] 11[, section 194EE, section 194F, section 194G, section 194H, 12[section 194-I,] 13 [section 194J, section 194K,] section 195, section 196A 14[, section 196B 15[, section 196C and section 196D]]]] shall be without prejudice to any other mode of recovery.

Certificate for tax deducted 17. 16[203. Certificate for tax deducted17 "Every person deducting tax in accordance with the provisions of sections 192 to 194, section 194A 19[, section 194B] 20[, section 194BB] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. See also rule 119A. 2 Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for "nine" by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. 3 Substituted for "it" by the Finance Act, 1966, w.e.f. 1-4-1966. 4 Substituted for "levy" by the Finance Act, 1987, w.e.f. 1-6-1987. 5 Substituted for "sections 192 to 195" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 6 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 7 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 8 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 9 Inserted by the Finance Act, 1973, w.e.f. 1.4-1973. 10 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-1 1-1989. 11 Substituted for "section 195 and section 196A" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 12 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 13 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 14 Substituted for ", and section 196B" by the Finance Act, 1992, w.e.f. 1-6-1992. 15 Substituted for "and section 196C" by the Finance Act, 1993, w.e.f. 1-6-1993. 16 Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 19 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 20 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. ------------------------------------------------------------------------ 1.640 1[, section 194C] 2[, section 194D] 3[, section 194E] 4[, section 194EE, section 194F, section 194G, section 194H, 5[section 194-I,] 6[section 194j, section 194K,] section 195, section 196A 7[, section 196B 8[, section 196C and section 196D]]] 9[shall, within such period as may be prescribed from the time of credit or payment of the sum, or, as the case may be, from the time of issue of a cheque or warrant for payment of any dividend to a shareholder], furnish to the person to whose account such credit is given or to whom such payment is made or the cheque or warrant is issued, a certificate to the effect that tax has been deducted, and specifying the amount so deducted, the rate at which the tax has been deducted and such other particulars as may be prescribed. 10[203A. Tax-deduction account number 11 12( 1) Every person deducting tax in accordance with the provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D 13[, section 194E] 14[, section 194EE, section 194F, section 194G, section 194H, 15[section 194-I,] 16 [section 194J, section ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 2 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 3 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-11-1989. 4 Substituted for "section 195 and section 196A" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 5 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 6 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 7 Substituted for ", and section 196B" by the Finance Act, 1992, w.e.f. 1-6-1992. 8 Substituted for "and section 196C" by the Finance Act, 1993, w.e.f. 1-6-1993. 9 Substituted for "shall, at the time of credit of payment of the sum, or, as the case may be, at the time of issue of a cheque or warrant for payment of any dividend to a shareholder" by the Finance Act, 1987, w.e.f. 1-6-1987. 10 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 13 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-11-1989. 14 Substituted for "section 195 and section 196A" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 15 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 16 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. ------------------------------------------------------------------------ 1.641 194K,] section 195, section 196A 1[, section 196B 2[, section 196C and section 196D]]], if he has not been allotted any tax-deduction account number, shall within such time as may be prescribed, apply to the 3[Assessing] Officer for the allotment of a tax-deduction account number.

(2) Where a tax-deduction account number has been allotted to a person, such person shall quote such number,- (a) in all challans for the payment of any sum in accordance with the provisions of section 200; (b) in all certificates issued in accordance with the provisions of section 203; (c) in all the returns delivered in accordance with the provisions of sections 206, 206A and 206B to any income-tax authority; and (d) in all other documents pertaining to such transactions as may be prescribed in the interests of revenue.]

Meaning of "person responsible for paying" 204. Meaning of "person responsible for paying" For the purposes of 4[sections 192 to 194, section 194A 5[, section 194B] 6[, section 194BB] 7[, section 194C]] 8[, section 194D] 9[, section 194E], 10[section 194EE, section 194F, section 194G, section 194H,] 11[section 194-I,] 12 [section 194J, section 194K,] sections 195 to 203 and "section 285, the expression "person responsible for paying" means- (i) in the case of payments of income chargeable under the head "Salaries", other than payments by the Central Government or the Government of a State, the employer himself or, if the employer is a company, the company itself, including the principal officer thereof; ----------------------------------------------------------------------- 1 Substituted for ", and section 196B" by the Finance Act, 1992, w.e.f. 1-6-1992. 2 Substituted for "and section 196C" by the Finance Act, 1993, w.e.f. 1-6-1993. 3 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for "sections 192 to 203" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 5 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 6 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 7 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 8 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 9 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-11-1989. 10 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 11 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 12 Inserted by the Finance Act, 1995, w.e.f. 1-7-199.5. 13 Section 285 has been omitted by the Finance Act, 1987, w.e.f. 1-6-1987 but the reference continues here. ----------------------------------------------------------------------- 1.642 (ii) in the case of payments of income chargeable under the head "Interest on securities", other than payments made by or on behalf of the Central Government or the Government of a State, the local authority, corporation or company, including the principal officer thereof; 1[(iia)in the case of any sum payable to a non-resident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short-term capital asset, the authorised dealer responsible for remitting such sum to the nonresident Indian or for crediting such sum to his Non-resident (External) Account maintained in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any rules made thereunder;] (iii) 2[in the case of credit or, as the case may be, payment] or any other sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof. 3[Explanation.-For the purposes of this section,- (a) "non-resident Indian" and "foreign exchange asset" shall have the meanings assigned to them in Chapter XIIA; (b) "authorised dealer" shall have the meaning assigned to it in clause (b)of section 2 of the Foreign Exchange Regulation Act, 19734 (46 of 1973).]

Bar against direct demand on assessee. 205. Bar against direct demand on assessee Where tax is deductible at the source under 5[sections 192 to 194, section 194A 6[, section 194B] 7[, section 194BB] 8[, section 194C] 9[, section 194D] 10[, section 194E], 11[section 194EE, section 194F, section 194G, section 194H, 12[section 194-I,] 13[section 194J, section 194K,] section 195, section 196A 14[, section 196B 15[, section 196C and section 196D]]]], the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1986, w.e.f. 1-6-1986. 2 Substituted for "in the case of payments" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 3 Inserted by the Finance Act, 1986, w.e.f. 1-6-1986. 5 Substituted for "sections 192 to 195" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 6 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 7 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 8 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 9 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 10 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-11-1989. 11 Substituted for "section 195 and section 196A" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 12 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 13 Inserted by the Finance Act, 1995, w.e.f. 1-7-199.5. 14 Substituted by ", and section 196B" by the Finance Act, 1992, w.e.f. 1-6-1992. 15 Substituted for "and section 196C" by the Finance Act, 1993, w.e.f. 1-6-1993. ----------------------------------------------------------------------- 1.643

Persons deducting tax to furnish prescribed returns. 1[206. Persons deducting tax to furnish prescribed returns 2The prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the foregoing provisions of this Chapter 3[shall, within the prescribed time after the end of each financial year, prepare and deliver or cause to be delivered] to the prescribed income-tax authority, such returns in such form and verified in such manner and setting forth such particulars as may be prescribed.] 4[206A. Person paying interest to residents without deduction of tax, to furnish prescribed return Any person responsible for paying any income referred to in section 194A shall prepare, and within thirty days from the 31st day of March in each year, deliver or cause to be delivered to the 5[Assessing] Officer in the prescribed form and verified in the prescribed manner, a return in writing showing- (a) the name and address of every person who has furnished to him an affidavit or a statement under the proviso to sub-

section (1) of section 194A; (b) the amount of the income credited or paid during the financial year to each such person and the time or times at which the same was credited or paid, as the case may be; and ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1987, w.e.f. 1-6-1987. Prior to the substitution, section 206, as amended by the Finance Act, 1965, w.e.f. 1-4-1965, read as under. "206. Person paving salary to furnish prescribed return.-(I) The prescribed person in the case of every office of the Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, and every private employer shall prepare, and within thirty days from the 31st day of March in each year, deliver or cause to be delivered to the Income-tax Officer in the prescribed form and verified in the prescribed manner, a return in writing showing- (a) the name and, so far as it is known, the address of every person who was receiving on the 31st day of March, or has received or to whom was due during the year ending on that date, front the Government, company, authority, body, association or private employer, as, the case may be, any income chargeable under the head "Salaries" of such amount as may be prescribed; (b) the amount of the income so received by or so due to each such person, and the time or times at which the same was paid or due, as the case may be; (c) the amount deducted in respect of income-tax from the income of each such person.

(2) Where an employer deducts from the emoluments paid to an employee or pays on his behalf any contributions of that employee to an approved superannuation fund, he shall include all such deductions or payments in the return which he is required to furnish under this section." 3 Substituted for "shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered', by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991. 4 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.644 (c) such other particulars as may be prescribed.] 1[206B. Person paying dividend to certain residents without deduction of tax to furnish prescribed return 2 Any person responsible for paying any dividend referred to in section 194 shall prepare, and within thirty days from the 31st day of March in each year, deliver or cause to be delivered to the 3[Assessing] Officer in the prescribed form and verified in the prescribed manner, a return in writing showing- (a) the name and 'address of every person who has furnished to him a statement under the first proviso to section 194; (b) the amount of the dividend paid or distributed during the financial year to each such person; and (c) such other particulars as may be prescribed.] 4[BB.-Collection at source 5 206C. Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc6

7[(1) Every person, being a seller shall, at the time of debiting of the ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-10-1977. 2 See rule 37B and Form No. 27B. 3 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance Act, 1988, w.e.f. 1-6-1986. 7 Substituted by the Finance Act, 1992, w.e.f. 1-4-1992. Prior to

the substitution, subsection (1) read as under:

"(1) Every person, being a seller referred to in section 44AC, shall, at the time of debiting of the amount payable by the buyer refer-red to in that section to the account of the buyer or at the time of receipt of such amount from the, said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column

(2) of the Table below, a sum equal to the percentage, specified in

the corresponding entry in column (3) of the said Table, of such amount as income-tax on income comprised therein. Table ---------------------------------------------------------------------- S. No. Nature of goods Percentage

(1) (2) (3) ---------------------------------------------------------------------- (i) Alcoholic liquor for human consumption (other than Indian made foreign liquor) Fifteen per cent (ii) Timber obtained under a forest lease Fifteen per cent (iii) Timber obtained by any mode other than Five per cent under a forest lease (iv) Any other forest produce not being timber Fifteen per cent: ------------------------------------------------------------------------- Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods refer-red to in the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not,for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force." Earlier, the italicised word was substituted for "Ten" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-6-1988. ----------------------------------------------------------------------- 1.645 amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column

(2) of the Table below, a sum equal to the percentage specified in the

corresponding entry in column (3) of the said Table, of such amount as income-tax. Table ----------------------------------------------------------------------- S.No. Nature of goods Percentage

(1) (2) (3) ------------------------------------------------------------------------ (i) Alcoholic liquor for human consumption (other than Indian-made foreign liquor) Fifteen per cent (ii) Timber obtained under a forest lease Fifteen per cent (iii) Timber obtained by any mode other than a under forest lease Five per cent (iv) Any other forest produce not being timber Fifteen per cent: ---------------------------------------------------------------------- Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this subsection shall not apply so long as the certificate is in force.]

(2) The power to recover tax by a collection under sub-section

(1) shall be without prejudice to any other mode of recovery.

(3) Any person collecting any amount under sub-section (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs.

(4) Any amount collected in accordance with the provisions of

this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the

production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable.

(5) Every person collecting tax in accordance with the provisions of this section shall within ten days from the date of debit or receipt of the amount furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed. 1 2[(5A) Every person collecting tax in accordance with the provisions of this section shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year, and deliver or ---------------------------------------------------------------------- 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.646 cause to be delivered to the prescribed income-tax authority' such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. 2]

(6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of

sub-section (3).

(7) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of two per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid.

(8) Where the tax has not been paid as aforesaid, after it is collected, the amount of the tax together with the amount of simple

interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the seller.] 3[Explanation.-For the purposes of this section,- (a) "buyer" means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature

specified in the Table in sub-section (1) or the right to receive any such goods but does not include,- (i) a public sector company, (ii) a buyer in the further sale of such goods obtained in pursuance of such sale, or (iii) a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act; (b) "seller" means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or cooperative society.], 3 Inserted by the Finance Act, 1992, w.e.f. 1-4-1992. ----------------------------------------------------------------------- 1.647 (vi) Any other forest produce not being timber. Fifteen per cent. These tax rates have to be increased by surcharge at the rate of 15 per cent where the buyer is a domestic company and 12 per cent in the case of other buyers. These provisions will apply only at the point of the first sale of such goods. Where the goods are meant for manufacturing, processing or producing articles and things and not for trading, a certificate could be obtained from the Assessing Officer

and so long as such certificate remains in force section 206C(1) would not apply. The deducted tax should be paid to the credit of the Central Government within a week. The person deducting the tax should furnish a tax deduction certificate in Form 27D. A half-yearly return of tax, deducted should be filed for the periods ending 30th September and 30th March and failure to file these returns is punishable.

[Circular No. 660, dated 15th September, 1993]

[Circular No. 585, dated 27th November, 1990]

Liability for payment of advance tax. 1[207. Liability for payment of advance tax Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as "current income".] ----------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1988. Prior to the substitution, section 207, sub-section (1) of which was substituted by the Finance Act, 1972, w.e.f. 1-4-1972, read as under: "207. Advance tax and income subject to advance tax.-(I) Tax shall be payable in advance in accordance with the provisions of sections 208 to 219 in the case of income other than- (a) income chargeable under the head "Capital gains"; and

(b) income referred to in sub-clause (ix) of clause (24) of section 2.

(2) Such income is hereinafter in this Chapter refer-red to as 'income subject to advance tax', and such tax is hereinafter in this Chapter referred to as "advance tax"." ---------------------------------------------------------------------- 1.648

Conditions of liability to pay advance tax. 1[208. Conditions of liability to pay advance tax Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is one thousand five hundred rupees or more.]

Computation of advance tax. 209. Computation of advance tax

2[(1) The amount of advance tax payable by an assessee in the financial ----------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 208, as substituted by the Finance Act, 1969, w.e.f. 1-4-1969 and amended by the Finance Act, 1972, w.e.f. 1-4-1972; Finance (No. 2) Act, 1977, w.e.f, 1-9-1977; Finance Act, 1978, w.e.f. 1-6-1978; Finance Act, 1979, w.e.f. 1-4- 1979; Finance (No. 2) Act, 1980, w.e.f. 1-9-1980; Finance Act, 1981, w.e.f. 1-6-1981; Taxation Laws (Amendment) Act, 1984, w.e.f. 2-4-1985 and the Finance Act, 1985, w.e.f. 14-5-1985, read as under: "208. Condition of liability to pay advance tax.-(I) Advance tax shall be payable during the financial year- (a) where the total income, exclusive of capital gains and

income referred to in sub-clause (ix) of clause (24) of section 2, of the assessee, referred to in subclause (i) of

clause (a) of sub-section (1) of section 209, exceeds the

amount specified in sub-section (2), or (b) where it is payable by virtue of the provisions of section 209A.

(2) The amount referred to in clause (a) of sub-section (1) shall be- (a) in the case of a company or a local authority Rs. Rs. 2,500 (b) in the case of a registered firm Rs.20,000 (c) in the case of a Hindu undivided family which at any time during the previous year has at least one member whose total income of the previous year exceeds Rs. 18,000 Rs.12,000 (d) in any other case Rs.18,000.

(3) Notwithstanding anything contained in the foregoing provisions of this section, where in the case of an assessee

referred to in clause (c) or clause (d) of sub-section (2), the amount of advance tax payable by him during the financial year, as computed in accordance with the provisions of this section, does not exceed fifteen hundred rupees, it shall not be necessary for such assessee to pay any advance tax during that financial year." 2 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1988. Prior to the substitution, sub-section (1), as amended by the Finance Act, 1963, w.e.f. 1-4-1963; Finance Act, 1964, w.r.e.f. 1- 4-1963; Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964; Finance Act, 1965, w.e.f. 1-4-1965; Finance (No. 2). Act, 1967, w.e.f. 1-4- 1967; Finance Act, 1969, w.e.f. 1969, w.e.f. 1-4-1972; Finance Act, 1973, w.e.f. 1-4-1973; Finance Act, 1974, w.e.f. 1-4-1974 and the Finance Act, 1978, w.e.f. 1-6-1978, read as under:

"(1) The amount of advance tax payable by an assessee in the

financial year shall, subject to the provisions of sub-sections (2)

and (3), be computed as follows:- (a) (i) his total income of the latest previous year in respect of which he has been assessed by way of regular assessment shall first be ascertained; (ii) the amount of capital gains and income referred to in

sub-clause (ix) of clause (24) of section 2, if any, included in such total income shall be deducted therefrom, and on the balance income-tax shall be calculated at the rates in force in the financial year; (iii) the income-tax so calculated shall be reduced by the amount of income-tax which would be deductible during the said financial year in accordance with the provisions of sections 192 to 194, section 194A, section 194C, section 194D and section 195 on any income (as computed before allowing any deductions admissible under this Act) on which tax ----------------------------------------------------------------------- 1.649

year shall, subject to the provisions of sub-sections (2) and (3), be computed as follows, namely:- (a) where the calculation is made by the assessee for the

purposes of payment of advance tax under sub-section (1) or

sub-section (2) or sub-section (5) or sub-section (6) of section 210, he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year; (b) where the calculation is made by the Assessing Officer

for the purpose of making an order under sub-section (3) of section 210, the total income of the latest previous year in respect of which the assessee has been assessed by way of regular assessment or the total income returned by the assessee in any return of income furnished by him for any subsequent previous year, whichever is higher, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year; (c) where the calculation is made by the Assessing Officer for the purpose of making an amended order under sub-section

(4) of section 210, the total income declared in the return furnished by the assessee for the later previous year, or, as the case may be, the total income in respect of which the regular assessment, referred to in that sub-section has been made, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year; (d) the income-tax calculated under clause (a) or clause (b) or clause ----------------------------------------------------------------------- .LM10 -> -> is required to be deducted under the said sections and which has been taken into account in computing the said total income; (iv) the net amount of income-tax calculated in accordance with sub- clause (iii) shall, subject to the provisions of clauses (c) and (d), be the advance tax payable;

[(b) * * *]

referred to in sub-section (3) of section 210 on the basis of the total income on which tax has been paid by the assessee under section 140A, the total income referred to in clause (a) shall be substituted,-

(1) in a case falling under sub-clause (i), by the total income on the basis of which tax has been paid under section 140A, and

(2) in a case falling under sub-clause (ii), by the total income

on the basis of which the amended order under sub-section (3) of section 210 is made. Explanation.-If the assessee is a partner of a registered firm and an assessment of the firm has been completed for a previous year later than the latest previous year for which the assessee's assessment has been completed, his share in the income of the firm shall, for the purposes of clause (a), be included in his total income on the basis of the said assessment of the firm., ----------------------------------------------------------------------- 1.650 (c)shall, in each case, be reduced by the amount of income- tax which would be deductible 1[or collectable] at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income- tax as so reduced shall be the advance tax payable.]

2[(2) Where the Finance Act of the relevant year provides that, in the case of any class of assessees, net agricultural income (as defined in that Act) shall be taken into account for the purposes of computing advance tax, then, the net agricultural income to be taken into account in the case of any assessee falling in that class, shall be- (a) in cases 3[where the Assessing Officer makes an order

under subsection (3) or sub-section (4) of section 210],- (i) if the total income of the latest previous year in respect of which the assessee has been assessed by way of regular assessment forms the basis of computation of advance tax payable by him, the net agricultural income which has been taken into account for the purposes of charging income-tax for the assessment year relevant to that previous year; or 4[(ii) if the total income declared by the assessee for the later previous year referred to in sub-section

(4) of section 210 forms the basis of computation of advance tax, the net agricultural income as returned by the assessee in the return of income for the assessment year relevant to such later previous year;] 5[(b) in cases where the advance tax is paid by the assessee on the basis of his estimate of his current income

under sub-section (1) or sub-section (2) or sub-section (5)

or sub-section (6) of section 210, the net agricultural income, as estimated by him, of the period which ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-6-1988. 2 Inserted by the Finance Act, 1974, w.e.f. 1-4-1974. 3 Substituted for where the assessee sends a statement under sub-

section (1) of section 209A or where the Income-tax Officer makes an

order under sub-section (1) or subsection (3) of section 210" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Earlier, the italicised words were inserted by the Finance Act, 1978, w.e.f. 1-6-

4 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, clause (ii) read as under: "(ii) if the total income of the previous year on the basis of which tax has been paid by the assessee under section 140A forms the basis of computation of advance tax, the net agricultural income as returned by the assessee in the return of income for the assessment year relevant to that previous year;" 5 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, clause (b), as amended by the Finance Act, 1978, w.e.f. 1-6-1978, read as under: "(b) in cases where an estimate (including a revised estimate) is sent by the assessee under section 209A or section 212, the net agricultural income, as estimated by him, of the period which would be the previous year for the immediately following assessment year." ----------------------------------------------------------------------- 1.651 would be the previous year for the immediately following assessment year.]

(3) Where the Finance Act of the relevant year specifies any separate rate or rates for the purposes of computing advance tax in the case of every Hindu undivided family which has at least one member whose total income of the previous year exceeds the maximum amount not chargeable to income-tax in his case, then, the 1[Assessing] Officer

shall, for making an order under 2[sub-section (3) or sub-section (4) of] section 210 in the case of any such Hindu undivided family, compute (subject to the provisions of section 164) the advance tax at such rate or rates- (a) in a case where the total income of the latest previous year in respect of which the Hindu undivided family has been assessed by way of regular assessment forms the basis of computation of advance tax, if the total income of any member of the family for the assessment year relevant to such latest previous year exceeds the maximum amount not chargeable to income-tax in his case; (b) in a case where the total income of the previous year 3[in respect of which a return of income is furnished by the Hindu undivided family under section 139 or in response to a

notice under subsection (1) of section 142] forms the basis of computation of advance tax, if the total income of any member of the family for the assessment year relevant to such previous year exceeds the maximum amount not chargeable to income-tax in his case.] 4[209A. Computation and payment of advance tax by assessee.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. It was inserted by the Finance Act, 1978, w.e.f. 1-6-1978.] ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted, ibid. 3 Substituted for "on the basis of which tax has been paid by the Hindu undivided family under section 140A", ibid. 4 Prior to the omission, section 209A, as amended by the Finance Act, 1979, w.e.f. 1-4-1979 and the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980, read as under:

"209A. Computation and payment of advance tax by assessee.-(1) Every person shall, in each financial year, on or before the date on which the first instalment, or where he has not previously been assessed by way of regular assessment under this Act, on or before the date on which the last instalment, of advance tax is due in his case

under sub-section (1) of section 21 1, if his current income is likely

to exceed the amount specified in sub-section (2) of section 208, send to the Income-tax Officer- (a) where he has been previously assessed by way of regular assessment under this Act, a statement of advance tax payable by him computed in the manner laid down in clause (a) or, as the case may be, sub-clause (i) of clause (d) of sub-section

(1) of section 209, or (b) where he has not previously been assessed by way of regular assessment under this Act, an estimate of- (i) the current income, and (ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209, and shall pay such amount of advance tax.- (I) in a case falling under clause (a), as accords with the statement in equal instalments on the dates applicable in his case under section 21 1; and (II) in a case falling under clause (b), as accords with the estimate in ----------------------------------------------------------------------- 1.652 ---------------------------------------------------------------------- equal instalments on such of the dates applicable in his case as have not expired, or in one sum if only the last of such dates has not expired.

(2) Where an assessee who is required to send a statement under

clause (a) of subsection (1) estimates on or before the date on which the first instalment of advance tax is due in his case under sub-

section (1) of section 211 that, by reason of his current income being likely to be less than the income on which advance tax is payable by

him under sub-section (1) or for any other reason, the amount of advance tax computed in the manner laid down in section 209 on the current income would be less than the amount of advance tax payable by

him under sub-section (1), he may send to the Income-tax Officer, in lieu of such statement, an estimate of- (i) the current income, and (ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209, and shall pay such amount of advance tax as accords with his estimate in equal instalments on the dates applicable in his case under section 21 1.

(3) Where an assessee who has sent a statement under clause (a)

of sub-section (1) estimates on or before the date on which the last instalment of advance tax is due in his case that, by reason of his current income being likely to be less than the income on which

advance tax is payable by him under sub-section (1) or for any other reason, the amount of advance tax computed in the manner laid down in section 209 on the current income would be less than the amount of

advance tax payable by him under sub-section (1), he may, at his option, send to the Income-tax Officer an estimate of- (i) the current income, and (ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209, and shall pay such amount of advance tax as accords with his estimate in equal instalments on such of the dates applicable in his case under section 211 as have not expired, or in one sum if only the last of such dates has not expired.

(4) In the case of any assessee who is liable to pay advance tax

under sub-section (1) or sub-section (2) or, as the case may be, sub-

section (3), if, by reason of the current income being likely to be greater than the income on which the advance tax so payable by him has been computed or for any other reason, the amount of advance tax computed in the manner laid down in section 209 on the current income (which shall be estimated by the assessee) exceeds the amount of advance tax so payable by him by more than 33 1/3 per cent of the latter amount, he shall, on or before the date on which the last instalment of advance tax is payable by him, send to the Income-tax Officer an estimate (i) the current income, and (ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209, and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case under section 211 as have not expired, by instalments which may be revised according to sub-

section (5): Provided that in a case where the Commissioner is satisfied that, having regard to the nature of the business carried on by the assessee and the date of expiry of the previous year in respect of such business, it will be difficult for the assessee to furnish the estimate required to be furnished by him in accordance with the provisions of this sub-section on or before the date on which the last instalment of advance tax is due in his case, he may, if the assessee

pays the advance tax which he is liable to pay under subsection (1) or

sub-section (2) or, as the case may be, sub-section (3) on or before such date, extend the date for furnishing such estimate up to a period of thirty days immediately following the last date of the previous year in respect of that business and, where the date is so extended, the assessee shall pay, on or before the date as so extended, the amount by which the advance tax already paid by him falls short of the advance tax payable in accordance with his estimate: ---------------------------------------------------------------------- 1.653

Payment of advance tax by the assessee of his own accord or in pursuance of order of Assessing Officer. 1[210. Payment of advance tax by the assessee of his own accord or in pursuance of order of Assessing Officer

(1)Every person who is liable to pay advance tax under section 208 (whether or not he has been previously assessed by way of regular assessment) shall, of his own accord, pay, on or before each of the due dates specified in section 211, the appropriate percentage, specified in that section, of the advance tax on his current income, calculated in the manner laid down in section 209.

(2)A person who pays any instalment or instalments of advance tax

under sub-section (1), may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to accord with his estimate of his current income and the advance tax payable thereon, and make payment of the said amount in the remaining instalment or instalments accordingly.

(3) In the case of a person who has been already assessed by way of ----------------------------------------------------------------------- Provided further that in the case of an assessee, being a company, the provisions of this sub-section shall have effect as if for the figures and words "331/3 per cent, the figures and words "20 per cent' had been substituted.

(5) The assessee may send a revised estimate of the advance tax payable by him on or before any one of the dates specified in section 211 and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments.

(6)Every statement or estimate under this section shall be sent in the prescribed form and verified in the prescribed manner. Explanation.-For the purposes of this section and section 212, "Current income", in relation to the advance tax payable by an assessee during any financial year means the total income of the assessee [exclusive of capital gains and income referred to in sub-

clause (ix) of clause (24) of section 2, if any] of the period which would be the previous year for the assessment year immediately following that financial year." 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, Prior to the substitution, section 210, as amended by the Finance Act, 1963, w.e.f. 1-4-1963; Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964; Finance Act, 1969, w.e.f. 1-4-1969 and the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under:

"210. Order by Income-tax Officer--(1) Where a person has been previously assessed by way of regular assessment under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the Income-tax Officer may, on or after the 1st day of April in the financial year, by order in writing, require him to pay to the credit of the Central Government advance tax determined in accordance with the provisions of sections 207, 208 and 209.

(2) The notice of demand issued under section 156 in pursuance of such order shall specify the instalments in which the advance tax is payable under section 211.

(3) If, after the making of an order by the Income-tax Officer under this section and at any time before the date which is fifteen days prior to the date on which the last instalment of advance tax is

payable by the assessee under sub-section (1) of section 21 1, tax is paid by the assessee under section 140A or a regular assessment of the assessee (or of the registered firm of which he is a partner) is made in respect of a previous year later than that refer-red to in the order of the Income-tax Officer, the Income-tax Officer may make an amended order requiring the assessee to pay in one instalment on the specified date or in equal instalments on the specified dates, if more than one, falling after the date of the amended order, the advance tax computed on the basis of the total income on which tax has been paid under section 140A or in respect of which the regular assessment aforesaid has been made as reduced by the amount, if any, paid in accordance with the original order." ----------------------------------------------------------------------- 1.654 regular assessment in respect of the total income of any previous year

and who has not paid any advance tax under sub-section (1), the Assessing Officer, if he is of opinion that such person is liable to pay advance tax, may, at any time during the financial year but not later than the last day of February, by order in writing, require such person to pay advance tax calculated in the manner laid down in section 209, and issue to such person a notice of demand under section 156 specifying the instalment or instalments in which such tax is to be paid.

(4) If, after the making of an order by the Assessing Officer

under sub-section (3) and at any time before the 1st day of March, a return of income is furnished by the assessee under section 139 or in

response to a notice under sub-section (1) of section 142, or a regular assessment of the assessee is made in respect of a previous

year later than that referred to in sub-section (3), the Assessing Officer may make an amended order and issue to such assessee a notice of demand under section 156 requiring the assessee to pay, on or before the due date or each of the due dates specified in section 211 falling after the date of the amended order, the appropriate percentage, specified in section 211, of the advance tax computed on the basis of the total income declared in such return or in respect of which the regular assessment aforesaid has been made.

(5) A person who is served with an order of the Assessing

Officer under sub-section (3) or an amended order under sub-section

(4) may, if in his estimation the advance tax payable on his current income would be less than the amount of the advance tax specified in such order or amended order, send an intimation in the prescribed form' to the Assessing Officer to that effect and pay such advance tax as accords with his estimate, calculated in the manner laid down in section 209, at the appropriate percentage thereof specified in section 211, on or before the due date or each of the due dates specified in section 211 falling after the date of such intimation.

(6) A person who is served with an order of the Assessing

Officer under sub-section (3) or amended order under sub-section (4) shall, if in his estimation the advance tax payable on his current income would exceed the amount of advance tax specified in such order

or amended order or intimated by him under sub-section (5), pay on or before the due date of the last instalment specified in section 211, the appropriate part or, as the case may be, the whole of such higher amount of advance tax as accords with his estimate, calculated in the manner laid down in section 209.]

Instalments of advance tax and due dates. 2[211. Instalments of advance tax and due dates --------------------------------------------------------------------- 2 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 21 1, as amended by the Finance Act, 1969, w.e.f. 1-4-1969; Finance Act, 1972, w.e.f. 1-4-1972 and the Finance Act, 1978, w.e.f. 1-6-1978, read as under:

"Instalments of advance tax.-(1) Subject to the provisions of this section and of sections 209A and 212, advance tax shall be payable in three equal instalments on the following dates during the financial year, namely:- (i) the 15th day of June, the 15th day of September and the 15th day of December, in the case of an assessee whose total income to the extent of 75 per cent -> -> ------------------------------------------------------------------------ 1.655 down in section 209 shall be payable by- (a) all the companies, who are liable to pay the same, in four instalments during each financial year and the due date of each instalment and the amount of such instalment shall be as specified in Table I below: ---------------------------------------------------------------------- -> -> thereof, or more is derived from a source or sources for which the previous year (relevant to the assessment year next following the financial year aforesaid) ends on or before the 31st day of December; (ii) the 15th day of September, the 15th day of December and the 15th day of March, in any other case: Provided that in respect of any class of assessees referred to in clause (i), the Board may, having regard to the nature of dealings in the business carried on by such assessees, the method of accounting followed by them and other relevant factors, authorise, by notification in the Official Gazette and subject to such conditions as may be specified therein, the payment of the last instalment of the advance tax on the 15th day of March during the financial year, instead of on the 15th day of December. Explanation.-In this sub-section, "total income" means- (a) in a case where the advance tax is paid by the assessee in accordance with the statement sent by him\ under sub-

section (1) of section 209A or in accordance with an order of the Income-tax Officer under section 210, the total income with reference to which the advance tax payable has been calculated in such statement or order; (b) in a case where the advance tax is paid in accordance with an estimate (including a revised estimate) made by the assessee under section 209A or section 212, the total income with reference to which the advance tax is so estimated, as reduced, in either case, by the amount of capital gain and income

referred to in subclause (ix) of clause (24) of section 2, if any, included therein.

(2) If the notice of demand issued under section 156 in pursuance of the order under section 210 is served after any of the dates on which the instalments specified therein are payable the advance tax shall be payable in equal instalments on each of such of those dates as fall after the date of the service of the notice of demand, or in one sum on the 15th day of March, if the notice is served after the 15th day of December." 3 Substituted by the Finance Act, 1994,w.e.f. 1-4-1994. Prior to

the substitution, sub-section (1) read as under:

"(1) Advance tax on the current income,, calculated in the manner laid down in section 209 shall be payable by all the assessees who are liable to pay the same in three instalments during each financial year, the due date of, and amount payable in, each such instalment being as specified in the following Table: Table ---------------------------------------------------------------------- Due date of instalment Amount payable ---------------------------------------------------------------------- On or before the 15th September Not less than *[thirty] per cent of such advanced tax. On or before the 15th December Not less than [sixty] per cent of such advance tax, as reduced by the the amount or amounts, if any, paid in the earlier instalment. On or before the 15th March The whole amount of such advance tax as reduced earlier instalment or instalments; ----------------------------------------------------------------------- Provided that any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day for all the purposes of this Act." * Substituted for "twenty" by the Finance Act, 1992, w.e.f.1-4-

Estimate by assessee. 1[212. Estimate by assessee.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1988.] ----------------------------------------------------------------------- 1 Prior to the omission, section 212, as amended by the Finance Act, 1969, w.e.f. 1-4-1969; Finance Act, 1970, w.e.f. 1-4-1970; Finance Act, 1972, w.e.f. 1-4-1972; Finance Act, 1978, w.e.f. 1-6- 1978; Finance Act, 1979, w.e.f. 1-4-1979 and Finance (No. 2) Act, 1980, w.e.f. 1-9-1980, read as under:

"212. Estimate by assessee.-(1) If any assessee who is required to pay advance tax by an order under section 210 estimates on or before the date on which the last instalment of advance tax is due in his case that, by reason of his current income being likely to be less than the income on which the advance tax payable by him under section 210 has been computed or for any other reason, the advance tax payable by him would be less than the amount which he is so required to pay, he may, at his option, send to the Income-tax Officer an estimate of- (i) the current income, and (ii) the advance tax payable by him on the cur-rent income calculated in the manner laid down in section 209, and shall pay such amount of advance tax as accords with his estimate in equal instalments on such of the dates applicable in his case under section 211 as have not expired, or in one sum if only the last of such dates has not expired.

(2) The assessee may send a revised estimate of the advance tax payable by him on or before any one of the dates specified in section 211 and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments

[(3) ***]

section (2): Provided that in a case where the Commissioner is satisfied that, having regard to the nature of the business carried on by the assessee and the date of expiry of the previous year in respect of such business, it will be difficult for the assessee to furnish the estimate required to be furnished by him in accordance with the provisions of this sub-section on or before the date on which the last instalment of advance tax is due in his case, he may, if the assessee pays the advance tax demanded from him under section 210 before such date, extend the date for furnishing such estimate up to a period of thirty days immediately following the last date of the previous year in respect of that business, and where the date is so extended, the assessee shall pay, on or before the date as so extended, the amount by which the amount of advance tax already paid by him falls short of the advance tax payable in accordance with his estimate: Provided further that in the case of an assessee, being a company, the provisions of this sub-section shall have effect as if for the figures and words '331/3 per cent', the figures and words 20 per cent' had been substituted.

(4) Every estimate under this section shall be sent in the prescribed form and verified in the prescribed manner." ------------------------------------------------------------------------ 1.658

Commission receipts. 1[213. Commission receipts.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.]

Interest payable by Government 2. 214. Interest payable by Government2

3(1) The Central Government shall pay simple interest at 4[fifteen] per cent per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the 5[assessed tax] from the 1st day of April, next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year during which it is payable by reason of the provisions of section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment: 6 [Provided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment.] ---------------------------------------------------------------------- 1 Prior to the omission, section 213, as amended by the Finance Act, 1965, w.e.f. 1-4-1965; Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967; Finance Act, 1969, w.e.f. 1-4-1969; Finance Act, 1972, w.e.f. 1-4-1972 and the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984, read as under: "213 Commission receipts.-Where part of the income subject to advance tax consists of any income of the nature of commission which is receivable periodically and is not received or adjusted by the payer in the assessee's account before any of the instalments of advance tax become due, he may defer payment of advance tax on that part of his income to the date on which such income would be normally received or adjusted, and, if he does so, he shall communicate to the Income-tax Officer the date to which such payment is deferred: Provided that, if the advance tax of which the payment is deferred is not paid within fifteen days of the date on which such income or part thereof is received or adjusted by the payer in the assessee's account, the advance tax shall be payable with fifteen per cent simple interest per annum from the date of such receipt or adjustment to the date of payment of the advance tax." 4 Substituted for 'twelve' by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for "nine" by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. 5 Substituted for "tax determined on regular assessment" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985. 6 Inserted by the Finance Act, 1968, w.e.f. 1-4-1968. ----------------------------------------------------------------------- 1.659 1[(1A) Where as a result of an order under section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 2[or an order of the

Settlement Commission under sub-section (4) of section 245D], the

amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the 3[Assessing] Officer shall serve on the assessee, a notice of demand in the prescribed form specifying the amount of the excess interest payable and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly.]

(2) On any portion of such amount which is refunded under this Chapter, interest shall be payable only up to the date on which the refund was made.

4[ (3) This section and sections 215, 216 and 217 shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989, or any subsequent assessment year and, in the application of the said sections to the assessment for any earlier assessment year, references therein [except in sub-section (1A) and

sub-section (3) of section 215] to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.] 5[Explanation 1.- In this section, "assessed tax" small have the

same meaning as in sub-section (5) of section 215. Explanation 2.-Where, in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section.] 1 Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1- 4-1985. Prior to the substitution, sub-section (]A), as inserted by the Finance Act, 1968, w.e.f. 1-4-1968, read as under: "(]A) Where on completion of the regular assessment the amount on

which interest was paid under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly." 2 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted, ibid, w.e.f. 1-4-1989. 5 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

1.660

Interest payable by assessee 1. 215. Interest payable by assessee 1

2[(1) 3Where, in any financial year, an assessee has paid 4[advance tax under section 209A or section 212 on the basis of his own estimate (including revised estimate)], and the advance tax so paid is less than seventy-five per cent of the assessed tax, simple interest at the rate of 5[fifteen] per cent per annum from the 1st day of April, next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax:] 6[Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect as if for the words "seventy-five per cent", the words "eighty-three and one-third per cent" had been substituted.]

7[(2) Where before the date of completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise,- (i) interest shall be calculated in accordance with the foregoing provision up to the date on which the tax is so paid; and (ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax as so paid (in so far as it relates to income subject to advance tax) falls short of the assessed tax.]

8[(3) Where as a result of an order under section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 9[or an order of the

Settlement Commission under sub-section (4) of section 245D], the

amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- ------------------------------------------------------------------------ 2 Substituted by the Finance Act, 1969, w.e.f. 1-4-1970. 4 Substituted for 'advance tax under section 212 on the basis of his own estimate, by the Finance Act, 1978, w.e.f. 1-6-1978. 5 Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for 'nine' by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. 6 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. 7 Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-

4-1971. Earlier, subsection (2) substituted by the Finance Act, 1963, w.e.f. 1-4-1963 and amended by the Finance Act, 1969, w.e.f. 1-4-1970. 8 Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-

4-1985. Prior to the substitution, sub-section (3) read as under:

"(3) Where as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 264, the amount on which interest was payable under this section has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded." 9 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.661 (i) in a case where the interest is increased, the 1[Assessing] Officer shall serve on the assessee, a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.]

2 (4)In such cases and under such circumstances as may be prescribed, the 3[Assessing] Officer may reduce or waive the interest payable by the assessee under this section.

4[ (5) In this section and sections 217 and 273, "assessed tax", means the tax determined on the basis of the regular assessment (reduced by the amount of tax deductible in accordance with the provisions of sections 192 to 194, section 194A 5[, section 194C] 6[, section 194D] 7[, section 195 and section 196A)] so far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made.]

8[(6) Where, in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section and sections 216, 217 and 273.]

Interest payable by assessee in case of under-estimate, etc. 9. 216. Interest payable by assessee in case of under-estimate, etc.9 Where, on making the regular assessment, the 10[Assessing] Officer finds that any assessee has- ---------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance Act, 1969, w.e.f. 1-4-1970. 5 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 6 Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 7 Substituted for "and section 195" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 8 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

10 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.662 1[(a) under 2[section 209A or section 212) under-estimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments; or] (b) under section 213 wrongly deferred the payment of advance tax on a part of his income; he may direct that the assessee shall pay simple interest at 3[fifteen] per cent per annum- (i) in the case referred to in clause (a), for the period during which the payment was deficient, on the difference between the amount paid in each such instalment and the amount which should have been paid, having regard to the aggregate advance tax actually paid during the year; and (ii) in the case referred to in clause (b), for the period during which the payment of advance tax was so deferred. Explanation.-For the purposes of this section, any instalment due before the expiry of six months from the commencement of the previous year in respect of which it is to be paid shall be deemed to have become due fifteen days after the expiry of the said six month.

Interest payable by assessee when no estimate made 4. 217. Interest payable by assessee when no estimate made 4

5[(1) Where, on making the regular assessment , 6[the 7[Assessing] Officer finds- (a) that any such person as is referred to in clause (a) of sub-section 209A has not sent the statement referred to in that clause or the estimate in lieu of such statement

referred to in sub-section (2) of that section; or (b) that any such person as is referred to in clause (b) of

sub-section (1)of section 209A has not sent the estimate referred to in that clause,] ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1969, w.e.f. 1-4-1970.

2 Substituted for 'sub-section (1) or sub-section (2) or sub-

section, (3) or sub-section (3A) of section 212' by the Finance Act, 1978, w.e.f. 1-6-1978. 3 Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, 'twelve' was substituted for 'nine' by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for 'six' by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. 5 Substituted by the Finance Act, 1969, w.e.f. 1-4-1970. 6 Substituted for 'the income-tax officer finds that any such

person as is referred to in sub-section (3) of section 212 has not sent the estimate referred to therein' by the Finance Act, 1978, w.e.f. 1-6-1978. 7 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.663 simple interest at the rate of 1[fifteen] per cent per annum from the 1st day of April next following the financial year in which the

advance tax was payable in accordance with the said 2[sub-section (1)

or sub-section (2)] up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as

defined in sub-section (5) of section 215.] 3[(1A) Where, on making the regular assessment, the 4[Assessing] Officer finds that 5[any person who is required to send an estimate

under sub-section (4) of section 209A or] any such person as is referred to in sub-section (3A) of section 212 has not sent the estimate referred to therein, simple interest at the rate of 6[fifteen] per cent per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance

with the said 7[sub-section (4) or, as the case may be, sub-section (3A)] up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax paid by him falls

short of the assessed tax as defined in sub-section (5) of section 215.]

(2) The provisions of sub-sections (2), (3) and (4) of section 215 shall apply to interest payable under this section as they apply to interest payable under that section.

When assessee deemed to be in default. 8[218. When assessee deemed to be in default If any assessee does not pay on the date specified in sub-section

(1) of ----------------------------------------------------------------------- 1 Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, 'twelve' was substituted for 'nine' by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. 2 Substituted for "sub-section' by the Finance Act, 1978, w.e.f. 1- 6-1978. 3 Inserted by the Finance Act, 1969, w.e.f. 1-4-1970. 4 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1978, w.e.f. 1-6-1978. 6 Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for "nine" by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. 7 Substituted for "sub-section" by the Finance Act, 1978, w.e.f. 1- 6-1978. 8 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, section 218, as substituted by the Finance Act, 1978, w.e.f. 1-6-1978 and amended by the Finance Act, 1979, w.e.f. 1-4-1979, read as under:

8[218. When assessee deemed to be in default.-(1) If any assessee has sent,-

(a) under sub-section (1) of section 209A, a statement, or (b) under section 209A or section 212, an estimate or a revised estimate, of the advance tax payable by him, but does not pay any instalment in accordance therewith on the date or dates specified in section 211, he shall be deemed to be an assessee in default in respect of such instalment or instalments.

(2) If any assessee does not pay on the specified date any instalment of advance tax that he is required to pay under section 210 and does not, on or before the date on which any such instalment as is

not paid becomes due, send under sub-section (1) -> -> ----------------------------------------------------------------------- 1.664 section 21 1, any instalment of advance tax that he is required to pay

by an order of the Assessing Officer under sub-section (3) or sub-

section (4) of section 210 and does not, on or before the date on which any such instalment as is not paid becomes due, send to the

Assessing Officer an intimation under sub-section (5) of section 210 or does not pay on the basis of his estimate of his cur-rent income

the advance tax payable by him under sub-section (6) of section 210, he shall be deemed to be an assessee in default in respect of such instalment or instalments.]

Credit for advance tax. 219. Credit for advance tax Any sum, other than a penalty or interest, paid by or recovered from an assessee as advance tax in pursuance of this Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit therefor shall be given to the assessee in the regular assessment: 1[Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1989.] D.-Collection and recovery

When tax payable and when assessee deemed in default 2. 220. When tax payable and when assessee deemed in default2

(1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 shall be paid within 3[thirty] days of the service of the notice at the place and to the person mentioned in the notice: Provided that, where the 4[Assessing] Officer has any reason to believe that it will be detrimental to revenue if the full period of 5[thirty] days aforesaid is allowed, he may, with the previous approval of the 6[Deputy] Commissioner, direct that the sum specified in the notice of ----------------------------------------------------------------------

-> -> or sub-section (2) of section 212 an estimate or a revised estimate of the advance tax payable by him, he shall be deemed to be an assessee in default in respect of such instalment or instalments.

(3) Notwithstanding anything contained in sub-section (1) or

sub-section (2), an assessee shall not be deemed to be in default in respect of any amount of which the payment is deferred under section 213 until after the date communicated by him to the income-tax Officer under that section." 1 Prior to the omission, the proviso, as inserted by the Finance Act, 1968, w.e.f. 1-4-1968, read as under: "Provided that where, before the completion of the regular assessment, a provisional assessment is made under section 141A, the credit shall be given also in such provisional assessment." 3 Substituted for 'thirty-five' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 4 Substituted for 'Income-tax', ibid, w.e.f. 1-4-1988. 5 Substituted for "thirty-five", ibid, w.e.f. 1-4-1989. 6 Substituted for 'Inspecting Assistant', ibid, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.665 demand shall be paid within such period being a period less than the period of 1[thirty] days aforesaid, as may be specified by him in the notice of demand.

2(2) If the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section

(1), the assessee shall be liable to pay simple interest at 3[one and one-half per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the

period mentioned in sub-section (1) and ending with the day on which the amount is paid:] 4[Provided that, where as a result of an order under section 154, or section 155, or section 250, or section 254, or section 260, or section 262, or section 264 5[or an order of the Settlement

Commission under sub-section (4) of section 245D], the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded:] 6[Provided further that in respect of any period commencing on or before the 31st day of March, 1989, and ending after that date, such interest shall, in respect of so much of such period as falls after that date, be calculated at the rate of one and one-half per cent for every month or part of a month.]

7[(2A) Notwithstanding anything contained in sub-section (2), 8[the 9[Chief Commissioner or Commissioner] may] reduce or waive the amount of interest 10[paid or] payable by an assessee under the said sub-section if 11[he is satisfied] that- (i) payment of such amount 12[has caused or] would cause genuine hardship to the assessee; (ii) default in the payment of the amount on which interest 13 [has been paid or] was payable under the said sub-section was due to circumstances beyond the control of the assessee; and (iii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.] ----------------------------------------------------------------------- 1 Substituted for thirty-five" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Substituted for 'fifteen per cent per annum from the day

commencing after the end of the period mentioned in sub-section (1)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 4 Inserted by the Finance Act, 1963, w.r.e.f. 1-4-1962. 5 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 6 Ibid. 7 Inserted by the Taxation Law (Amendment) Act, 1984, w.e.f.1-10-1984. 8 Substituted for the Board may' by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1987. 9 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.r.e.f. 1-10-1984. 11 Substituted for ", on the recommendation made by the Commissioner in this behalf, it is satisfied', ibid, w.e.f. 1-4-1987. 12 Inserted, ibid, w.r.e.f. 1-10-1984. 13 Ibid. ------------------------------------------------------------------------ 1.666

(3) Without prejudice to the provisions contained in sub-section

(2), on an application made by the assessee before the expiry of the

due date under sub-section (1), the 1[Assessing] Officer may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case.

(4) If the amount is not paid within the time limited under sub-

section (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default.

(5) If, in a case where payment by instalments is allowed under

subsection (3), the assessee commits default in paying any one of the instalments within the time fixed under that sub-section, the assessee shall be deemed to be in default as to the whole of the amount then outstanding, and the other instalment or instalments shall be deemed to have been due on the same date as the instalment actually in default.

(6) Where an assessee has presented an appeal under section 246, the 2[Assessing] Officer may, in his discretion, and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of.

(7) Where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or restrict the remittance of money to India, the 3[Assessing] Officer shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount of his income which, by reason of such prohibition or restriction, cannot be brought into India, and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed. Explanation.-For the purposes of this section, income shall be deemed to have been brought into India if it has been utilised or could have been utilised for the purposes of any expenditure actually incurred by the assessee outside India or if the income, whether capitalised or not, has been brought into India in any for.

Penalty payable when tax in default 1. 221. Penalty payable when tax in default1

2 [(1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-

section (2) of section 220, be liable, by way of penalty, to pay such amount as the 3[Assessing] Officer may direct, and in the case of a continuing default, such further amount or amounts as the 4 4[Assessing] Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears: Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard: 5[Provided further that where the assessee proves to the satisfaction of the 6[Assessing] Officer that the default was for good and sufficient reasons, no penalty shall be levied under this section.] 7[Explanation.-For the removal of doubt, it is hereby declared that an assessee shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty he has paid the tax.]

(2)Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded. ------------------------------------------------------------------ 2 Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1- 4-1971. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Ibid. 5 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. Prior to the substitution,

the second proviso substituted as a part of sub-section (1) by the Taxation Laws (Amendment) Act, 1970, read as under: " Provided further that where the Income-tax Officer is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under this section." 6 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

Certificate to Tax Recovery Officer 1. 222. Certificate to Tax Recovery Officer1

2[(1) When an assessee is in default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may draw up under his signature a statement in the prescribed form3 specifying the amount of arrears due from the assessee (such statement being hereafter in this Chapter and in the Second Schedule referred to as "certificate") and shall proceed to recover from such assessee the amount specified in the certificate by one or more of the modes mentioned below, in accordance with the rules laid down in the Second Schedule-] (a) attachment and sale of the assessee's movable property; (b) attachment and sale of the assessee's immovable property; (c) arrest of the assessee and his detention in prison; (d) appointing a receiver for the management of the assessee's movable and immovable properties. 4[Explanation.-For the purposes of this sub-section, the assessee's movable or immovable property shall include any property which has been transferred, directly or indirectly on or after the 1st day of June, 1973, by the assessee to his spouse or minor child or son's wife or son's minor child, otherwise than for adequate consideration, and which is held by, or stands in the name of, any of the persons aforesaid; and so far as the movable or immovable property so transferred to his minor child or his son's minor child is concerned, it shall, even after the date of attainment of majority by such minor child or son's minor child, as the case may be, continue to be included in the assessee's movable or immovable property for recovering any arrears due from the assessee in respect of any period prior to such date.]

5[(2) The Tax Recovery Officer may take action under sub-section

(1), ----------------------------------------------------------------------- 2 Substituted for 'When an assessee is in default or is deemed to be in default in making a payment of tax, the Assessing Officer may forward to the Tax Recovery Officer a certificate under his signature specifying the amount of arrears due from the assessee, and the Tax Recovery Officer on receipt of such certificate, shall proceed to recover from such assessee the amount specified therein by one or more of the modes mentioned below, in accordance with the rules laid down in the Second Schedule-' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. The italicised word was substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 4 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

5 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (2) read as under:

"(2) The Assessing Officer may issue a certificate under sub-

section (1) notwithstanding that proceedings for recovery of the arrears by any other mode have been taken." The italicised word was substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.669 notwithstanding that proceedings for recovery of the arrears by any other mode have been taken.]

Tax Recovery Officer by whom recovery is to be effected. 1[223. Tax Recovery Officer by whom recovery is to be effected

(1) The Tax Recovery Officer competent to take action under section 222 shall be- (a) the Tax Recovery Officer within whose jurisdiction the assessee carries on his business or profession or within whose jurisdiction the principal place of his business or profession is situate, or (b) the Tax Recovery Officer within whose jurisdiction the assessee resides or any movable or immovable property of the assessee is situate, the jurisdiction for this purpose being the jurisdiction assigned to the Tax Recovery Officer under the orders or directions issued by the Board, or by the Chief Commissioner or Commissioner who is authorised in this behalf by the Board in pursuance of section 120.

(2) Where an assessee has property within the jurisdiction of more than one Tax Recovery Officer and the Tax Recovery Officer by whom the certificate is drawn up- (a) is not able to recover the entire amount by sale of the property, movable or immovable within his jurisdiction, or (b) is of the opinion that, for the purpose of expediting or securing the recovery of the whole or any part of the amount under this Chapter, it is necessary so to do, he may send the certificate or, where only a part of the amount is to be recovered, a copy of the certificate certified in the prescribed manner 2 ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (2), as amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975 and the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988, read as under: " 223. Tax Recovery Officer to whom certificate is to be

issued.-(1) The Assessing Officer may forward the certificate referred to in section 222 to- (a) the Tax Recovery Officer within whose jurisdiction the assessee carries on his business or profession or within whose jurisdiction the principal place of his business or profession is situate; or (b) the Tax Recovery Officer within whose jurisdiction the assessee resides or any movable or immovable property of the assessee is situate.

(2) Where an assessee has property within the jurisdiction of more than one Tax Recovery Officer and the Tax Recovery Officer to whom a certificate is sent by an Assessing Officer- (a) is not able to recover the entire amount by the sale of the property, movable or immovable, within his jurisdiction; or (b) is of the opinion that, for the purpose of expediting or securing the recovery of the whole or any part of the amount under this Chapter, it is necessary so to do, he may send the certificate or, where only a part of the amount is to be recovered, a copy of the certificate certified in the prescribed manner and specifying, the amount to be recovered to a Tax Recovery Officer within whose jurisdiction the assessee resides or has property, and thereupon that Tax Recovery Officer shall also proceed to recover the amount under this Chapter as if the certificate or the copy thereof had been the certificate sent to him by the Assessing Officer." The italicised word was substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.670 and specifying the amount to be recovered to a Tax Recovery Officer within whose jurisdiction the assessee resides or has property and, thereupon, that Tax Recovery Officer shall also proceed to recover the amount under this Chapter as if the certificate or copy thereof had been drawn up by him.] It shall not be open to the assessee to dispute the correctness of any certificate drawn up by the Tax Recovery Officer on any ground whatsoever, but it shall be lawful for the Tax Recovery Officer to cancel :he certificate if, for any reason, he thinks it necessary so to do, or to correct any clerical or arithmetical mistake therein.]

Stay of proceedings in pursuance of certificate and amendment or cancellation thereof. 2 [225. Stay of proceedings in pursuance of certificate and amendment or cancellation thereof

(1) It shall be lawful for the Tax Recovery Officer to grant time for ----------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 224, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988, read as under: "224. Validity of certificate, and amendment thereof.-(I) When the Assessing Officer sends a certificate to a Tax Recovery Officer under section 222, it shall not be open to the assessee to dispute before the Tax Recovery Officer the correctness of the assessment, and no objection to the certificate on any ground shall be entertained by the Tax Recovery Officer.

(2) Notwithstanding the issue of a certificate to a Tax Recovery Officer, the Assessing Officer shall have power to withdraw or correct any clerical or arithmetical mistake in the certificate by sending an intimation to the Tax Recovery Officer.

(3) The Assessing Officer shall intimate to the Tax Recovery Officer any orders withdrawing or cancelling a certificate or any

correction made by him under sub-section (2) of this section or any

amendment made under sub-section (4) of section 225." The italicised word was substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 2 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 225, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988, read as under: "225. Stay of proceedings under certificate and amendment or withdrawal thereof.-

(1) Notwithstanding that a certificate has been issued to the Tax Recovery Officer for the recovery of any tax, the Assessing Officer may grant time for the payment of the tax, and thereupon the Tax Recovery Officer shall stay the proceedings until the expiry of the time so granted.

(2) Where a certificate for the recovery of tax has been issued, the Assessing Officer shall keep the Tax Recovery Officer informed of any tax paid or time granted for payment, subsequent to the issue of such certificate.

(3) Where the order giving rise to a demand of tax for which a certificate for recovery has been issued has been modified in appeal or other proceeding under this Act, and as a consequence thereof, the demand is reduced but the order is the subject-matter of further proceeding under this Act, the Assessing Officer shall stay the recovery of such part of the amount of the certificate as pertains to the said reduction for the period for which the appeal or other proceeding remains pending.

(4) Where a certificate for the recovery of tax has been issued and subsequently the amount of the outstanding demand is reduced as a result of an appeal or other proceeding under this Act, the Assessing Officer shall, when the order which was the subject-matter of such appeal or other proceeding has become final and conclusive, amend the certificate or withdraw it, as the case may be." The italicised word was substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.671 the payment of any tax and when he does so, he shall stay the proceedings for the recovery of such tax until the expiry of the time so granted.

(2) Where the order giving rise to a demand of tax for which a certificate has been drawn up is modified in appeal or other proceeding under this Act, and, as a consequence thereof, the demand is reduced but the order is the subject-matter of further proceeding under this Act, the Tax Recovery Officer shall stay the recovery of such part of the amount specified in the certificate as pertains to the said reduction for the period for which the appeal or other proceeding remains pending.

(3) Where a certificate has been drawn up and subsequently the amount of the outstanding demand is reduced as a result of an appeal or other proceeding under this Act, the Tax Recovery Officer shall, when the order which was the subject-matter of such appeal or other proceeding has become final and conclusive, amend the certificate, or cancel it, as the case may be.]

Other modes of recovery. 226. Other modes of recovery

1[(1) Where no certificate has been drawn up under section 222, the Assessing Officer may recover the tax by any one or more of the modes provided in this section. (1A) Where a certificate has been drawn up under section 222, the Tax Recovery Officer may, without prejudice to the modes of recovery specified in that section, recover the tax by any one or more of the modes provided in this section.]

(2) If any assessee is in receipt of any income chargeable under the head "Salaries", the 2[Assessing] Officer 3[or Tax Recovery Officer] may require any person paying the same to deduct from any payment subsequent to the date of such requisition any arrears of tax due from such assessee, and such person shall comply with any such requisition and shall pay the sum so deducted to the credit of the Central Government or as the Board directs: Provided that any part of the salary exempt from attachment in execution of a decree of a civil court under section 60 of the Code of Civil Procedure, 1908 (5 of 1908), shall be exempt from any requisition made under this sub-section.

(3) (i) The 4 [Assessing) Officer 5[or Tax Recovery Officer] may, at any time or from time to time, by notice in writing require any person ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (1), as amended by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988, read as under:

"(1) Notwithstanding the issue of a certificate to the Tax Recovery Officer under section 222, the Assessing Officer may recover the tax by any one or more of the modes provided in this section." The italicised word was substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 3 Inserted, ibid, w.e.f. 1-4-1989. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 5 Inserted, ibid, w.e.f. 1-4-1989. ------------------------------------------------------------------------ 1.672 from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee, to pay to the 1[Assessing] Officer 2[or Tax Recovery Officer] either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the assessee in respect of arrears or the whole of the money when it is equal to or less than that amount. (ii)A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the assessee jointly with any other person and for the purposes of this sub-section, the shares of the joint holders in such account shall be presumed, until the contrary is proved, to be equal. (iii)A copy of the notice shall be forwarded to the assessee at his last address known to the 3[Assessing] Officer 4[or Tax Recovery Officer], and in the case of a joint account to all the joint holders at their last addresses known to the 5[Assessing] Officer 6[or Tax Recovery Officer]. (iv)Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section, shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary. (v)Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi)Where a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or any part thereof is not due to the assessee or that he does not hold any money for or on account of the assessee, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the 7[Assessing] Officer 8[or Tax Recovery Officer] to the extent of his own liability to the assessee on the date of the notice or to the extent of the assessee's liability for any sum due under this Act, whichever is less. ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 2 Inserted, ibid, w.e.f. 1-4-1989. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 4 Inserted, ibid, w.e.f. 1-4-1989. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 6 Inserted, ibid, w.e.f. 1-4-1989. 7 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 8 Inserted, ibid, w.e.f. 1-4-1989. ------------------------------------------------------------------------ 1.673 (vii) The 1[Assessing] Officer 2[or Tax Recovery Officer] may, at any time or from time to time, amend or revoke any notice issued under this sub-section or extend the time for making any payment in pursuance of such notice. (viii)The 3[Assessing] Officer 4[or Tax Recovery Officer] shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the assessee to the extent of the amount so paid. (ix)Any person discharging any liability to the assessee after receipt of a notice under this sub-section shall be personally liable to the 5[Assessing] Officer 6[or Tax Recovery Officer] to the extent of his own liability to the assessee so discharged or to the extent of the assessee's liability for any sum due under this Act, whichever is less. (x)If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the 7[Assessing] Officer 8[or Tax Recovery Officer], he shall be deemed to be an assessee in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as if it were an arrear of tax due from him, in the manner provided in sections 222 to 225 and the notice shall have the same effect as an attachment of a debt by the Tax Recovery Officer in exercise of his powers under section 222.

(4)The 9[Assessing] Officer 10[or Tax Recovery Officer] may apply to the court in whose custody there is money belonging to the assessee for payment to him of the entire amount of such money, or, if it is more than the tax due, an amount sufficient to discharge the tax.

11[(5) The 12[Assessing] Officer 13[or Tax Recovery Officer] may, if so authorised by the 14[Chief Commissioner or Commissioner] by general or special order, recover any arrears of tax due from an assessee by distraint and sale of his movable property in the manner laid down in the Third Schedule.] ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 2 Inserted, ibid, w.e.f. 1-4-1989. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 4 Inserted, ibid, w.e.f. 1-4-1989. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 6 Inserted, ibid, w.e.f. 1-4-1989. 7 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 8 Inserted, ibid, w.e.f. 1-4-1989. 9 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 10 Inserted, ibid, w.e.f. 1-4-1989. 11 Substituted by the Finance Act, 1965, w.e.f. 1-4-1965. 12 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 13 Inserted, ibid, w.e.f. 1-4-1989. 14 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.674

Recovery through State Government. 227. Recovery through State Government If the recovery of tax in any area has been entrusted to a State

Government under clause (1) of article 258 of the Constitution', the State Government may direct, with respect to that area or any part thereof, that tax shall be recovered therein with, and as an addition to, any municipal tax or local rate, by the same person and in the same manner as the municipal tax or local rate is recovered.

Recovery of Indian tax in Pakistan and Pakistani tax in India. 2[228. Recovery of Indian tax in Pakistan and Pakistani tax in India.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1989.] 3[228A. Recovery of tax in pursuance of agreements with foreign countries

(1)Where an agreement is entered into by the Central Government with the Government of any country outside India for recovery of incometax under this Act and the corresponding law in force in that country and the Government of that country or any authority under that Government which is specified in this behalf in such agreement sends to the Board a certificate for the recovery of any tax due under such corresponding law from a person having any property in India, the Board may forward such certificate to any Tax Recovery Officer within whose jurisdiction such property is situated and thereupon such Tax Recovery Officer shall- (a) proceed to recover the amount specified in the certificate in the manner in which he would proceed to recover the amount 4 [specified in a certificate drawn up by him under section 222]; and (b) remit any sum so recovered by him to the Board after deducting his expenses in connection with the recovery proceedings. ---------------------------------------------------------------------- 2 Prior to its omission, section 228, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988, read as under: "228. Recovery of Indian tax in Pakistan and Pakistani tax in

India.-(1) The Assessing Officer may forward a certificate under section 222 to a Collector in Pakistan through the Central Board of Revenue of Pakistan, if the assessee has property in the district of that Collector, and for the purposes of that section, the expression "Tax Recovery Officer" shall include a Collector in Pakistan.

(2) Where a Collector in India receives through the Board a certificate under the signature of an Assessing Officer in. Pakistan, the Collector shall proceed to recover the amount specified therein in the manner in which he would proceed to recover the amount specified in a certificate received from an Assessing Officer in India, and shall remit any sum so recovered by him to the Assessing Officer in Pakistan, after deducting his expenses in connection with the recovery proceedings.

(3) The provisions of this section shall remain in force only so long as there are in force similar provisions in the law of Pakistan for the recovery of tax by a Collector in Pakistan on receipt of a certificate from an Assessing Officer in India". (Amendment) Act, 1989, w.r.e.f. 1-4-1988 3 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 4 Substituted for "specified in a certificate received from an Assessing Officer" by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989. The italicised word was substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.675

1[(2) Where an assessee is in default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may, if the assessee has property in a country outside India (being a country with which the Central Government has entered into an agreement for the recovery of income-tax under this Act and the corresponding law in force in that country), forward to the Board a certificate drawn up by him under section 222 and the Board may take such action thereon as it may deem appropriate having regard to the terms of the agreement with such country.]

Recovery of penalties, fine, interest and other sums 2. 229. Recovery of penalties, fine, interest and other sums 2 Any sum imposed by way of interest, fine, penalty, or any other sum payable under the provisions of this Act, shall be recoverable in the manner provided in this Chapter for the recovery of arrears of tax.

Tax, clearance certificate 3. 230. Tax, clearance certificate3

(1) Subject to such exceptions as the Central Government may, by notification4 in the Official Gazette, specify in this behalf, 5[no person- (a) who is not domiciled in India; or (b) who is domiciled in India at the time of his departure, but- (ii) intends to proceed to another country on a work permit with the object of taking up any employment or other occupation in that country; or (iii) in respect of whom circumstances exist which in the opinion of an income-tax authority, render it necessary for him to obtain a certificate under this section, shall leave the territory of India] by land, sea or air unless he first ----------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, it read as under:

"(2) Notwithstanding the issue of a certificate under section 222 to the Tax Recovery Officer where an assessee is in default or is deemed to be in default in making a payment of tax, the Assessing Officer may, if the assessee has property in a country outside India (being a country with which the Central Government has entered into an agreement for the recovery of income-tax under this Act and the corresponding law in force in that country), forward to the Board a certificate specifying the amount of arrears due from the assessee and the Board may take such action thereon as it may deem appropriate having regard to the terms of the agreement with such country." The italicised word was substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 5 Substituted for "no person who is not domiciled in India, or who, even if domiciled in India at the time of his departure, has, in the opinion of an income-tax authority, no intention of returning to India, shall leave the territory of India" by the Direct Tax Laws (,Amendment) Act, 1987, w.e.f. 1-4-1989. ------------------------------------------------------------------------ 1.676 obtains from such authority as may be appointed' by the Central Government in this behalf (hereinafter in this section referred to as the "competent authority") a certificate stating that he has no liabilities under this Act, the Excess Profits Tax Act, 1940 (15 of 1940), the Business Profits Tax Act, 1947 (21 of 1947), the Indian Income-tax Act, 1922 (11 of 1922), the Wealth-tax Act, 1957 (27 of 1957), the Expenditure-tax Act, 1957 (29 of 1957) or the Gift-tax Act 1958 (18 of 1958), or that satisfactory arrangements have been made for the payment of all or any of such taxes which are or may become payable by that person: Provided that in the case of a person not domiciled in India the competent authority may, if it is satisfied that such person intends to return to India, issue an exemption certificate either in respect of a single journey or in respect of all journeys to be undertaken by that person within such period as may be specified in the certificate.

(2)If the owner or charterer of any ship or aircraft carrying persons from any place in the territory of India to any place outside

India allows any person to whom sub-section (1) applies to travel by such ship or aircraft without first satisfying himself that such person is in possession of a certificate as required by that sub- section, he shall be personally liable to pay the whole or any part of the amount of tax, if any, payable by such person as the 2[Assessing] Officer may, having regard to the circumstances of the case, determine.

(3)In respect of any sum payable by the owner or charterer of any

ship or aircraft under sub-section (2), the owner or charterer, as the case may be, shall be deemed to be an assessee in default for such sum, and such sum shall be recoverable from him in the manner provided in this Chapter as if it were an arrear of tax.

3 (4) The Board may make rules for regulating any matter necessary for, or incidental to, the purpose of carrying out the provisions of this section. Explanation.-For the purposes of this section, the expressions "owner" and "charterer" include any representative, agent or employee empowered by the owner or charterer to allow persons to travel by the ship or aircraft. 1[230A. Restrictions on registration of transfers of immovable property in certain cases2

(1)Notwithstanding anything contained in any other law for the time being in force, where any document required to be registered

under the provisions of clause (a) to clause (e) of sub-section (1) of section 17 of the Indian Registration Act, 1908 (16 of 1908), purports to transfer, assign, limit, or extinguish the right, title or interest of any person to or in any property 3[* * *] valued at more than 4[five lakh] rupees, no registering officer appointed under that Act shall register any such document, unless the 5[Assessing] Officer certifies that- (a) such person has either paid or made satisfactory provision for payment of all existing liabilities under this Act, the Excess Profits Tax Act, 1940 (15 of 1940), the Business Profits Tax Act, 1947 (21 of 1947), the Indian Income-tax Act, 1922 (11 of 1922), the Wealth-tax Act, 1957 (27 of 1957), the Expenditure Tax Act, 1957 (29 of 1957), 6[the Gift-tax Act, 1958 (18 of 1958), the Super Profits Tax Act, 1963 (14 of 1963), and the Companies (Profits) Surtax Act, 1964 (7 of 1964)], or (b) the registration of the document will not prejudicially affect the recovery of any existing liability under any of the aforesaid Acts.

7(2) The application for the certificate required under sub-

section (1) shall be made by the per-son referred to in that sub- section and shall be in such form and shall contain such particulars as may be prescribed.

8[(3) The provisions of sub-section (1) shall not apply in a case where the person referred to in that sub-section is any such institution, association or body, or belongs to any such class of institutions, associations or bodies, as the Board may, for reasons to be recorded in writing, notify in this behalf' in the Official Gazette.

Period for commencing recovery proceedings. 1[231. Period for commencing recovery proceedings.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

Recovery by suit or under other law not affected. 232. Recovery by suit or under other law not affected The several modes of recovery specified in this Chapter shall not affect in any way- (a) any other law for the time being in force relating to the recovery of debts due to Government; or (b) the right of the Government to institute a suit for the recovery of the arrears due from the assessee; and it shall be lawful for the 2[Assessing] Officer or the Government, as the case may be, to have recourse to any such law or suit, notwithstanding that the tax due is being recovered from the assessee by any mode specified in this Chapter. E.-Tax payable under provisional assessment

Recovery of tax payable under provisional assessment. [233. Recovery of tax payable under provisional assessment.- Omitted by the Taxation Laws (Amendment) Act, 1970, w.e.f 1-4-1971.] ---------------------------------------------------------------------- 1 Prior to the omission, section 231, as amended by the Taxation Laws (Amendment) Act, 1984, read as under: "231. Period for commencing recovery proceedings.-Save in

accordance with the provisions of section 173 or sub-section (7) of section 220, no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of three years from the last day of the financial year in which the demand is made, or, in the case of a person who is deemed to be an assessee in default under any provision of this Act, after the expiration of three years from the last day of the financial year in which the assessee is deemed to be in default. Explanation 1.-The period of three years referred to above shall be reckoned- (i) where an assessee has been treated as not being in

default under sub-section (6) of section 220, as long as his appeal is undisposed of, from the last day of the financial year in which the appeal is disposed of: (ii) where recovery proceedings in any case have been stayed by any order of a court, from the last day of the financial year in which the order is withdrawn; falls; (iv) where the sum payable is allowed to be paid by instalments, from the last day of the financial year in which the last of such instalments is due. Explanation 2.-A proceeding for the recovery of any sum shall be deemed to have commenced within the meaning of this section, if some action is taken to recover the whole or any part of the sum within the period hereinbefore referred to." 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.679

Tax paid by deduction or advance payment. 1[234. Tax paid by deduction or advance payment.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989.] 2[F.-Interest chargeable in certain cases] 3[234A. Interest for defaults in furnishing return of income

(1) Where the return of income for any assessment year under

subsection (1) or sub-section (4) of section 139, or in response to a

notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,- (a) where the return is furnished after the due date, ending on the date of furnishing of the return; or (b) where no return has been furnished, ending on the date of completion of the assessment under section 144, on the amount of 4[the tax on the total income as determined under

subsection (1) of section 143 or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source]. Explanation 1.-In this section, "due date" means the date

specified in sub-section (1) of section 139 as applicable in the case of the assessee. 5[Explanation 2.-In this sub-section, "tax on the total income as

determined under sub-section (1) of section 143" shall not include the additional income-tax, if any, payable under section 143.] Explanation 3.-Where, in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section. 6[Explanation 4.-In this sub-section, "tax on the total income as

determined under sub-section (1) of section 143 or on regular assessment" shall, for the purposes of computing the interest payable under section 140A, be deemed to be tax on total income as declared in the return.]

(2) The interest payable under sub-section (1) shall be reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section. ----------------------------------------------------------------------- 1 Prior to the omission, section 234, as amended by the Taxation Laws (Amendment) Act, 1970, w.r.e.f 1-4-1968/w.e.f. 1-4-1971, read as under: "234. Tax- paid by deduction or advance payment.-Tax paid or deemed to have been paid under the provisions of Chapter XVIIB or Chapter XVIIC in respect of any income provisionally assessed under section 141A shall be deemed to have been paid towards the provisional assessment." 2 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Ibid. 4 Substituted for "the tax on the total income as determined on regular assessment as reduced by the advance tax, if any, paid and any tax deducted at source" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 5 Substituted by the Direct Tax Laws (Amendment) Act, 1989,w.e.f. 1-4-1989. 6 Inserted, ibid. ------------------------------------------------------------------------ 1.680

(3) Where the return of income for any assessment year, required by a notice under section 148 issued 1[after the determination of

income under sub-section (1) of section 143 or] after the completion

of an assessment under sub-section (3) of section 143 or section 144 or section 147, is furnished after the expiry of the time allowed under such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of two per cent, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time allowed as aforesaid, and,- (a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or (b) where no return has been furnished, ending on the date of completion of the re-assessment or re-computation under section 147, on the amount by which the tax on the total income determined on the basis of such re-assessment or re-computation exceeds the tax on the

total income determined 2[under sub-section (1) of section 143 or] on the basis of the earlier assessment aforesaid. 3 (Explanation.-* * *]

(4) Where as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission

under subsection (4) of section 245D, the-amount of tax on which

interest was payable under sub-section (1) or-sub-section (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- (i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

(5) The provisions of this section shall apply in respect of assessment for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.] 1[234B. Interest for defaults in payment of advance tax2

(1)Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year 3[to the date of determination of total

income under sub-section (1) of section 143 4[and where a regular assessment is made, to the date of such regular assessment, on an amount]] equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. 5[Explanation 1.-In this section, "assessed tax" means,- (a) for the purposes of computing the interest payable under section 140A, the tax on the total income as declared in the return referred to in that section; (b) in any other case, the tax on the total income

determined under sub-section (1) of section 143 or on regular assessment, as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.] Explanation 2.-Where in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section.

6[Explanation 3.-In Explanation 1 and in sub-section (3), "tax on

the total income determined under sub-section (1) of section 143" shall not include the additional income-tax, if any, payable under section 143.] ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Substituted for "to the date of the regular assessment" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Substituted for "or regular assessment on an amount" by the Finance Act, 1995, w.r.e.f. 1--4-1989. 5 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 6 Ibid. ------------------------------------------------------------------------ 1.682

(2) Where, before the date of 1[determination of total income

under sub-section (1) of section 143 or] completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise- (i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section; (ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.

(3) Where, as a result of an order of re-assessment or re- computation under section 147, the amount on which interest was

payable under subsection (1) is increased, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period commencing on the day following 2[the date of determination of total income under sub-

section (1) of section 143 3[and where a regular assessment is made as

is referred to in sub-section (1) following the date of such regular assessment]] and ending on the date of the re-assessment or re- computation under section 147, on the amount by which the tax on the total income determined on the basis of the reassessment or re- computation exceeds the tax on the total income determined 4[under

sub-section (1) of section 143 or] on the basis of the regular assessment aforesaid. [Explanation.-Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f 1-4-1989. It was inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.]

(4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission

under subsection (4) of section 245D, the amount on which interest was

payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- (i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply, accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.] ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted for "the date of the regular assessment" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Substituted for "or regular assessment referred to in sub-section

(1)" by the Finance Act, 1995, w.r.e.f. 1-4-1989. ------------------------------------------------------------------------ 1.683 1[234C. Interest for deferment of advance tax2

3[(1) Where in any financial year,- (a) the company which is liable to pay advance tax under section 208 has failed to pay such tax or- (i) the advance tax paid by the company on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of one and one-half per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income; (ii) the advance tax paid by the company on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of one and one-half per cent on the amount of the shortfall from the tax due on the returned income: Provided that if the advance tax paid by the company on its current income on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, it shall not be liable to pay any interest on the amount of the shortfall on those dates; ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Substituted by the Finance Act, 1994, w.e.f. 1-4-1995. Prior to

the substitution, subsection (1) read as under: "Where in any financial year, *[the assessee who is liable to pay advance tax under section 208 has failed to pay such tax or], the advance tax paid by the assessee on his current income on or before the 15th day of September is less than **[thirty] per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than [sixty] per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent per month of the shortfall from for a period of three months on the amount of the shortfall from [thirty] per cent or, as the case may be, CHAP RELIEF RESPECTING TAX ON DIVIDENDS IN CERTAIN CASES CHAPTER XVIII RELIEF RESPECTING TAX ON DIVIDENDS IN CERTAIN CASES

Relief to shareholders in respect of agricultural income-tax attributable to dividends. [235. Relief to shareholders in respect of agricultural income- tax attributable to dividends.-Omitted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972.]

Relief to company in respect of dividend paid out of past taxed. 236. Relief to company in respect of dividend paid out of past taxed profits

1(1) Where in respect of any previous year relevant to the assessment year commencing after the 31st day of March, 1960, an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India, pays any dividend wholly or partly out of its profits and gains actually charged to incometax for any assessment year ending before the 1st day of April, 1960, and deducts tax therefrom in accordance with the provisions of Chapter XVIIB, credit shall be given to the company against the income-tax, if any, payable by it on the profits and gains of the previous year during which the dividend is paid, of a sum

calculated in accordance with the provisions of sub-section (2), and, where the amount of credit so calculated exceeds the income-tax payable by the company as aforesaid, the excess shall be refunded.

(2) The amount of income-tax to be given as credit under sub-

section (1) shall be a sum equal to ten per cent of so much of the

dividends referred to in sub-section (1) as are paid out of the profits and gains actually charged to income-tax for any assessment year ending before the 1st day of April, 1960. Explanation ].-For the purposes of this section, the aggregate of the dividends declared by a company in respect of any previous year shall be deemed first to have come out of the distributable income of that previous year and the balance, if any, out of the undistributed part of the distributable income of one or more previous years immediately preceding that previous year as would be just sufficient to cover the amount of such balance and as has not likewise been taken into account for covering such balance of any other previous year. Explanation 2.-The expression "distributable income of any previous year" shall mean the total income 2[(as computed before making any deduction under Chapter VIA)] assessed for that year as reduced by- (i) the amount of tax payable by the company in respect of 3[its] total income; (ii) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income; -------------------------------------------------------------- 2 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 3 Substituted for "the said", ibid. --------------------------------------------------------------------- 1.687 1[(iii) any sum with reference to which a deduction is allowable to the company under the provisions of section 80G; and] (iv) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 19492 (10 of 1949), and as increased by- (a) any profits and gains or receipts of the company, not included in its total income 3[(as computed before making any deduction under Chapter VIA)]; and (b) any amount attributable to any allowance made in computing the profits and gains of the company for purposes of assessment, which the company has not taken into account in its profit and loss account. 4[236A. Relief to certain charitable institutions or funds in respect of certain dividends

(1) 5[Where seventy-five per cent of the share capital of any company is throughout the previous year beneficially held by an institution or fund established in India for a charitable purpose the income from dividend whereof is exempt under section 11], credit shall be given to the institution or fund against the tax, if any, payable by it, of a sum calculated in accordance with the provisions of sub-

section (2), in respect of its income from dividends (other than dividends on preference shares) declared or distributed during the previous year relevant to any assessment year beginning on or after the 1st day of April, 6[1966] 7[by such a company], and where the amount of credit so calculated exceeds the tax, if any, payable by the said institution or fund, the excess shall be refunded.

8[(2) The amount to be given as credit under sub-section (1) shall be a sum which bears to the amount of the tax payable by the company under the provisions of the annual Finance Act with reference to the relevant amount of distributions of dividends by it the same proportion as the amount of the dividends (other than dividends on preference shares) received by the institution or fund from the company bears to the total amount of dividends (other than dividends on preference shares) declared or distributed by the company during the previous year.

Explanation.-In sub-section (2) of this section and in section 280ZB, the expression "the relevant amount of distributions of dividends" has the meaning assigned to it in the Finance Act of the relevant year.]] ----------------------------------------------------------------------- 1 Substituted for "(iii) the amount paid to any charitable institution or fund to the extent to which it is exempt from tax under section 88; and" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. Earlier, it was amended by the Finance Act, 1965, w.e.f. 1-4-1965. 3 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 4 Inserted by the Direct Taxes (Amendment) Act; 1964, w.e.f. 1-4-

5 Substituted for "In the case of an institution or fund referred

to in clause (iii) of subsection (2) of section 104" by the Finance Act, 1987, w.e.f. 1-4-1988. 6 Substituted for "1964" by the Finance Act, 1966, w.e.f. 1-4-1966. 7 Substituted for "by such a company as is referred to in the said clause" by the Finance Act, 1987, w.e.f. 1-4-1988. 8 Substituted by the Finance Act, 1966, w.e.f. 1-4-1966. ---------------------------------------------------------------------- 1.688 CHAP REFUNDS CHAPTER XIX REFUNDS

Refunds 1. 237. Refunds1 If any person satisfies the 2[Assessing] Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess.

Person entitled to claim refund in certain special cases 3. 238. Person entitled to claim refund in certain special cases 3

(1)Where the. income of one person is included under any provision of this Act in the total income of any other person, the latter alone shall be entitled to a refund under this Chapter in respect of such income.

(2)Where through death, incapacity, insolvency, liquidation or other cause, a person is unable to claim or receive any refund due to him, his legal representative or the trustee or guardian or receiver, as the case may be, shall be entitled to claim or receive such refund for the benefit of such person or his estate.

From of claim for refund and limitation 4. 239. Form of claim for refund and limitation4

5(1) Every claim for refund under this Chapter shall be made in the prescribed form and verified in the prescribed manner.

6[(2) No such claim shall be allowed, unless it is made within the period specified hereunder, namely:- --------------------------------------------------------------------- 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted by the Finance Act, 1968, w.e.f. 1-4-1968. ----------------------------------------------------------------------- 1.689 (a) where the claim is in respect of income which is assessable for any assessment year commencing on or before the 1st day of April, 1967, four years from the last day of such assessment year; (b) where the claim is in respect of income which is assessable for the assessment year commencing on the first day of April, 1968, three years from the last day of the assessment year; (c) where the claim is in respect of income which is assessable for any other assessment year, 1[one year] from the last day of such assessment year.]

Power to withhold refund in certain cases 4. 3[241. Power to withhold refund in certain cases4 Where refund of any amount becomes due to the assessee as a result of an order under this Act or under the provisions of sub-

section (1) of section 143 after a return has been made under section

139 or in response to a notice under sub-section (1) of section 142 and the Assessing Officer is of the opinion, having regard to the fact that- (i) a notice has been issued, or is likely to be issued,

under subsection (2) of section 143 in respect of the said return; or (ii) the order is the subject-matter of an appeal or further proceeding; or (iii)any other proceeding under this Act is pending. that the grant of the refund is likely to adversely affect the revenue, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, withhold the refund till such time as the Chief Commissioner or Commissioner may determiner. --------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

3 Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. Prior to the substitution, section 241, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "241. Power to withhold refund in certain cases.--Where an order giving rise to a refund is the subject-matter of an appeal or further proceeding or where any other proceeding under this Act is pending, and the Assessing Officer is of the opinion that the grant of the refund is likely to adversely affect the revenue, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, withhold the refund till such time as the Chief Commissioner or Commissioner may determine." ---------------------------------------------------------------------- 1.691 is of the opinion that the grant of refund is prejudicial to Revenue, he may refer the matter to the Commissioner seeking his approval to withhold refund. In case refund is withheld the reassessment should be completed without any undue delay so that such refund could be adjusted against the resultant tax demand. [Instruction No. 1157, dated 21st March, 1978]

Correctness of assessment not to be questioned. 242. Correctness of assessment not to be questioned In a claim under this Chapter, it shall not be open to the assessee to question the correctness of any assessment or other matter decided which has become final and conclusive or ask for a review of the same, and the assessee shall not be entitled to any relief on such claim except refund of tax wrongly paid or paid in excess.

Interest on delayed refunds. 1 243. Interest on delayed refunds

2[(1) If the 3[Assessing] Officer does not grant the refund,- (a) in any case where the total income of the assessee does not consist solely of income from interest on securities or dividends, within three months from the end of the month in which the total income is determined under this Act, and (b) in any other case, within three months from the end of the month in which the claim for refund is made under this Chapter, the Central Government shall pay the assessee simple interest at 4

[fifteen] per cent per annum on the amount directed to be refunded

(2) Where any question arises as to the period to be excluded for the purposes of calculation of interest under the provisions of this section, such. question shall be determined by the 5[Chief Commissioner or Commissioner] whose decision shall be final.

6[(3) The provisions of this section shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989 or any subsequent assessment years.] ---------------------------------------------------------------------- 2 Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1- 4-1971. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for 'nine' by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. 5 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1.692.

Interest on refund where no claim is needed. 1 244. Interest on refund where no claim is needed

(1) Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the 2[Assessing] Officer does not grant the refund within a period of 3[three months from the end of the month in which such order is passed], the Central Government shall pay to the assessee simple interest at 4[fifteen] per cent per annum on the amount of refund due from the date immediately following the expiry of the period of 5[three] months aforesaid to the date on which the refund is granted. 6[(1A) 7Where the whole or any part of the refund referred to in

subsection (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the

rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted: Provided that, where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted: Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding: Provided also that where any interest is payable to an assessee

under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess.] ---------------------------------------------------------------------- 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for 'six months from the date of such order' by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 4 Substituted for "twelve" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in those cases where the interest became chargeable or payable from an earlier date. Earlier, "twelve" was substituted for "nine" by the Finance Act, 1972, w.e.f. 1-4-1972 which was substituted for "six" by the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967. 5 Substituted for "six" by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 6 Inserted by tile Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. ---------------------------------------------------------------------- 1.693

(2) Where a refund is withheld under the provisions of section 241, the Central Government shall pay interest at the aforesaid rate on the amount of refund ultimately determined to be due as a result of the appeal or further proceeding for the period commencing after the expiry of 1[three months from the end of the month in which the order referred to in section 241 is passed] to the date the refund is granted.

2[(3) The provisions of this section shall not apply in respect of any assessment for the assessment year commencing on the 1st day of April, 1989, or any subsequent assessment years.] 3[244A. Interest on refunds

(1) 4 [Where refund of any amount becomes due to the assessee under this Act], he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:- (a) where the refund is out of any tax 5[collected at source under section 206C or] paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one 6[* * *] per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted: Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined

7[under sub-section (1) of section 143 or] on regular assessment; (b) in any other case, such interest shall be calculated at the rate of one 8[* * *] per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates 1 Substituted for 'six months from the date of the order referred to in section 241" by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

3 Ibid. 4 Substituted for "Where, in pursuance of any order passed under this Act, refund of any amount becomes due to the assessee' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 5 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

6 The words "and one-half" omitted by the Finance (No. 2) Act, 1991, w. e. f. 1-10-1991. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

8 The words "and one-half" omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 1.694 of payment of the tax or penalty to the date on which the refund is granted. Explanation.-For the purposes of this clause, "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.

(2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final.

(3)Where, as a result of an order under 1[sub-section (3) of section section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission

under sub-section (4) of section 245D, the amount on which interest

was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly.

(4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years.]

Set off of refunds against tax remaining payable 2. 245. Set off of refunds against tax remaining payable2 Where under any of the provisions of this Act, a refund is found to be due to any person, the 3[Assessing] Officer, 4[Deputy Commissioner (Appeals)], 5[Commissioner (Appeals)] or 6[Chief Commissioner or Commissioner], as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section. ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for "Appellate Assistant Commissioner", ibid. 5 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 6 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. --------------------------------------------------------------------- 1.695 CHAP SETTLEMENT OF CASES 1[CHAPTER XIXA] SETTLEMENT OF CASES 2[245A. Definitions In this Chapter, unless the context otherwise requires,- (a) "Bench" means a Bench of the Settlement Commission; (b) "case" means any proceeding under this Act for the assessment or reassessment of any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before an income-tax authority on the date on which an

application under sub-section (1) of section 245C is made: Provided that where any appeal or application for revision has been preferred after the expiry of the period specified for the filing of such appeal or application for revision under this Act and which has not been admitted, such appeal or revision shall not be deemed to be a proceeding pending within the meaning of this clause; (c) "Chairman" means the Chairman of the Settlement Commission; (d) "Income-tax authority" means an income-tax authority specified in section 116; (e) "Member" means a Member of the Settlement Commission and includes the Chairman and a Vice-Chairman; (f) "Settlement Commission" means the Income-tax settlement Commission constituted under section 245B; (g) "Vice-Chairman" means a Vice-Chairman of the Settlement Commission.] 245B. Income-tax Settlement Commission

(1) The Central Government shall constitute a Commission to be called the Income-tax Settlement Commission for the settlement of cases under this Chapter. --------------------------------------------------------------------- 1 Chapter XIX A inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 2 Substituted by the Finance Act, 1987, w.e.f. 1-6-1987. Prior to the substitution, section 245A, as amended by the Finance (No. 2) Act, 1977, w.e.f.. 10-7-1978 and Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984, read as under: "245A. Definitions.-In this Chapter, unless the context otherwise requires,- (a) 'case' means any proceeding under this Act for the assessment or reassessment of any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before an Income-tax authority on the date on which an

application under subsection (1) of section 245C is made; (b) 'Income-tax authority' means a Director of Inspection, a Commissioner, a Commissioner (Appeals), an Appellate Assistant Commissioner, an Inspecting Assistant Commissioner or an Income-tax Officer." 3 The words "(hereafter in this Chapter referred to as "the Settlement Commission")" omitted by the Finance Act, 1987, w.e.f. 1-6-

1.696

(2) The Settlement Commission shall consist of a Chairman 1[and as many Vice-Chairmen and other members as the Central Government thinks fit] and shall function within the Department of the Central Government dealing with direct taxes. 2[(2A) Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f 10-9-1986.]

(3) The Chairman, 3[, Vice-Chairman] and other members of the Settlement Commission shall be appointed by the Central Government from amongst persons of integrity and outstanding ability, having special knowledge of, and, experience in, problems relating to direct taxes and business accounts: Provided that, where a member of the Board is appointed as the Chairman 4[, Vice-Chairman] or as a member of the Settlement Commission, he shall cease to be a member of the Board. 5[Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f 10-9-1986.] 6[245BA. Jurisdiction and powers of Settlement Commission

(1) Subject to the other provisions of this Chapter, the jurisdiction, powers and authority of the Settlement Commission may be exercised by Benches thereof.

(2) Subject to the other provisions of this section, a Bench shall be presided over by the Chairman or a Vice-Chairman and shall consist of two other Members.

(3) The Bench for which the Chairman is the Presiding Officer shall be the principal Bench and the other Benches shall be known as Additional Benches. ---------------------------------------------------------------------- 1 Substituted for "and two other members" by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. 2 Prior to the omission, sub-section (2A), as inserted by the Finance Act, 1982, w.e.f. 1-4-1982, read as under:

"(2A) Notwithstanding anything contained in sub-section (2), when the post of one of the other members of the Settlement Commission is vacant for any reason, the Chairman and the other members of the Settlement Commission may function as, and exercise and discharge the powers and functions of, the Settlement Commission under this Chapter: Provided that if in any case the Chairman and member so functioning differ on any point or points, they shall state the point or points on which they differ and refer the same, as soon as may be after the said vacancy is filled, to the member appointed to fill the vacancy for hearing on such point or points and such point or points shall be decided according to his opinion." 3 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. 4 Ibid. 5 Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. Prior to the omission, the second proviso read as under: "Provided further that, until the members are appointed under this sub-section, it shall be competent for the Central Government to require, from time to time, any two members of the Board to serve as members of the Settlement Commission for such period as the Central Government thinks fit, in addition to their duties as members of the Board." 6 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. ----------------------------------------------------------------------- 1.697

(4) Notwithstanding anything contained in sub-sections (1) and

(2), the Chairman may authorise the Vice-Chairman or other Member appointed to one Bench to discharge also the functions of the Vice- Chairman or, as the case may be, other Member of another Bench.

(5) Notwithstanding anything contained in the foregoing provisions of this section. and subject to any rules that may be made in this behalf, when one of the persons constituting a Bench (whether such person be the Presiding Officer or other Member of the Bench) is unable to discharge his functions owing to absence, illness or any other cause or in the event of the occurrence of any vacancy either in the office of the Presiding Officer or in the office of one or the other Members of the Bench, the remaining two persons may function as the Bench and if the Presiding Officer of the Bench is not one of the remaining two persons, the senior among the remaining persons shall act as the Presiding Officer of the Bench: Provided that if at any stage of the hearing of any such case or matter, it appears to the Presiding Officer that the case or matter is of such a nature that it ought to be heard of by a Bench consisting of three members, the case or matter may be referred by the Presiding Officer of such Bench to the Chairman for transfer to such Bench as the Chairman may deem fit. 1[(5A) Notwithstanding anything contained in the foregoing provisions of this section, the Chairman may for the disposal of any particular case, constitute a Special Bench consisting of more than three Members.]

2(6) Subject to the other provisions of this Chapter, the places at which the principal Bench and the additional Benches shall ordinarily sit shall be such as the Central Government may, by notification in the Official Gazette, specify 3[and the Special Bench shall sit at a place to be fixed by the Chairman].] 4[245BB. Vice-Chairman to act as Chairman or to discharge his functions in certain circumstances

(1) In the event of the occurrence of any vacancy in the office of the Chairman by reason of his death, resignation or otherwise, the ViceChairman or, as the case may be, such one of the Vice-Chairmen as the Central Government may, by notification in the Official Gazette, authorise in this behalf, shall act as the Chairman until the date on which a new Chairman, appointed in accordance with the provisions of this Chapter to fill such vacancy, enters upon his office.

(2) When the Chairman is unable to discharge his functions owing to absence, illness or any other cause, the Vice-Chairman or, as the case may be, such one of the Vice-Chairmen as the Central Government may, by notification in the Official Gazette, authorise in this behalf, shall discharge the functions of the Chairman until the date on which the Chairman resumes his duties.] ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 4 Inserted by the Finance Act, 1987, w,e.f. 1-6-1987. --------------------------------------------------------------------- 1.698 1[245BC. Power of Chairman to transfer cases from one Bench to another On the application of the assessee or the 2[Chief Commissioner or Commissioner] and after notice to them, and after hearing such of them as he may desire to be heard, or on his own motion without such notice, the Chairman may transfer any case pending before one Bench, for disposal, to another Bench.] 3[245BD. Decision to be by majority If the Members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and make a reference to the Chairman who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other Members of the Settlement Commission and such point or points shall be decided according to the opinion of the majority of the Members of the Settlement Commission who have heard the case, including those who first heard it.] 245C. Application for settlement of cases4

5[(1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the 6[Assessing] Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided: 7[Provided that no such application shall be made unless,- (a) the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and (b) the additional amount of income-tax payable on the income disclosed in the application exceeds 8[one hundred thousand] rupees.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 2 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987.

5 Sub-sections (1) to (1E) substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Prior to the substitution,

sub-section (1) read as under:

"(1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner and containing such particulars as may be prescribed to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided:" 6 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Substituted by the Finance Act, 1987, w.e.f. 1-6-1987. Prior to the substitution, the proviso read as under: "Provided that no such application shall be made unless the additional amount of income-tax payable on the income disclosed in the application exceeds fifty thousand rupees." 8 Substituted for "fifty thousand" by the Finance Act, 1995, w.e.f. 1-7-1995. ---------------------------------------------------------------------- 1.699

(1A) For the purposes of sub-section (1) of this section and sub- sections (2A) to (2D) of section 245D, the additional amount of income-tax payable in respect of the income disclosed in an

application made under sub-section (1) of this section shall be the amount calculated in accordance with the provisions of sub-sections (1B) to (1D). 1[(1B) Where the income disclosed in the application relates to only one previous year,- (i) if the applicant has not furnished a return in respect of the total income of that year (whether or not an assessment has been made in respect of the total income of that year), then, except in a case covered by clause (iii), tax shall be calculated on the income disclosed in the application as if such income were the total income; (ii) if the applicant has furnished a return in respect of the total income of that year (whether or not an assessment has been made in pursuance of such return), tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income; (iii) if the proceeding pending before the income-tax authority is in the nature of a proceeding for reassessment of the applicant under section 147 or by way of appeal or revision in connection with such reassessment, and the applicant has not furnished a return in respect of the total income of that year in the course of such proceeding for reassessment, tax shall be calculated on the aggregate of the total income as assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147 and the income disclosed in the application as if such aggregate were the total income.] 2[(1C)The additional amount of income-tax payable in respect of the ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1987, w.e.f. 1-6-1987. Prior to the substitution, subsection (1B) read as under: "(1B) Where the income disclosed in the application relates to only one previous year,- (i) if the applicant has not furnished a return in respect of the total income of that year and no assessment has been made in respect of the total income of that year, tax shall be calculated on the income disclosed in the application as if such income were the total income; (ii) if the applicant has furnished a return in respect of the total income of that year and no assessment has been made in pursuance of such return tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income; and (iii) if an assessment in respect of the total income of that year has been made, tax shall be calculated on the aggregate of the total income as assessed and the income disclosed in the application as if such aggregate were the total income." 2 Substituted by the Finance Act, 1987, w.e.f. 1-6-1987. Prior to the substitution, subsection (IC) read as under: "(IC) The tax as calculated under sub-section (1B) shall be reduced,- (a) in a case referred to in clause (i) of sub-section (1B), by the sum if any, deducted at source tinder Chapter XVIIB or paid in advance under Chapter ----------------------------------------------------------------------- 1.700 income disclosed in the application relating to the previous year referred to in sub-section (1B) shall be,- (a) in a case referred to in clause (i) of that sub- section, the amount of tax calculated under that clause; (b) in a case referred to in clause (ii) of that sub- section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year; (c) in a case referred to in clause (iii) of that sub- section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147.] (1D) Where the income disclosed in the application relates to more than one previous year, the additional amount of income-tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-sections (1B) and (IC) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under

sub-section (1) shall be the additional amount of income-tax payable in respect of the income disclosed in the application. (1E) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing belonging to an assessee are seized under section 132, the assessee shall not be entitled to

make an application under sub-section (1) before the expiry of one hundred and twenty days from the date of the seizure.]

(2) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed.

(3) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant. 245D. Procedure on receipt of an application under section 245C 1

(1) On receipt of an application under section 245C, the Settlement Commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application: Provided that an application shall not be rejected under this subsection unless an opportunity has been given to the applicant of being heard: 2[Provided further that the Commissioner shall furnish the report within a period of forty-five days of the receipt of communication from the Settlement Commission in case of all applications made under section 245C on or after the 1st day of July 1995 and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report.] 3[(1A) Omitted by the Finance (No. 2) Act, 1991, w.e.f 27-9- 1991.]

(2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Commissioner. 4[(2A) Subject to the provisions of sub-section (2B), the assessee ---------------------------------------------------------------------- 2 Substituted by the Finance Act, 1995, w.e.f. 1-7-1995. Prior to the substitution, the second proviso, as inserted by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991, read as under: "Provided further that the Commissioner shall furnish the report within a period of one hundred and twenty days of the receipt of communication from the Settlement Commission in case of all applications made under section 245C on or after the date on which the Finance (No. 2) Bill, 1991, receives the assent of the President* and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report." * 27th September, 1991. Earlier, the second proviso was omitted by the Finance Act, 1979, w.e.f. 1-4-1979. 3 Prior to the omission, sub-section (1A), as inserted by the Finance Act, 1979, w.e.f. 1-4-1979 and amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1984, read as under:

"(1A) Notwithstanding anything contained in sub-section (1), an application shall not be proceeded with under that sub-section if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case: Provided that where the Settlement Commission is not satisfied with the correctness of the objection raised by the Commissioner, the Settlement Commission may, after giving the Commissioner an opportunity of being heard, by order, allow the application to be

proceeded with under sub-section (1) and send a copy of its order to the Commissioner." 4 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

1.702 shall, within thirty-five days of the receipt of a copy of the order

under sub-section (1) 1[allowing the application to be proceeded with], pay the additional amount of income-tax payable on the income disclosed in the application and shall furnish proof of such payment to the Settlement Commission.] 2[(2B) if the Settlement Commission is satisfied, on an application made in this behalf by the assessee, that he is unable for good and sufficient reasons to pay the additional amount of income-tax referred to in sub-section (2A) within the time specified in that sub- section, it may extend the time for payment of the amount which remains unpaid or allow payment thereof by instalments if the assessee furnishes adequate security for the payment thereof. 3[(2C) Where the additional amount of income-tax is not paid within the time specified under sub-section (2A), then, whether or not the Settlement Commission has extended the time for payment of the amount which remains unpaid or has allowed payment thereof by instalments under sub-section (2B), the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days referred to in sub-section (2A). 4[(2D) Where the additional amount of income-tax referred to in subsection (2A) is not paid by the assessee within the time specified under that sub-section or extended under sub-section (2B), as the case may be, the Settlement Commission may direct that the amount of income-tax remaining unpaid, together with any interest payable thereon under subsection (2C), be recovered and any penalty for default in making payment of such additional amount may be imposed and recovered, in accordance with the provisions of Chapter XVII, by the 5[Assessing] Officer having jurisdiction over the assessee.]

(3) Where an application is allowed to be proceeded with under

subsection (1), the Settlement Commission may call for the relevant records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case.

(4) After examination of the records and the report of the

Commissioner received under sub-section (1), and the report, if any,

of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1985, w.r.e.f. 1-10-1984. 2 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

3 Ibid. 4 Ibid. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. --------------------------------------------------------------------- 1.703 provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report

of the Commissioner under sub-section (1) or sub-section (3).

1[(5) Subject to the provisions of section 245BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before passing any order under

sub-section (4) and, in relation to the passing of such order, the provisions of section 245BD shall apply.]

(6) Every order passed under sub-section (4) shall provide for the terms of settlement including any demand by way of 2[tax, penalty or interest], the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. 3[(6A) Where any tax payable in pursuance of an order under sub-

section (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then, whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid.]

(7) Where a settlement becomes void as provided under sub-

section (6), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income-tax authority concerned may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void.

4[(8) For the removal of doubts, it is hereby declared that nothing contained in section 153 shall apply to any order passed under

sub-section (4) or to any order of assessment, reassessment or recomputation required to be made by the 5[Assessing] Officer in pursuance of any ---------------------------------------------------------------------- 1 inserted by the Finance Act, 1987, w.e.f. 1-6-1987. The original

sub-section (5) was amended by the Finance Act, 1982, w.e.f. 1-4-1982 and omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. Prior to omission, it read as under:

"(5) Subject to the provisions of sub-section (2A) of section 245B, the materials brought on record before the Settlement Commission shall be considered by all the members thereof before passing any

order under sub-section (4) and, in the case of a difference of opinion among the members, the opinion of the majority shall prevail and such order shall be expressed in terms of the views of the majority." 2 Substituted for "tax or penalty" by the Finance Act, 1987, w.e.f. 1-6-1987. Earlier, these words were substituted for "tax, penalty or interest" by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

4 Ibid. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.704 directions contained in such order passed by the Settlement Commission

1[and nothing contained in the proviso to sub-section (1) of section 186 shall apply to the cancellation of the registration of a firm required to be made in pursuance of any such directions as aforesaid.] 2[245DD. Power of Settlement Commission to order provisional attachment to protect revenue

(1) Where, during the pendency of any proceeding before it, the Settlement Commission is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, it may, by order, attach provisionally any property belonging to the applicant in the manner Provided in the Second Schedule: Provided that "here a provisional attachment made under section 281B is pending immediately before an application is made under section 245C, an order under this sub-section shall continue such provisional attachment up to the period up to which an order made under section 281 B would have continued if such application had not been made: Provided further that where the Settlement Commission passes an order under this sub-section after the expiry of the period referred

to in the preceding proviso, the provisions of sub-section (2) shall apply to such order as if the said order had originally been passed by the Settlement Commission.

(2) Every provisional attachment made by the Settlement

Commission under sub-section (1) shall cease to have effect after the expiry of a period of six months from the date of the order made under

sub-section (1): Provided that the Settlement Commission may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as it thinks fit, so, however, that the total period of extension shall not in any case exceed two years.] 245E. Power of Settlement Commission to reopen completed proceedings If the Settlement Commission is of the opinion (the reasons for such opinion to be recorded by it in writing) that, for the proper disposal of the case pending before it, it is necessary or expedient to reopen any proceeding connected with the case but which has been completed 3[* * *] under this Act by any income-tax authority before the application under section 245C was made, it may, with the concurrence of the applicant, reopen such proceeding and pass such order thereon as it thinks fit, as if ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 2 Inserted by the Finance Act, 1988, w.e.f. 1-4-1988. 3 The words "Linder the Indian Income-tax Act, 1922 (11 of 1922), or" omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

1.705 the case in relation to which the application for settlement had been made by the applicant under that section covered such proceeding also: 1[Provided that no proceeding shall be reopened by the Settlement Commission under this section if the period between the end of the assessment year to which such a proceeding relates and the date of application for settlement under section 245C exceeds nine years.] 245F. Powers and procedure of Settlement Commission

(1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an income-tax authority under this Act.

(2) Where an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement

Commission shall, until an order is passed under sub-section (4) of

section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case.

(3) Notwithstanding anything contained in sub-section (2) and in the absence of any express direction to the contrary by the Settlement Commission, nothing contained in this section shall affect the operation of any other provision of this Act requiring the applicant to pay tax on in relation to the matters before the Settlement Commission.

(4) For the removal of doubt, it is hereby declared that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission.

3[(5) Omitted by the Finance Act, 1987, w.e.f. 1-6-1987.]

4[(6) Omitted by the Finance Act, 1987, w.e.f. 1-6-1987.]

5[(7) The Settlement Commission shall, subject to the provisions of this Chapter, have power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1987, w.e.f. 1-6-1987. Prior to the substitution, tile proviso read as under: "Provided that no proceeding shall be reopened by the Settlement Commission under this section after the expiry of a period of eight years from the end of the assessment year to which such proceeding relates." 2 The words "or by way of advance tax" omitted by the Finance Act, 1987, w.e.f. 1-6-1987.

3 Prior to the omission, sub-section (5), substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986, read as under:

"(5) The powers or functions of the Settlement Commission may be exercised or discharged by Benches constituted by the Chairman of the Settlement Commission from amongst the members thereof."

4 Prior to the omission, sub-section (6), as inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986, read as under:

"(6) A Bench constituted under sub-section (5) shall consist of three members, one of whom shall be the Chairman or a Vice-Chairman." 5 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. ---------------------------------------------------------------------- ITA-45 1.706 or of the discharge of its functions, including the places at which the Benches shall hold their sittings.) 245G. Inspection, etc., of reports 1 No person shall be entitled to inspect, or obtain copies of, any reports made by any income-tax authority to the Settlement Commission; but the Settlement Commission may, in its discretion, furnish copies thereof to any such person on an application made to it in this behalf and on payment of the prescribed fee: Provided that, for the purpose of enabling any person whose case is under consideration to rebut any evidence brought on record against him in any such report, the Settlement Commission shall, on an application made in this behalf, and on payment of the prescribed fee by such person, furnish him with a certified copy of any such report or part thereof relevant for the purpose. 245H. Power of Settlement Commission to grant immunity from prosecution and penalty

(1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has cooperated with the Settlement Commission in the proceedings before- it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also 2[(either wholly or in part)] from the imposition of any penalty under this Act, with respect to the case covered by the settlement: 3[Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 245C.]

4[(1A) An immunity granted to a person under sub-section (1) shall stand withdrawn if such person fails to pay any sum specified in

the order of settlement passed under sub-section (4) of section 245D within the time specified in such order or within such further time as may be allowed by the Settlement Commission, or fails to comply with any other condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted.]

(2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfied that such person 5[* * *] had, in the course of the settlement proceedings, concealed any particulars material to the settlement or had given false evidence, and thereupon such person may be tried for the offence with -------------------------------------------------------------------- 2 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

3 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 4 Ibid. 5 The words has not complied with the conditions subject to which the immunity was granted or that such person' omitted by the Finance Act, 1987, w.e.f. 1-6-1987. ---------------------------------------------------------------------- 1.707 respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the settlement and shall also become liable to the imposition of any penalty under this Act to which such per-son would have been liable, had not such immunity been granted. 1[245HA. Power of Settlement Commission to send a case back to the 2[Assessing] Officer If the assessee does not co-operate

(1) The Settlement Commission may, if it is of opinion that any person who made an application for settlement under section 245C has not co-operated with the Settlement Commission in the proceedings before it, send, the case back to the 3[Assessing] Officer who shall thereupon dispose of the case in accordance with the provisions of this Act as if no application under section 245C had been made.

(2) For the purposes of sub-section (1), the 4[Assessing] Officer shall be entitled to use all the materials and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it as if such materials, information, inquiry and evidence had been produced before the 5[Assessing] Officer or held or recorded by him in the course of the proceedings before him.

(3) For the purposes of the time limit under sections 149, 153, 154, 155 and 231 and for the purposes of payment of interest under

sections 243 and 244, in a case referred to in sub-section (1), the period commencing on and from the date of the application to the Settlement Commission under section 245C and ending with the date of receipt by the 6[Assessing] Officer of the order of the Settlement Commission sending the case back to the 7[Assessing] Officer shall be excluded; and where the assessee is a firm, for purposes of the time- limit for cancellation of registration of the firm under sub-section

(1) of section 186, the period aforesaid shall, likewise, be excluded.] 245-I. Order of settlement to be conclusive

Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matter stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 2 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.708 case may be. The scope of enquiry, whether by the High Court or before the Supreme Court, remains the same, viz., to consider whether the order of the Settlement Commission is contrary to the provisions of the Income-tax Act, and if so, whether it has prejudiced the petitioner. This is, of course apart from grounds of bias, fraud and malice which constitute a separate and independent category. Where, in a case before the Settlement Commission, the Commission has to interpret a trust deed, even if the interpretation placed by Commission on the trust deed is not correct, it would not be a ground for interference by the Supreme Court in an appeal from the order of the Settlement Commission made under section 245D, since a wrong interpretation of a deed of trust cannot be said to be a violation of the provisions of the Income-tax Act. It is equally clear that the interpretation placed upon the deed by the Commission does not bind the incometax authorities in proceedings relating to other assessment years not covered by the order. Jyotendrasinghji v Tripathi (SI)

(1993) 201 ITR 611 (SC). 245J. Recovery of sums due under order of settlement Any sum specified in an order of settlement passed under sub-

section (4) of section 245D may, subject to such conditions, if any, as may be specified therein, be recovered, and any penalty for default in making payment of such sum may be imposed and recovered in accordance with the provisions of Chapter XVII, by the 1[Assessing] Officer having ,jurisdiction over the person who made the application for settlement under section 245C. 245K. Bar on subsequent application for settlement in certain cases Where,-

(i) an order of settlement passed under sub-section (4) of section 245D provides for the imposition of a penalty on the person who made the application under section 245C for settlement, on the ground of concealment of particulars of his income; or (ii) after the passing of an order of settlement under the

said subsection (4) in relation to a case, such person is convicted of any offence under Chapter XXII in relation to that case; 2[or] 3[(iii) the case of such person is sent back to the 4[Assessing] Officer by the Settlement Commission under section 245HA,] then, he shall not be entitled to apply for settlement under section 245C in relation to any other matter. 245L. Proceedings before Settlement Commission to be judicial proceedings Any proceeding under this Chapter before the Settlement Commission shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section 196, of the Indian Penal Code 5 (45 of 1860). ---------------------------------------------------------------------- 1 Substituted for "Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 3 Ibid. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.709 1[245M. Certain persons who have filed appeals to the Appellate Tribunal entitled to make applications to the Settlement Commission.- Omitted by the Finance Act, 1987, w.e.f. 1-6-1987.] ---------------------------------------------------------------------- 1 Prior to the omission, section 245M, as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984, read as under: "245M. Certain persons who have filed appeals to the Appellate Tribunal entitled to make applications to the Settlement Commission.-

(1) Notwithstanding anything contained in this Chapter, any assessee who has filed an appeal to the Appellate Tribunal under this Act which is pending before it shall, on withdrawing such appeal from the Appellate Tribunal before the 1st day of October, 1984, be entitled to make an application to the Settlement Commission to have his case settled under this Chapter: Provided that no such assessee shall be entitled to make an application in a case where the Income-tax Officer has preferred an

appeal under sub-section (2) of section 253 against the order to which the assessee's appeal relates.

(2) Any assessee referred to in sub-section (1) may make an application to the Appellate Tribunal for permission to withdraw the appeal.

(3) On receipt of an application tinder sub-section (2), the Appellate Tribunal shall grant permission to withdraw the appeal.

(4) Upon the withdrawal of the appeal, the proceeding in appeal immediately before such withdrawal shall, for the purposes of this Chapter, be deemed to be a proceeding pending before an income-tax authority.

(5) An application to the Settlement Commission under this section shall be made within a period of thirty days from the date on which the order of the Appellate Tribunal permitting the withdrawal of the appeal is communicated to the assessee.

(6) An application made to the Settlement Commission under this

section shall be deemed to be an application made under subsection (1) of section 245C and the provisions of this Chapter [except subsection

(7) of section 245D] shall apply accordingly.

(7) Where an application made to the Settlement Commission under this section is not entertained by the Settlement Commission, then, the assessee shall not be deemed to have withdrawl the appeal from the Appellate Tribunal and the provisions contained in section 253, section 254 and section 255 shall so far as may be, apply accordingly." ---------------------------------------------------------------------- 1.710 CHAP ADVANCE RULINGS 1[CHAPTER XIXB ADVANCE RULINGS 245N. Definitions.-In this Chapter, unless the context other-wise requires,- (a) "advance ruling" means the determination, by the Authority, of a question of law or fact specified in the application in relation to a transaction which has been undertaken, or is proposed to be undertaken, by the applicant; (b) "applicant" means a non-resident making an application; (c) "application" means an application made to the

Authority under sub-section (1) of section 245Q; (d) "Authority" means the Authority for Advance Rulings constituted under section 245-0; (e) "Chairman" means the Chairman of the Authority; Chairman. 245-O. Authority for advance rulings.-(I) The Central Government shall constitute an Authority for giving advance rulings, to be known as "Authority for Advance Rulings".

(2) The Authority shall consist of the following Members appointed by the Central Government, namely:- (a) a Chair-man, who is a retired Judge of the Supreme Court; (b) an officer of the Indian Revenue Service who is qualified to be a member of, the Central Board of Direct Taxes; (c) an officer of the Indian Legal Service who is, or is qualified to be, an Additional Secretary to the Government of India.

(3) The salaries and allowances payable to, and the terms and conditions of service of, the Members shall be such as may be prescribed.

(4) The Central Government shall provide the Authority with such officers and staff as may be necessary for the efficient exercise of the powers of the Authority under this Act.

(5) The office of the-Authority shall be located in Delhi. 245P. Vacancies, etc., not to invalidate proceedings.-No proceeding before, or pronouncement of advance ruling by, the Authority shall be questioned or shall be invalid on the ground merely of the existence of any vacancy or defect in the constitution of the authority. 245Q. Application for advance ruling.-(I) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and in such manner as may be prescribed, 2 stating the question on which the advance ruling is sought. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1993, w.e.f. 1-6-1993. ---------------------------------------------------------------------- 1.711

(2) The application shall be made in quadruplicate and be accompanied by a fee of two thousand five hundred rupees.

(3) An applicant may withdraw an application within thirty days from the date of the application. 245R. Procedure on receipt of application.-(I) On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the Commissioner and, if necessary, call upon him to furnish the relevant records: Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the Commissioner.

(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application: Provided that the Authority shall not allow the application where the question raised in the application,- (a) is already pending in the applicant's case before any income-tax authority, the Appellate Tribunal or any court; (b) involves determination of fair market value of any property; (c) relates to a transaction which is designed prima facie for the avoidance of income-tax: Provided further that no application shall be rejected under this subsection unless an opportunity has been given to the applicant of being heard: Provided also that where the application is rejected, reasons for such rejection shall be given in the order.

(3) A copy of every order made under sub-section (2) shall be sent to the applicant and to the Commissioner.

(4) Where an application is allowed under sub-section (2), the Authority shall, after examining such further material as may be placed before it by the applicant or obtained by the Authority, pronounce its advance ruling on the question specified in the application.

(5)On a request received from the applicant, the Authority shall, before pronouncing its advance ruling, provide an opportunity to the applicant of being heard, either in per-son or through a duly authorised representative. Explanation.-For the purposes of this sub-section, "authorised representative" shall have the meaning assigned to it in sub-section

(2) of section 288, as if the applicant were an assessee.

(6) The Authority shall pronounce its advance ruling in writing within six months of the receipt of application.

(7) A copy of the advance ruling pronounced by the authority, duly signed by the Members and certified in the prescribed manner' shall be sent to the applicant and to the Commissioner, as soon as may be after such pronouncement. ------------------------------------------------------------------- ---------------------------------------------------------------------- 1.712

245S. Applicability of advance ruling.-(1) The advance ruling pronounced by the Authority under section 245R shall be binding only- (a) on the application who had sought it; (b) in respect of the transaction in relation to which the ruling had been sought; and (c) on the Commissioner, and the income-tax authorities subordinate to him, in respect of the applicant and the said transaction,

(2) The advance ruling referred to in sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced. 245T. Advance ruling to be void in certain circumstances.-(I) Where the Authority finds, on a representation made to it by the Commissioner or otherwise, that an advance ruling pronounced by it

under sub-section (6) of section 245R has been obtained by the applicant by fraud or misrepresentation of facts, it may, by order, declare such ruling to be void ab initio and thereupon all the provisions of this Act shall apply (after excluding the period beginning with the date of such advance ruling and ending with the date of order under this sub-section) to the applicant as if such advance ruling had never been made.

(2) A copy of the order made under sub-section (1) shall be sent to the applicant and the Commissioner. 245U. Powers of the Authority.-(I) The Authority shall, for the purpose of exercising its powers, have all the powers of a civil court under the Code of Civil Procedure, 1908 (5 of 1908) as are referred to in section 131 of this Act.

(2) The Authority shall be deemed to be a civil court for the purposes of section 195, but not for the purposes of Chapter XXVI, of the Code of Criminal Procedure, 1973 (2 of 1974) and every proceeding before the Authority shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purpose of section 196 of the Indian Penal Code' (45 of 1860). 245V. Procedure of Authority.-The Authority shall, subject to the provisions of this Chapter, have power to regulate its own procedure in all matters arising out of the exercise of its powers under this Act.] ---------------------------------------------------------------------- ---------------------------------------------------------------------- 1.713 CHAP APPEALS AND REVISION CHAPTER XX APPEALS AND REVISION 1[A.-AppealS 2[* * * ] to the Deputy Commissioner (Appeals) and Commissioner (Appeals)]

Appealable orders. 3[246. Appealable orders.

(1)Subject to the provisions of sub-section (2), any assessee aggrieved by any of the following orders of an Assessing Officer (other than the Deputy Commissioner) may appeal to the Deputy Commissioner (Appeals) against such order- ---------------------------------------------------------------------- 1 Substituted for 'A.-Appeals to the Appellate Assistant Commissioner and Commissioner (Appeals)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, it was amended by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 2 The words "or applications" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 246, as amended by the Finance Act, 1964, w.e.f. 1-4-1964; Finance Act, 1966, w.e.f. 1-4- 1967; Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971; Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976; Finance (No, 2) Act, 1977, w.e.f. 10-7-1978; Finance Act, 1979, w.e.f. 1-6-1979; Finance Act, 1984, w.e.f. 1-4-1985; Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984; Finance Act, 1987, w.e.f. 1-4-1988 and Finance Act, 1988, w.e.f. 1-4-1988 w.r.e.f. 1-6-1987, re-ad as under:

"246. Appealable orders. -(1) Subject to the provisions of sub-

section (2), any assessee aggrieved by any of the following orders of an Assessing Officer may appeal to the Deputy Commissioner (Appeals) against such order-

[(a) * * *]

(b) an order imposing a fine under sub-section (2) of section 131; (c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any

order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed; (d) an order under section 146 refusing to reopen an assessment made under section 144; (e) an order of assessment, reassessment or recomputation under section 147 of section 150; (f) an order under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections; (g) an order made under section 163 treating the assessee as the agent of a nonresident;

(h) an order under sub-section (2) or sub-section (3) of section 170; (i) an order under section 17 1;

(j) an order under clause (b) of sub-section (1) or under

sub-section (2) or sub-section (3) or sub-section (5) of section 185; (k) an order cancelling the registration of' a firm under

sub-section (1) or under sub-section (2) of section 186; (l) an order under section 201; (m) an order under section 216; (n) an order under section 237; (o) an order imposing a penalty under- ------------------------------------------------------------------------ 1.714 ------------------------------------------------------------------------ (i) section 140A, or (ia) section 221, or (ii) section 270, or (iii) section 271, or (iiia)section271A, or (iv) section272, or (iva) section272B, or section 272BB, or (v) section273.

[Explanation.-* * * ]

(2) Notwithstanding anything contained in sub-section (1), any assessee aggrieved by any of the following orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against such order- (a) an order specified in clauses (b) to (h) (both

inclusive) and clauses (1) to (o) (both inclusive) of sub-

section (1) [* * *] or an order under section 104, as it stood immediately before the 1st day of April, 1988, in respect of any assessment for the assessment year commencing on the 1st day of April, 1987, or any earlier assessment years, made against the assessee, being a company; (b) an order specified in clauses (c) to (o) (both

inclusive) of sub-section (1) where such order is made by the Deputy Commissioner in exercise of the powers or functions conferred on or assigned to him under section 125 or section 125A; (c) an order made by the Deputy Commissioner imposing a

fine under sub-section (2) of section 131; (d) an order of assessment made after the 30th day of September, 1984, on the basis of directions issued by the Deputy Commissioner under section 144A;

[(e) * * *]

(f) an order of assessment under sub-section (3) of section 143 or section 144 made on the basis of directions issued by the Deputy Commissioner under section 144B; (ff) an order made by the Deputy Commissioner under section 154; (g) an order imposing a penalty under clause (c) of sub-

section (1) of section 271 were such penalty has been imposed with the previous approval of the Deputy Commissioner under

the proviso to clause (iii) of sub-section (1) of that section; (gg) an order imposing a penalty under section 271B; (h) an order made by a Deputy Commissioner imposing a penalty under section 272A; (i) an order made by an Assessing Officer under the provisions of this Act in the case of such persons or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct.

(3) Every appeal against an order specified in sub-section (2) which is pending Commissioner and any matter arising out of or connected with such appeal and which is so pending shall stand transferred on that day to the Commissioner (Appeals) and the Commissioner (Appeals) may proceed with such appeal or matter from the stage at which it was on that day: Provided that the appellant may demand that before proceeding further with the appeal or matter, the previous proceedings or any part thereof be reopened or that he be reheard.

(4) Every appeal against an order specified in clauses (b) to (h)

(both inclusive) and clauses (1) to (o) (both inclusive) of sub-

section (1) made against the assessee, being a company, which is pending immediately before the 1st day of June, 1979, before a Deputy Commissioner (Appeals) and any matter arising out of or connected with such appeal and which is so pending shall stand transferred on that day to the Commissioner (Appeals) and the Commissioner (Appeals) may proceed with such appeal or matter from the stage at which it was on that day: ---------------------------------------------------------------------- 1.715 (a) an order against the assessee, where the assessee denies his liability to be assessed under this Act 1[, or an

intimation under sub-section (1) or sub-section (1B) of section 143, where the assessee objects to the making of

adjustments] or any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed; (b) an order of assessment, reassessment or recomputation under section 147 or section 150; (c) an order under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections; (d) an order made under section 163 treating the assessee as the agent of a non-resident;

(e) an order under sub-section (2) or sub-section (3) of section 170; (f) an order under section 171;

(g) any order under clause (b) of sub-section (1) or under

sub-section (2)or sub-section (3) or sub-section (5) of section 185 2[* * *] 3[in respect of any assessment for the assessment year commencing on or before the 1st day of April, 1992]; (h) an order cancelling the registration of a firm under

sub-section (1) or under sub-section (2) of section 186 4[* * *] 5[in respect of any ---------------------------------------------------------------------- -> -> Provided that the appellant may demand that before proceeding further with the appeal or matter, the previous proceeding or any part thereof be reopened or that he be reheard.

(5) Notwithstanding anything contained in sub-section (1), the Board may, by order in writing, transfer any appeal which is pending before a Deputy Commissioner (Appeals) and any matter arising out of or connected with such appeal and which is so pending to the Commissioner (Appeals) if the Board is satisfied that it is necessary or expedient so to do having regard to the nature of the case, the complexities involved and other relevant considerations and the Commissioner (Appeals) may proceed with such appeal or matter from the stage at which it was before it was so transferred: Provided that the appellant may demand that before proceeding further with the appeal or matter, the previous proceeding or any part thereof be reopened or that he be reheard. Explanation.-For the purposes of this section,- (a) 'appointed day' means the date appointed under section 39 of the Finance (No.2) Act, 1977 (29 of 1977);

[(b) * * *]

(2) Notwithstanding anything contained in sub-section (1), any assessee aggrieved by any of the following orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against such order-

(a ) 4[an intimation or order specified in sub-section (1) where such intimation is sent or such order] is made by the Deputy Commissioner in exercise of the powers or functions conferred on or assigned to him under section 120 or section 124; (b) an order specified in clauses (a) to (e) (both

inclusive) and clauses (i)to (1) (both inclusive) of sub-

section (1) 5[or an order under section 104, as it stood immediately before the 1st day of April, 1988 in respect of any assessment for the assessment yearcommencing on the 1st day of April, 1987 or any earlier assessment year] made against the assessee, being a company; (c) an order of assessment made after the 30th day of' September, 1984, on the basis of the directions issued by the Deputy Commissioner under section 144A; (d) an order made by the Deputy Commissioner under section 154; (e) an order imposing a penalty under section 271B 6[or section 271 ----------------------------------------------------------------------- 1 The words "section 271C, section 271D, section 271E," omitted by the Finance Act, 1990, w.e.f. 1-4-1990. 2 Substituted for "section 271E or section 272A" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

3 The words "sub-section (1) of section 271" omitted, ibid.

4 Substituted for 'an order specified in sub-section (1) where such order" by the Finance Act, 1994, w.e.f. 1-6-1994. 5 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

6 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 7 lnserted, ibid. ----------------------------------------------------------------------- 1.717 (f) an order made by a Deputy Commissioner or a Deputy Director imposing a penalty under section 272A; 1[(ff) an order made by a Deputy Commissioner imposing a penalty under section 272AA;] 2[(g) an order imposing a penalty under Chapter XXI by the Income-tax Officer or the Assistant Commissioner, where such penalty has been imposed with the previous approval of the

Deputy Commissioner under sub-section (2) of section 274;] (h) an order made by an Assessing Officer (other than Deputy Commissioner) under the provisions of this Act in the case of such person or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct.

(3) Notwithstanding anything contained in sub-section (1), the Board or the Director General, or the Chief Commissioner or Commissioner if so authorised by the Board, may, by order in writing, transfer any appeal which is pending before a Deputy Commissioner (Appeals) and any matter arising out of or connected with such appeal and which is so pending, to the Commissioner (Appeals) if the Board or, as the case may be, the Director General or Chief Commissioner or Commissioner (at the request of the appellant or otherwise) is satisfied that it is necessary or expedient so to do having regard to the nature of the case, the complexities involved and other relevant considerations and the Commissioner (Appeals) may proceed with such appeal or matter from the stage at which it was before it was so transferred: Provided that the appellant may demand that before proceeding further with the appeal or matter, the previous proceeding or any part thereof be re-opened or that he be re-heard. Explanation.-For the purposes of this section,- (a) "appointed day" means the 10th day of July, 1978, being the day appointed under section 39 of the Finance (No. 2) Act, 1977 (29 of 1977); (b) "status" means the category under which the assessee is assessed as "individual", "Hindu undivided family" and so on.] [246A. Application by the assessee in certain cases.-Omitted by the Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1-4-1989. Earlier, it was inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from the same date.] ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

2 Substituted, ibid. Prior to the substitution, clause (g) read as under: "(g) an order imposing a penalty under clause (c) of sub-

section (1) of section 271, as it stood immediately before the 1st day of April, 1989 in respect of any assessment for the assessment year commencing on the 1st day of April, 1988 or any earlier assessment years, where such penalty has been imposed with the previous approval of the Deputy Commissioner

under the proviso to clause (iii) of sub-section (1) of that section;" ---------------------------------------------------------------------- 1.718

Appeal by partner. 1[247. Appeal by partner.-Omitted by the Finance Act, 1992, w.e.f 1-4-1993.]

Appeal by person denying liability to deduct tax. 248. Appeal by person denying liability to deduct tax Any person having in accordance with the provisions of sections 195 and 200 deducted and paid tax in respect of any sum chargeable under this Act, other than interest, who denies his liability to make such deduction, may appeal to the 2[Deputy Commissioner (Appeals)] 3[or, as the case may be, the Commissioner (Appeals)] to be declared not liable to make such deduction.

Form of appeal and limitation 4. 249. Form of appeal and limitation4

(1) Every appeal under this Chapter shall be in the prescribed form and shall be verified in the prescribed manner.

(2) The appeal shall be presented within thirty days of the following date, that is to say,- (a) where the appeal relates to any tax deducted under sub-

section (1) of section 195, the date of payment of the tax, or, (b) where the appeal relates to any assessment or penalty, the date of service of the notice of demand relating to the assessment or penalty: 5[Provided that, where an application has been made under section 146 for reopening an assessment, the period from the date on which the application is made to the date on which the order passed on the application reserved on the assessee shall be excluded, or] 6(C) in any other case, the date on which intimation of the order sought to be appealed against is served.

(3) The 7[Deputy Commissioner (Appeals)] 8[or, as the case may be, the Commissioner (Appeals)] may admit an appeal after the expiration of --------------------------------------------------------------------- 1 Prior to the omission, section 247, as amended by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "247. Appeal by partner.-Where the partners of a firm are individually assessable on their shares in the total income of the firm, any such partner may appeal to the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) against any order of an Assessing Officer deter-mining the amount of the total income or the loss of the firm or the apportionment thereof between the several partners, but he cannot agitate such matters in any appeal preferred against an order of assessment determining his own total income or loss." Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 2 Substituted for "Appellate Assistant Commissioner", ibid. 3 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 5 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

7 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 8 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. ---------------------------------------------------------------------- 1.719 the said period if he is satisfied that the appellant had sufficient cause for not presenting it within that period.

1[(4) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal,- (a) where a return has been filed by the assessee, the assessee has paid the tax due on the income returned by him; or (b) where no return has been filed by the assessee, the assessee has paid an amount equal to the amount of advance tax which was payable by him: Provided that, 2[in a case falling under clause (b) and] on an application made by the appellant in this behalf, the 3[Deputy Commissioner (Appeals)] 4[or, as the case may be, the Commissioner (Appeals)] may, for any good and sufficient reason to be recorded in writing, exempt him from the operation of the provisions of 5[that clause].]

Procedure in appeal 6. 250. Procedure in appeal 6

(1) The 7 [Deputy Commissioner (Appeals)] 8[or, as the case may be, the Commissioner (Appeals)] shall fix a day and place for the hearing of the appeal, and shall give notice of the same to the appellant and to the 9[Assessing] Officer against whose order the appeal is preferred.

(2) The following shall have the right to be heard at the hearing of the appeal- (a) the appellant, either in person or by an authorised representative; (b) the 10[Assessing] Officer, either-in person or by a representative. --------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

3 Substituted for 'Appellate Assistant Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 5 Substituted for 'this sub-section' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 7 Substituted for 'Appellate Assistant Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 8 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 9 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 Ibid. ---------------------------------------------------------------------- 1.720

(3) The 1[Deputy Commissioner (Appeals)] 2 [or, as the case may be, the Commissioner (Appeals)] shall have the power to adjourn the hearing of the appeal from time to time.

(4) The 3 [Deputy Commissioner (Appeals) ] 4 [or, as the case may be, the Commissioner (Appeals)] may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the 5[Assessing] Officer to make further inquiry and report the result of the same to the 6[Deputy Commissioner (Appeals)] 7[or, as the case may be, the Commissioner (Appeals)].

(5) The 8[Deputy Commissioner (Appeals)] 9[or, as the case may be, the Commissioner (Appeals)] may, at the hearing of an appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the 10[Deputy Commissioner (Appeals)] 11[or, as the case may be, the Commissioner (Appeals)] is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable.

(6) The order of the 12[Deputy Commissioner (Appeals)] 13[or, as the case may be, the Commissioner (Appeals)] disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision.

(7) On the disposal of the appeal, the 14 [Deputy Commissioner (Appeals)] 15[or, as the case may be, the Commissioner (Appeals)] shall communicate the order passed by him to the assessee and to the 16[ Chief Commissioner or Commissioner]. ---------------------------------------------------------------------- 1 Substituted for "Appellate Assistant Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 3 Substituted for 'Appellate Assistant Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 5 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted for 'Appellate Assistant Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 8 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 9 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 10 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws .(Amendment) Act, 1987, w.e.f. 1-4-1988. 11 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 12 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 13 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 14 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 15 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 16 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.721 2. Departmental appellate authorities should pass appellate orders in all cases within 20 days after the final hearing and in all duly heard cases before relinquishing charge on transfer or proceeding on leave.

[Instruction No. 1489, dated 3rd November, 1982]

Powers of the 1[Deputy Commissioner (Appeals)] 2[or, as the case may be, the Commissioner (Appeals) ] 251. Powers of the 1[Deputy Commissioner (Appeals)] 2[or, as the case may be, the Commissioner (Appeals)]

(1) In disposing of an appeal, the 3[Deputy Commissioner (Appeals)] 4[or, as the case may be, the Commissioner (Appeals)] shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; or he may set aside the assessment and refer the case back to the 5[Assessing] Officer for making a fresh assessment in accordance with the directions given by the 6[Deputy Commissioner (Appeals)] 7[or, as the case may be, the Commissioner (Appeals)] and after making such further inquiry as may be necessary, and the 8[Assessing] Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment; (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit.

(2) The 9[Deputy Commissioner (Appeals)] 10[or, as the case may be, the Commissioner (Appeals)] shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.-In disposing of an appeal, the 11[Deputy Commissioner (Appeals)] 12[or, as the case may be, the Commissioner (Appeals)] may consider and decide any matter arising out of the proceedings in which ---------------------------------------------------------------------- 1 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 3 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 8 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 9 Substituted for "Appellate Assistant Commissioner", ibid. 10 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 11 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 12 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. ---------------------------------------------------------------------- 1.722 the order appealed against was passed, notwithstanding that such matter was not raised before the 1[Deputy Commissioner (Appeals)] 2

[or, as the case may be, the Commissioner (Appeals)] by the appellant.

Appellate Tribunal. 252. Appellate Tribunal

(1) The Central Government shall constitute an Appellate Tribunal consisting of as many judicial and accountant members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by this Act.

3[(2) A judicial member shall be a person who has for at least ten years held a udicial office in the territory of India or who has been a member of the Central Legal Service and has held a post in Grade 1 of that Service or any equivalent or higher post for at least three years or who has been an advocate for at least ten years. Explanation.-For the purposes of this sub-section,- (i) in computing the period during which a person has held judicial office in the territory of India, there shall be included any period, after he has held any judicial office, during which the person has been an advocate or has held the office of a member of a Tribunal or any post, under the Union or a State, requiring special knowledge of law; (ii) in computing the period during which a person has been an advocate, there shall be included any period during which the person has held judicial office or the office of a member of a Tribunal or any post, under the Union or a State, requiring special knowledge of law after he became an advocate. (2A) An accountant member shall be a person who has for at least ten years been in the practice of accountancy as a chartered accountant under the Chartered Accountants Act, 1949 (38 of 1949), or as a registered accountant under any law formerly in force or partly as a registered accountant and partly as a chartered accountant, or who has been a member of the Indian Income-tax Service, Group A, and has held the post of Commissioner of Income-tax or any equivalent or higher post for at least three years.]

(3) The Central Government shall ordinarily appoint a judicial member of the Appellate Tribunal to be the President thereof.

4[(4) The Central Government may appoint one or more members of the Appellate Tribunal to be the Vice-President or, as the case may be, Vice-Presidents thereof.] 5[(4A) The Central Government may appoint one of the Vice- Presidents of the Appellate Tribunal to be the Senior Vice-President thereof.] ---------------------------------------------------------------------- 1 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 3 Substituted by the Finance Act, 1981, w.e.f. 1-4-1981. 4 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 5 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. --------------------------------------------------------------------- 1.723

1(5) 2[The Senior Vice-President or a Vice-President] shall exercise such of the powers and perform such of the functions of the President as may be delegated to him by the President by a general or special order in writing.

Appeals to the Appellate Tribunal 4. 3 253. Appeals to the Appellate Tribunal 4

(1) Any assessee aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order- (a) an order passed by a 5[Deputy Commissioner (Appeals)] 6

[or, as the case may be, a Commissioner (Appeals)] under 7[*

[or under section 272A] 13[* * *] or an order passed by him

(2) The Commissioner may, if he objects to any order passed by a 15[Deputy Commissioner (Appeals)] 16[or, as the case may be, a -------------------------------------------------------------------- 2 Substituted for "A Vice-President" by the Finance Act, 1984, w.e.f. 1-4-1984. 3 See the suggestions made by Registrar of Appellate Tribunal for guidance of assessees with regard to appeals, applications or cross objections, reproduced in Bharat's Direct Taxes Circulars, 1991 edn., p. 1864.

4 See rule 47(1) and Form Nos. 36 and 36A. 5 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978.

7 The words "sub-section (2) of section 131," omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 8 Inserted by the Direct Tax (Amendment) Act, 1964, w.e.f. 6-10-

9 The words "section 246A," omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, these words were inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 10 Substituted for "or section 271" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 11 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. Clause (b), as originally enacted, was amended by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964; Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and Finance (No. 2) Act, 1977, w.e.f. 10-7-1978 and omitted by the Direct Tax Laws (Amendment) Act, 1984, w.e.f. 1-10- 1984. Prior to the omission, it read as under: "(b) an order passed by an Inspecting Assistant Commissioner under section 154; or,. 12 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

13 The words "or under section 285A" omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Earlier. these words were inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964. 14 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 15 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 16 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. ---------------------------------------------------------------------- 1.724 Commissioner (Appeals)] under 1[section 154 or] section 250, direct the 2[Assessing] Officer to appeal to the Appellate Tribunal against the order.

(3) Every appeal under sub-section (1) or sub-section (2) shall be filed within sixty days of the date on which the order sought to be appealed against is communicated to the assessee or to the Commissioner, as the case may be: 3[Provided that in respect of any appeal under clause (b) of sub-

section (1), this sub-section shall have effect as if for the words "sixty days", the words "thirty days" had been substituted.]

(4) The 4[Assessing ] Officer or the assessee, as the case may be, on receipt of notice that an appeal against the order of the 5[Deputy Commissioner (Appeals)] 6[or, as the case may be, the

Commissioner (Appeals)] has been preferred under sub-section (1) or

sub-section (2) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof, within thirty days of the receipt of the notice, file a 'memorandum of cross- objections, verified in the prescribed manner, against any part of the order of the 7[Deputy Commissioner (Appeals)] 8[or, as the case may be, the Commissioner (Appeals)], and such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal presented within

the time specified in sub-section (3).

(5) The Appellate Tribunal may admit an appeal or permit the filing of a memorandum of cross-objections after the expiry of the

relevant period referred to in sub-section (3) or sub-section (4), if it is satisfied that there was sufficient cause for not presenting it within that period.

9[(6) An appeal to the Appellate Tribunal shall be in the prescribed ---------------------------------------------------------------------- 1 Inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-

2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Substituted for "Appellate Assistant Commissioner" ibid. 6 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 7 Substituted for 'Appellate Assistant Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 8 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 9 Substituted by the Finance Act, 1993, w.r.e.f. 1-6-1992. Prior

to the substitution, sub-section (6), as originally enacted and subsequently amended, as annotated below, read as under:

"(6) An appeal to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner and

shall, except in the case of an appeal referred to in sub-section (2)

or a memorandum of cross-objections referred to in sub-section (4), be accompanied by a fee of- (a) where the total income of the assessee as computed by the Assessing Officer in the case to which the appeal relates is one lakh rupees or less, two hundred and fifty rupees,- (b) where the total income of the assessee computed as aforesaid in the case to which the appeal relates is more than one lakh rupees, one thousand and five hundred rupees." The italicised words were substituted for "a fee of two hundred rupees" by the ---------------------------------------------------------------------- 1.725 form and shall be verified in the prescribed manner and shall, in the case of an appeal made on or after the 1st day of June, 1992, irrespective of the date of initiation of the assessment proceedings relating thereto, be accompanied by a fee of,- (a) where the total income of the assessee as computed by the Assessing Officer in the case to which the appeal relates is one lakh rupees or less, two hundred and fifty rupees; (b) where the total income of the assessee computed as aforesaid in the case to which the appeal relates is more than one lakh rupees, one thousand and five hundred rupees: Provided that no such fee shall be payable in the case of an appeal

referred to in sub-section (2) or a memorandum of cross-objections

referred to in sub-section (4).]

Orders of Appellate Tribunal. 254. Orders of Appellate Tribunal

(1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. 1[(1A)* * * ]

(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-

section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the 2 [Assessing] Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this. sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.

(3) The Appellate Tribunal shall send a copy of any orders passed under this section to the assessee and to the 3[4[* * *] Commissioner]. ---------------------------------------------------------------------- -> -> Finance Act, 1992, w.e.f. 1-6-1992. Earlier, 'two hundred rupees' were substituted for "one-hundred and twenty-five rupees, by the Finance Act, 1981, w.e.f. 1-6-1981 which were substituted for 'rupees one hundred' by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 1 Omitted by the Taxation Laws (Amendment) Act, 1972, w.e.f. 1-1- 1973. It was inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

Section 25(1) of the 1972 Amendment Act made the following savings provision: "25. Savings and special provision.-(I) Notwithstanding the omission of subsection (1A) of section 254 of the-Income-tax Act,, 1961 (43 of 1961), by section 3 of this Act, every requisition by an appellant for the making of a reference under that sub-section and every reference made under that sub-section before such omission shall be dealt with as if the said section has not been omitted, and, save as aforesaid, no such reference shall be made after such omission.' 2 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 The words 'Chief Commissioner or' omitted by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991. ----------------------------------------------------------------------- 1.726

(4)Save as provided in section 256, orders passed by the Appellate Tribunal on appeal shall be final.

Procedure of Appellate Tribunal 1. 255. Procedure of Appellate Tribunal1

(1)The powers and functions of the Appellate Tribunal may be exercised and discharged by Benches constituted by the President of the Appellate Tribunal from among the members thereof.

(2)Subject to the provisions contained in sub-section (3), a Bench shall consist of one judicial member and one accountant member.

(3)The President or any other member of the Appellate Tribunal authorised in this behalf by the Central Government may, sitting singly, dispose of any case which has been allotted to the Bench of which he is a member and which pertains to an assessee whose total income as computed by the 2[Assessing] Officer in the case does not exceed 3[one lakh rupees], and the President may, for the disposal of any particular case, constitute a Special Bench consisting of three or more members, one of whom shall necessarily be a judicial member and one an accountant member.

(4)if the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it.

4(5) Subject to the provisions of this Act, the Appellate Tribunal shall have powers to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of the discharge of its functions, including the places at which the Benches shall hold their sittings.

(6)The Appellate Tribunal shall, for the purpose of discharging its functions, have all the powers which are vested in the income-tax authorities referred to in section 131, and any proceeding before the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purpose of section 196 of the Indian Penal Code (45 of 1860), and the Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898 (5 of 1898).5 ------------------------------------------------------------------ 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "forty thousand rupees" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, which was earlier substituted for "twenty-five thousand rupees' by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 5 Now the Code of Criminal Procedure, 1973 (2 of 1974). ---------------------------------------------------------------------- 1.727

Statement of case to the High Court 1. 256 Statement of case to the High Court 1

(1) The assessee or the Commissioner may, within sixty days of the date upon which he is served with notice of an order under section 254, by application in the prescribed form, accompanied where the application is made by the assessee by a fee of 2[two hundred rupees], require the Appellate Tribunal to refer to the High Court any question of law arising out of such order and, subject to the other provisions contained in this section, the Appellate Tribunal shall, within one hundred and twenty days of the receipt of such application, draw up a statement of the case and refer it to the High Court: Provided that the Appellate Tribunal may, if it is satisfied that the applicant was prevented by sufficient cause from presenting the application within the period hereinbefore specified, allow it to be presented within a further period not exceeding thirty days.

(2) If, on an application made under sub-section (1), the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, may, within six months from the date on which he is served with notice of such refusal, apply to the High Court, and the High Court may, if it is not satisfied, with the correctness of the decision of the Appellate Tribunal, require the Appellate Tribunal to state the case and to refer it, and on receipt of any such requisition, the Appellate Tribunal shall state the case and refer it accordingly.

(3) Where in the exercise of its powers under sub-section (2), the Appellate Tribunal refuses to state a case which it has been required by the assessee to state, the assessee may, within thirty days from the date on which he receives notice of such refusal, withdraw his application. and, if he does so, the fee paid shall be refunded.

Statement of cases to Supreme Court in certain cases 3. 257. Statement of cases to Supreme Court in certain cases 3 If, on an application made under section 256 the Appellate Tribunal is of the opinion-that, on account of a conflict in the decisions of High Courts in respect of any particular question of law, it is expedient that a ------------------------------------------------------------------- 2 Substituted for "one hundred and twenty-five rupees" by the Finance Act, 1981, w.e.f. 1-6-1981, which was earlier substituted for "rupees one hundred" by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. ----------------------------------------------------------------------- 1.728 reference should be made direct to the Supreme Court, the Appellate Tribunal may draw up a statement of the case and refer it through its President direct to the Supreme Court.

Power of High Court or Supreme Court to require statement to be amended. 258. Power of High Court or Supreme Court to require statement to be amended If the High Court or the Supreme Court is not satisfied that the statements in a case referred to it are sufficient to enable it to determine the questions raised thereby, the court may refer the case back to the Appellate Tribunal for the purpose of making such additions thereto or alterations therein as it may direct in that behalf.

Case before High Court to be heard by not less than two judges. 259. Case before High Court to be heard by not less than two judges

(1) When any case has been referred to the High Court under section 256, it shall be heard by a Bench of not less than two judges of the High Court, and shall be decided in accordance with the opinion of such judges or of the majority, if any, of such judges.

(2) Where there is no such majority, the judges shall state the point of law upon which they differ, and the case shall then be heard upon that point only by one or more of the other judges of the High Court, and such point shall be decided according to the opinion of the majority of the judges who have heard the case including those who first heard it.

Decision of High Court or Supreme Court on the case stated. 260. Decision of High Court or Supreme Court on the case stated

(1) The High Court or the Supreme Court upon hearing any such case shall decide the questions of law raised therein, and shall deliver its judgment thereon containing the grounds on which such decision is founded, and a copy of the judgment shall be sent under the seal of the court and the signature of the Registrar to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment.

(2) The costs of any reference to the High Court or the Supreme Court which shall not include the fee for making the reference shall be in the discretion of the court. D.-Appeals to the Supreme Court

Appeal to Supreme Court. 261. Appeal to Supreme Court An appeal shall lie to the Supreme Court from any judgment of the High Court delivered on a reference made under section 256 in any case which the High Court certifies to be a fit one for appeal to the Supreme Court.

Hearing before Supreme Court. 262. Hearing before Supreme Court

(1) The provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the Supreme Court shall, so far as may be, apply in the case of appeals under section 261 as they apply in the case of appeals from decrees of a High Court: Provided that nothing in this section shall be deemed to affect

the provisions of sub-section (1) of section 260 or section 265.

(2) The costs of the appeal shall be in the discretion of the Supreme Court.

(3) Where the judgment of the High Court is varied or reversed in the appeal, effect shall be given to the order of the Supreme Court in the 1.729 manner provided in section 260 in the case of a judgment of the High Court. E.-Revision by the Commissioner

Revision of orders prejudicial to revenue 1. 263. Revision of orders prejudicial to revenue 1

(1)The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the 2[Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 3[Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- ---------------------------------------------------------------------- (a) an order passed 4 [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or the Income-tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144A; (ii) an order made by the Deputy Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120; (b) "record" 5[shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal, 6[filed on or before or after the 1st day of June, 1988] the powers ---------------------------------------------------------------------- 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted by the Finance Act, 1988, w.e.f. 1-6-1988. Prior to the substitution, the Explanation, as inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984 and amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, an order passed by the Assessing Officer shall include- (a) an order of assessment made on the basis of directions issued by the Deputy Commissioner under section 144A or section 144B; and (b) an order made by the Deputy Commissioner in exercise of the powers or in performance of the functions of an Assessing Officer conferred on, or assigned to, him under clause (a) of

sub-section (1) of section 125 or under sub-section (1) of section 125A." 4 Inserted by the Finance Act, 1989, w.r.e.f. 1-6-1988. 5 Substituted for "includes" by the Finance Act, 1989, w.r.e.f. 1-6-1988. 6 Inserted, ibid. ---------------------------------------------------------------------- 1.730 of the Commissioner under this sub-section shall extend 1[and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.]

2[(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.]

(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation.-In computing the period of limitation for the

purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.

Revision of other orders. 264. Revision of other orders

(1) In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Commissioner may, either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit.

(2) The Commissioner shall not of his own motion revise any order under this section if the order has been made more than one year previously.

(3) In the case of an application for revision under this section by the assessee, the application must be made within one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know of it, whichever is earlier: Provided that the Commissioner may, if he is satisfied that the assessee was prevented by sufficient cause from making the application within that period, admit an application made after the expiry of that period.

(4) The Commissioner shall not revise any order under this section in the following cases- (a) where an appeal against the order lies to the 3[Deputy Commissioner (Appeals)] 4[or to the Commissioner (Appeals)] or ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1989, w.r.e.f. 1-6-1988. 2 Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-

10-1984. Prior to the substitution, sub-section (2) read as under:

"(2) No order shall be made under sub-section (1)- (a) to revise an order of reassessment made under section 147, or (b) after the expiry of two years from the date of the order sought to be revised." 3 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. ---------------------------------------------------------------------- 1.731 to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired or, in the case of an appeal 1[to the Commissioner (Appeals) or] to the Appellate Tribunal, the assessee has not waived his right of appeal; or (b) where the order is pending on an appeal before the 2[Deputy Commissioner (Appeals)]; or (c) where the order has been made the subject of an appeal 3 4[to the Commissioner (Appeals) or] to the Appellate Tribunal.

(5) Every application by an assessee for revision under this section shall be accompanied by a fee of twenty-five rupees Explanation 1.-An order by the Commissioner declining to interfere shall, for the purposes of this section, be deemed not to be an order prejudicial to the assessee. Explanation 2.-For the purposes of this section, the 5[Deputy Commissioner (Appeals)] shall be deemed to be an authority subordinate to the Commissioner. F.-General

Tax to be paid notwithstanding reference, etc. 265. Tax to be paid notwithstanding reference, etc. Notwithstanding that a reference has been made to the High Court or the Supreme Court or an appeal has been preferred to the Supreme Court, tax shall be payable in accordance with the assessment made in the case.

Execution for costs awarded by Supreme Court. 266. Execution for costs awarded by Supreme Court The High Court may, on petition made for the execution of the order of the Supreme Court in respect of any costs awarded thereby, transmit the order for execution to any court subordinate to the High Court.

Amendment of assessment on appeal. 6[267. Amendment of assessment on appeal Where as a result of an appeal under section 246 or section 253, any ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 2 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 5 Substituted for "Appellate Assistant Commissioner " by the Direct Tax Laws (Amendment) Act, 1987,w.e.f. 1-4-1988. 6 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, section 267 as amended by the Finance (No._2) Act, 1977, w.e.f. 10-7-1978 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "267. Amendment of assessment on appeal.-Where as the result of an appeal under section 246 or section 253, any change is made in the assessment of a firm or a body of individuals or an association of persons or a new assessment of a firm or a -> -> ---------------------------------------------------------------------- 1.732 change is made in the assessment of a body of individuals or an association of persons or a new assessment of a body of individuals or an association of persons is ordered to be made, the Deputy Commissioner (Appeals) or the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall pass an order authorising the Assessing Officer either to amend the assessment made on any member of the body or association or make a fresh assessment on any member of the body or association.]

Exclusion of time taken for copy. 268. Exclusion of time taken for copy In computing the period of limitation prescribed for an appeal 1[or an application] under this Act, the day on which the order complained of was served and, if the assessee was not furnished with a copy of the order when the notice of the order was served upon him, the time requisite for obtaining a copy of such order, shall be excluded.

Definition of "High Court" 269. Definition of "High Court" In this Chapter,- "High Court" means,- (i) in relation to any State, the High Court for that State; 2[(ii) in relation to the Union territory of Delhi. the High Court of Delhi; 3[(iia) * * *]] 4[(iii) Omitted by the Finance Act, 1994, w.e.f. 1-4- 1995.] (iv) in relation to the Union territory of the Andaman and Nicobar Islands, the High Court at Calcutta; (v) in relation to the Union territory of 5[Lakshadweep], the High Court of Kerala; ------------------------------------------------------------- -> -> body of individuals or an association of persons is ordered to be made, the Deputy Commissioner (Appeals), or the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall pass an order authorising the Assessing Officer either to amend the assessment made on any partner of the firm or any member of the body or association or make a fresh assessment on any partner of the firm or on any member of the body or association." Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was restored to its original provision by the Direct Tax Laws (Amendment) Act, 1989, with effect from same date. 1 Inserted by the Finance 1 Act, 1990, w.e.f. 1-4-1990. Earlier, these words were omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Substituted by the Punjab Reorganisation and Delhi High Court (Adaptation of Laws on Union Subjects) Order, 1968, w.r.e.f. 1-11-

3 Omitted by the State of Himachal Pradesh (Adaptation of Laws on Union Subjects) Order, 1973, w.r.e.f. 25-1-1971. 4 Prior to the omission, clause (iii), as substituted by the North- Eastern Areas (Reorganisation) (Adaptation of Laws on Union Subjects) Order, 1974, w.r.e.f. 21-1-1972, read as under: "(iii) in relation to the Union territories of Arunachal Pradesh and Mizoram, the Gauhati High Court (the High Court of Assam, Nagaland, Meghalaya, Manipur and Tripura);" 5 Substituted for 'the Laccadive, Minicoy and Amindivi Islands" by the Laccadive, Minicoy and Amindivi Islands (Alteration of Name) Adaptation of Laws Order, 1974, w.r.e.f. 1-11-1973. ---------------------------------------------------------------------- 1.733 1 [ (va) in relation to the Union territory of Chandigarh, the High Court of Punjab and Haryana;] 2[(Vi) in relation to the Union territories of Dadra and Nagar Haveli and 3[* * *] Daman and Diu, the High Court at Bombay; and (vii) in relation to the Union territory of 'Pondicherry, the High Court at Madras.] ----------------------------------------------------------------------- 1 Inserted by the Punjab Reorganisation and Delhi High Court (Adaptation of Laws on Union Subjects) Order, 1968, w.r.e.f. 1-11-

2 Inserted by the Taxation Laws (Extension to Union Territories) Regulation, 1963, w.e.f. 1-4-1963. 3 The word "Goa", omitted by the Finance Act, 1994, w.e.f. 1-4-1995. ---------------------------------------------------------------------- 1.734 CHAP ACQUISITION OF IMMOVABLE PROPERTIES IN CERTAIN CASES OF TRANSFER TO COUNTER ACT EVASION OF TAX 1[CHAPTER XXA ACQUISITION OF IMMOVABLE PROPERTIES IN CERTAIN CASES OF TRANSFER TO COUNTERACT EVASION OF TAX 269A. Definitions In this Chapter, unless the context otherwise requires,- (a) 2["apparent consideration",-

(1) in relation to any immovable property transferred, being immovable property of the nature referred to in sub- clause (i) of clause (e), means,--] (i) if the transfer is by way of sale, the consideration for such transfer as specified in the instrument of transfer; (ii) if the transfer is by way of exchange,- (A) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer; (B) in a case where the consideration for the transfer consists of a thing or things and a sum of money, the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer and such sum; 3[(iii) if the transfer is by way of lease,- (A) in a case where the consideration for the transfer consists of premium only, the amount of premium as specified in the instrument of transfer; (B) in a case where the consideration for the transfer consists of rent only, the aggregate of the moneys (if any) payable by way of rent and the amounts for the service or things forming part of or constituting the rent, as specified in the instrument of transfer; (C) in a case where the consideration for the transfer consists of premium and rent, the aggregate of the amount of the premium, the moneys (if any) payable by way of rent and the amounts for the service or things forming part of or constituting the rent, as specified in the instrument of transfer, ---------------------------------------------------------------------- 1 Chapter XXA, consisting of sections 269A to 269S was inserted by the Taxation Laws (Amendment) Act, 1972, w.e.f. 15-11-1972. It ceased to operate in respect of transfer of immovable property made after 30-9-1986 (see section 269RR) but simultaneously a new Chapter XX-C was inserted. 2 Substituted for "apparent consideration", in relation to any immovable property transferred, means,-' by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-1982. 3 Inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-

1.735 and where the whole or any part of the consideration for such transfer is payable on any date or dates falling after the date of such transfer the value of the consideration payable after such date shall be deemed to be the discounted value of such consideration, as on the date of such transfer, determined by adopting the rate of interest at eight per cent per annum;

(2) in relation to any immovable property transferred, being immovable property of the nature referred to in sub- clause (ii) of clause (e) means,- (i) in a case where the consideration for the transfer consists of a sum of money only, such sum; (ii) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date of the transfer; (iii) in a case where the consideration for the transfer consists of a thing or things and a sum of money, the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date of the transfer and such sum, and where the whole or any part of the consideration for such transfer is payable on any date or dates falling after the date of such transfer, the value of the consideration payable after such date shall be deemed to be the discounted value of such consideration, as on. the date of such transfer determined by adopting the rate of interest at eight per cent per annum;] (b) "competent authority" means 1[a Deputy Commissioner] authorised by the Central Government under section 269B to perform the functions of a competent authority under this Chapter; (c) "court" means a principal civil court of original jurisdiction unless the Central Government has appointed (as it is hereby authorised to do) any special judicial officer within any specified local limits to perform the functions of the court under this Chapter; 2[(d) "fair market value",- (i) in relation to any immovable property transferred by way of sale or exchange, being immovable property of the nature referred to in sub-clause (i) of clause (e), means the price that the immovable property would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property; ---------------------------------------------------------------------- 1 Substituted for "an Assistant Commissioner of Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 2 Substituted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7- 1982. Prior to the substitution, it read as under: "(d) "fair market value" in relation to any immovable property transferred means the price that the immovable property would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property;" ----------------------------------------------------------------------- 1.736 (ii) in relation to any immovable property transferred by way of lease, being immovable property of the nature referred to in sub-clause (i) of clause (e), means the premium that such transfer would ordinarily fetch in the open market on the date of execution of the instrument of transfer of such property, if the consideration for such transfer had been by way of premium only; (iii) in relation to any immovable property transferred, being immovable property of the nature refer-red to in sub- clause (ii) of clause (e), means the consideration in the form of money that such transfer would ordinarily fetch in the open market on the date of the transfer, if such transfer had been made only for consideration in money;] (e) 1["immovable property" means,- (i) any land or any building] or part of a building, and includes, where any land or any building or part of a building is transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation.-For the purposes of this 2[sub-clause], land, building, part of a building, machinery, plant, furniture, fittings and other things include any rights therein; 3[(ii) any rights of the nature referred to in clause (b) of

sub-section (1) of section 269AB;] 4[(f) "instrument of transfer" means the instrument of transfer registered under the Registration Act, 1908 5 (16 of 1908), or, as the case may be, the statement registered under section 269AB with the competent authority;] (g) "person interested", in relation to any immovable property, includes all persons claiming, or entitled to claim, an interest in the compensation Payable on account of the acquisition of that property under this Chapter; 6[(h) "transfer",- (i) in relation to any immovable property referred to in sub-clause (i)of clause (e), means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years, and includes allowing the possession of such property to be taken or retained in part performance of a contract of the ----------------------------------------------------------------------- 1 Substituted for "immovable property" means any land or any building' by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-1982. 2 Substituted for "clause", by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-1982. 3 Inserted, ibid. 4 Substituted, ibid. Prior to the substitution, clause (f) read as under: "(f) "instrument of transfer" means the instrument of transfer registered under the Registration Act, 1908 . 6 Substituted, ibid. Prior to the substitution, clause (h) read as under: "(h) "transfer", in relation to any immovable property, means transfer of such property by way of sale or exchange." ----------------------------------------------------------------------- 1.737 nature referred to in section 53A of the Transfer of Property Act, 1882 1 (4 of 1882). Explanation.-For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be deemed to be a lease for a term of not less than twelve years if the aggregate of the term for which such lease has been granted and the further term or terms for which it can be so extended is not less than twelve years; (it') in relation to any immovable property of the nature refer-red to in sub-clause (ii) of clause (e), means the doing of anything (whether by way of transfer of shares in a co-operative society or company or by way of any agreement or arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of such property.] 2[269AB. Registration of certain transactions

(1) The following transactions, that is to say,- (a) every transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 18823 (4 of 1882), and (b) every transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature) whereby a person acquires any rights in or with respect to any building or part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed [not being a transaction by way of sale, exchange or lease of such building or part of a building which is required to be registered under the Registration Act, 19084 (16 of 1908)], shall be reduced to writing in the form of a statement by each of the parties to such transaction or by any of the parties to such transaction acting on behalf of himself and on behalf of the other parties.

5(2) Every statement in respect of a transaction referred to in

subsection (1) shall- (a) be in the prescribed form; (b) set forth such particulars as may be prescribed; and (c) be verified in the prescribed manner, and registered with the competent authority, in such manner and within such time as may be prescribed, by each of the parties to such transaction or by any of the parties to such transaction acting on behalf of himself and on behalf of the other par-ties.] ---------------------------------------------------------------------- 2 Inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-

4 lbid ------------------------------------------------------------------------ 1.738 1 269B. Competent authority

(1) The Central Government may, by general or special order' published in the Official Gazette,- (a) authorise as many 3[Deputy Commissioners] as it thinks fit, to perform the functions of a competent authority under this Chapter; and (b) define the local limits within which the competent authorities shall perform their functions under this Chapter.

(2) In respect of any function to be performed by a competent authority under any provision of this Chapter in relation to any immovable property referred to in section 269C, the competent authority referred to therein shall,- (a) in a case where such property is situate within the local limits of the jurisdiction of only one competent authority, be such competent authority; (b) in a case where such property is situate within the local limits of the jurisdiction of two or more competent authorities, be the competent authority empowered to perform such functions in relation to such property in accordance with rules made in this behalf by the Board under section

4[Explanation.-For the purposes of this sub-section, immovable property, being rights of the nature referred to in clause (b) of sub-

section (1) of section 269AB in, or with respect to, any building or part of a building which has been constructed or which is to be constructed shall be deemed to be situate at the place where the building has been constructed or is to be constructed.]

(3) No person shall be entitled to call in question the jurisdiction of a competent authority in respect of any immovable property after the expiry of thirty days from the date on which such competent authority initiates proceedings under section 269D for the acquisition of such property.

(4) Subject to the provisions of sub-section (3), where the jurisdiction of a competent authority is questioned, the competent authority shall, if satisfied with the correctness of the claim, by order in writing, determine the question accordingly and if he is not so satisfied, he shall refer the question to the Board and the Board shall, by order in writing, determine the question. 269C. Immovable property in respect of which proceedings for acquisition may be taken'

(1) Where the competent authority has reason to believe that any --------------------------------------------------------------------- 3 Substituted for "Assistant Commissioners of Income-tax" by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 4 Inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-

1.739 immovable property of a fair market value exceeding 1[one hundred] thousand rupees has been transferred by a person (hereafter in this Chapter referred to as the transferor) to another person (hereafter in this Chapter referred to as the transferee) for an apparent consideration which is less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with the object of- (a) facilitating the reduction or evasion of the liability of the transferor to pay tax under this Act in respect of any income arising from the transfer; or (b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act or the Wealth- tax Act, 1957 (27 of 1957), the competent authority may, subject to the provisions of this Chapter, initiate proceedings for the acquisition of such property under this Chapter: Provided that before initiating such proceedings, the competent authority shall record his reasons for doing so: Provided further that no such proceedings shall be initiated unless the competent authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen per cent of such apparent consideration.

(2) In any proceedings under this Chapter in respect of any immovable property,- (a) where the fair market value of such property exceeds the apparent consideration therefor by more than twenty-five per cent of such apparent consideration, it shall be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer; (b) where the property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in clause (a) or

clause (b) of sub-section (1). 2 269D. Preliminary notice

(1) The competent authority shall initiate proceedings for the acquisition, under this Chapter, of any immovable property referred to in section 269C by notice to that effect published in the Official Gazette: Provided that no such proceedings shall be initiated in respect of any immovable property after the expiration of a period of 3[nine] months ---------------------------------------------------------------------- 1 Substituted for "twenty-five" by the Finance Act, 1984, w.e.f. 1-6-

3 Substituted for "six" by the Income-tax (Amendment) Act, 1973, w.r.e.f. 15-11-1972. Section 3 of the Amendment Act also made the following independent provision:

"3. Validation.-(1) No notice for the initiation of proceedings for the acquisition of any immovable property under Chapter XXA of the principal Act which was -> -> ----------------------------------------------------------------------- 1.740 from the end of the month in which the instrument of transfer in respect of such property is registered under the Registration Act, 1908 1 (16 of 1908), 2[or, as the case may be, section 269AB]: Provided further that-

(a) in a case where it is determined under sub-section (4) of section 269B by the competent authority who has initiated proceedings for the acquisition of any immovable property under this Chapter or by the Board that such competent authority has no jurisdiction to initiate such proceedings, the competent authority having jurisdiction may initiate such proceedings within- (i) the period of 3[nine] months specified in the foregoing proviso; or (ii) a period of thirty days from the date of such determination, whichever period expires later; (b) in a case where proceedings for the acquisition of any immovable property under this Chapter could not be initiated during any period of time by reason of any injunction or order of any court prohibiting the initiation of such proceedings or preventing the examination of documents or other materials required to be examined for' the purpose of determining whether such proceedings should be initiated, the time of the continuance of the injunction or order, the day on which it was issued or made and ---------------------------------------------------------------------- issued by the competent authority before the commencement of this Act for publication in the Official Gazette, in the exercise of or the purported exercise of the powers under section 269D of the principal Act, shall be called in question merely on the ground that such notice was not published in the Official Gazette before the expiration of a period of six months from the end of the month in which the instrument of transfer in respect of such property was registered under the Registration Act, 1908 (16 of 1908), if such notice was either published in the Official Gazette before the expiration of a period of nine months from the end of the month in which the instrument of transfer in respect of such property was registered under the Registration Act, 1908, or could not be so published within the said period of nine months by reason of any injunction or order of any court.

(2) Every notice, which by virtue of the provisions of sub-

section (1) shall not be called in question as provided therein, shall be deemed to have been issued in accordance with law and shall, for

the purposes of sub-section (1) of section 269D of the principal Act, be deemed to have operated or, where such notice is published in the Official Gazette after the commencement of this Act, to operate. to initiate the proceedings for the acquisition of the immovable property to which such notice relates on the date of publication of such notice in the Official Gazette: Provided that- (a) the jurisdiction of a competent authority in respect of any such property may be called in question before the expiry

of the period specified in sub-section (3)of section 269B of the principal Act or a period of thirty days from the commencement of this Act, whichever period expires later: (b) objections against the acquisition of any such immovable property may be made under section 269E of the principal Act within the period allowed under that section or a period of forty-five days from the commencement of this Act, whichever period expires later.' 2 Inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-

3 Substituted for 'six' by the Income-tax (Amendment) Act, 1973, w.r.e.f. 15-11-1972. ----------------------------------------------------------------------- 1.741 the day on which it was withdrawn shall be excluded in computing the period during which such proceedings may be initiated under this sub-section.

(2) The competent authority shall-

(a) cause a notice under sub-section (1) in respect of any immovable property to be served on the transferor, the transferee, the person in occupation of the property, if the transferee is not in occupation thereof, and on every person whom the competent authority knows to be interested in the property; (b) cause such notice to be published- (i) in his office by affixing a copy thereof to a conspicuous place; (ii)in the locality in which the immovable property to which it relates is situate, by affixing a copy thereof to a conspicuous part of the property and also by making known in such manner as may be prescribed the substance of such notice at convenient places in the said locality. 1[Explanation.-The provisions of the Explanation to sub-section

(2) of section 269B shall apply for the purposes of this sub-section as they apply for the purposes of that sub-section.] 269E. Objections

(1) Objections against the acquisition of the immovable property in respect of which a notice has been published in the Official

Gazette under sub-section (1) of section 269D may be made- (a) by the transferor or the transferee or any other person

referred to in clause (a) of sub-section (2) of that section, within a period of forty-five days from the date of such publication or a period of thirty days from the date of service of notice on such person under the said clause, whichever period expires later; (b) by any other person interested in such immovable property, within forty-five days from the date of such publication.

(2) Every objection under sub-section (1) shall be made to the competent authority in writing.

(3) For the removal of doubts, it is hereby declared that

objection may be made under sub-section (1) that the provisions of

clause (a) of subsection (2) of section 269C do not apply in relation to any immovable property on the ground that the fair market value of such property does not exceed the apparent consideration therefor by more than twenty-five per cent of such apparent consideration. 269F. Hearing of objections

(1) The competent authority shall fix a day and place for the hearing of the objections made under section 269E against the acquisition under this Chapter of any immovable property, and shall give notice of the same to every person who has made such objection: Provided that such notice shall also be given to the transferee of such property even if he has not made any such objection. --------------------------------------------------------------------- 1 Inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-1982. ---------------------------------------------------------------------- 1.742

(2) Every person to whom a notice is given under sub-section (1) shall have the right to be heard at the hearing of the objections.

(3) The competent authority shall have the power to adjourn the hearing of the objections from time to time.

(4) The competent authority may, before disposing of the objections, make such further inquiry as he thinks fit.

(5) The decision of the competent. authority in respect of the objections heard shall be in writing and shall state the reasons for the decision with respect to each objection.

(6) If after hearing the objections, if any, and after taking into account all the relevant material on record, the competent authority is satisfied that,- (a) the immovable property to which the proceedings relate is of a fair market value exceeding 1 [one hundred] thousand rupees; (b) the fair market value of such property exceeds the apparent consideration therefore by more than fifteen per cent of such apparent consideration; and (c) the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in

clause (a) or clause (b) of subsection (1) of section 269C, he may, after obtaining the approval of the Commissioner, make an order for the acquisition of the property under this Chapter. Explanation.-In this sub-section, "Commissioner", in relation to a competent authority, means such Commissioner as the Board may, by general or special order in writing, specify in this behalf.

(7)If the competent authority is not satisfied as provided in

sub-section(6), he shall, by order in writing, declare that the property will not be acquired under this Chapter.

(8) The competent authority shall serve a copy of his order

under subsection (6) or sub-section (7), as the case may be, on the transferor, the transferee and on every person who has made objections against such acquisition under section 269E.

(9) In any proceedings under this Chapter in respect of any immovable property, no objection shall be entertained on the ground that although the apparent consideration for the property is less than the fair market value of the property on the date of the execution of the instrument of transfer 2[or where such property is of the nature referred to in sub-clause (ii) of clause (e) of section 269A on the date of the transfer], the consideration as agreed to between the parties has been truly stated in the instrument of transfer because such consideration was agreed to having regard to the price that such property would have ordinarily fetched 3[on such transfer in the open market on the date of the conclusion of the ---------------------------------------------------------------------- 1 Substituted for "twenty-five" by the Finance Act, 1984, w.e.f. 1-6-

2 Inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-

3 Substituted for "on sale in the open market on the date of the conclusion of the agreement to sell the property' by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-1982. ------------------------------------------------------------------------ 1.743 agreement to transfer the property], except where such agreement has been registered under the Registration Act, 1908 1 (16 of 1908). 269G. Appeal against order for acquisition

2 (1) An appeal may be preferred to the Appellate Tribunal against the order for the acquisition of any immovable property made by the competent authority under section 269F,- (a) by the transferor or the transferee or any other person

referred to in sub-section (8) of that section, within a period of forty-five days from the date of such order or a period of thirty days, from the date of service of a copy of the order on such person under the said sub-section, whichever period expires later; (b) by any other person interested in such immovable property, within forty-five days from the date of such order: Provided that the Appellate Tribunal may, on an application made in this behalf before the expiry of the said period of forty-five days or, as the case may be, thirty days, permit, by order, the appeal to be presented within such further period as may be specified therein if the applicant satisfies the Appellate Tribunal that he has sufficient cause for not being able to present the appeal within the said period of forty-five days or, as the case may be thirty days.

3(2) Every appeal under this section shall be in the prescribed form and shall be verified in the prescribed manner and shall be accompanied by a fee of 4[two hundred] rupees.

(3) The Appellate Tribunal shall fix a day and place for the hearing of the appeal and shall give notice of the same to the appellant and to the competent authority.

(4) The Appellate Tribunal may, after giving the appellant and the competent authority an opportunity of being heard, pass such orders thereon as it thinks fit.

(5) The Appellate Tribunal may, at any time within thirty days from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-

section (4) and shall make such amendment if the mistake is brought to its notice by the appellant or the competent authority: Provided that if any such amendment is likely to affect any person prejudicially, it shall not be made without giving to such person a reasonable opportunity of being heard.

(6) The Appellate Tribunal shall send a copy of any orders passed under this section to the appellant and to the Commissioner.

(7) Save as provided in section 269H, orders passed by the Appellate Tribunal on appeal shall be final. ------------------------------------------------------------------ 4 Substituted for "one hundred and twenty-five' by the Finance Act, 1981, w.e.f. 1-6-1981. ---------------------------------------------------------------------- 1.744

(8) Every appeal under this section shall be disposed of as expeditiously as possible and endeavour shall be made to dispose of every such appeal within ninety days from the date on which it is presented.

(9) The provisions of section 255 [except sub-section (3) thereof) shall, so far as may be, apply in relation to the powers, functions and proceedings of the Appellate Tribunal under this section as they apply in relation to the powers, functions and proceedings of the Appellate Tribunal under Chapter XX. 269H. Appeal to High Court

(1) The Commissioner or any person aggrieved by any order of the Appellate Tribunal under section 269G may, within sixty days of the date on which he is served with notice of such order under that section, prefer an appeal against such order to the High Court on any question of law: Provided that the High Court may, on an application made in this behalf before the expiry of the said period of sixty days, permit, by order, the appeal to be presented within such further period as may be specified therein, if the applicant satisfies the High Court that he has sufficient cause for not being able to present the appeal within the said period of sixty days.

(2) An appeal under sub-section (1) shall be heard by a Bench of not less than two judges of' the High Court and the provisions of section 259 shall apply in relation to any such appeal as they apply in relation to a case referred to the High Court under section 256.

(3) The costs of the appeal shall be in the discretion of the High Court. 269-I. Vesting of property in Central Government

(1) As soon as may be after the order for acquisition of any

immovable property made under sub-section (6) of section 269F becomes final, the competent authority may, by notice in writing, order any person who may be in possession of the immovable property to surrender or deliver possession thereof to the competent authority or any other person duly authorised in writing by the competent authority in this behalf, within thirty days of the date of the service of the notice. Explanation.-For the purposes of this sub-section, an order for the acquisition of any immovable property (hereafter in this Explanation referred to as the order for acquisition) made under sub-

section (6) of section 269F becomes final,- (a) in a case where the order for acquisition is not made the subject of an appeal to the Appellate Tribunal under section 269G, upon the expiry of the period during which such appeal may be presented under that section; (b) in a case where the order for acquisition is made the subject of an appeal to the Appellate Tribunal under section 269G,- (i) if the order for acquisition is confirmed by the Appellate Tribunal and the order of the Appellate Tribunal is not made the subject of an appeal to the High Court under section 269H, upon the expiry of the period during which such appeal may be presented under that section to the High Court; 1.745 (ii) if the order of the Appellate Tribunal is made the subject of an appeal to the High Court tinder section 269H, upon the confirmation of the order for acquisition by the High Court.

(2) If any person refuses or fails to comply with the notice

under subsection (1), the competent authority or other person duly authorised by the competent authority under that sub-section may take possession of the immovable property and may, for that purpose, use such force as may be necessary.

(3) Notwithstanding anything contained in sub-section (2), the competent authority may, for the purpose of taking possession of any

property referred to in sub-section (1), requisition the services of any police officer to assist him and it shall be the duty of such officer to comply with such requisition.

(4) When the possession of the immovable property is surrendered

or delivered under sub-section (1) to the competent authority or a person duly authorised by him in that behalf or, as the case may be,

when the possession thereof is taken under sub-section (2) or sub-

section (3) by such authority or person,. the property shall vest absolutely in the Central Government free from all encumbrances: Provided that nothing in this sub-section shall operate to discharge the transferee or any other person (not being the Central Government) from liability in respect of such encumbrances and, notwithstanding anything contained in any other law, such liability may be enforced against the transferee or such other person by a suit for damages.

1[(5) Notwithstanding anything contained in sub-section (4) or any other law or any instrument or any agreement for the time being in force, where an order for acquisition of any immovable property, being

rights of the nature referred to in clause (b) of sub-section (1) of section 269AB, in or with respect to any building or part of a building which has been constructed or which is to be constructed, has become final, then, such order shall, by its own force, have the effect of- (a) vesting such rights in the Central Government, and (b) placing the Central Government in the same position in relation to such rights as the person in whom such rights would have continued to vest if such order had not become final, and the competent authority may issue such directions as he may deem fit to any person concerned for taking the necessary steps for compliance with the provisions of clauses (a) and (b).

(6) In the case of any immovable property, being rights of the

nature referred to in clause (b) of sub-section (1) of section 269AB, in or with respect to any building or part of a building, the

provisions of subsections (1), (2) and (3) shall have effect as if the references to immovable property therein were a reference to such building or, as the case may be, part of such building.] ---------------------------------------------------------------------- 1 Inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-1982. ---------------------------------------------------------------------- 1.746 269J. Compensation

(1) Where any immovable property is acquired under this Chapter, the Central Government shall pay for such acquisition compensation which shall be a sum equal to the aggregate of the amount of the apparent consideration for its transfer and fifteen per cent of the said amount: 1[Provided that in a case where, under the agreement between the parties concerned, the whole or any part of the consideration for the transfer of such immovable property is payable on any date or dates falling after the date on which such property is acquired, the compensation payable by the Central Government shall be the aggregate of the following amounts, namely:- (i) an amount equal to fifteen per cent of the apparent consideration; (ii) the amount, if any, that has become payable in accordance with such agreement on or before the date on which such property is acquired under this Chapter; and (iii) the amount payable after the date on which such property is acquired under this Chapter.]

(2) Notwithstanding anything contained in sub-section (1)- (a) where, after the transfer to the transferee of the property referred to in that sub-section but before the vesting of the property in the Central Government, the property has been damaged (otherwise than as a result of normal wear and tear), the compensation payable under that sub-section shall be reduced by such amount as the competent authority and the persons entitled to the compensation may agree within fifteen days of the vesting of the property in the Central Government or in default of such agreement as the court may, on a reference made to it in this behalf by the competent authority or by any person duly authorised for the purpose by the competent authority, determine to be the amount that may have to be expended for restoring the property to the condition in which it was at the time of such transfer; (b) where, after the transfer of such property to the transferee but before the date of publication in the Official Gazette of the notice in respect of such property under sub-

section (1) of section 269D any improvements have been made to the property, whether by way of addition or alteration or in any other manner, the compensation. payable in respect of

such property under sub-section (1) shall be increased by such amount as the competent authority and the persons entitled to the compensation may agree within fifteen days of the vesting of the property in the Central Government or ---------------------------------------------------------------------- 1 Inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7-1982. ---------------------------------------------------------------------- 1.747 in default of such agreement as the court may, on a reference made to it in this behalf by the competent authority or by any person duly authorised for the purpose by the competent authority, determine to be the amount spent for making such improvements.

(3) Every reference under clause (a) or clause (b) of sub-

section (2) shall be made within thirty days of the date on which the immovable property to which-it relates becomes vested in the Central Government or within such further period as the court may, on an application made in this behalf before the expiry of the said period and on being satisfied that there is sufficient cause for doing so, allow and such reference shall state clearly the compensation payable

under sub-section (1) in respect of the immovable property and the amount by which, according to the estimate of the competent authority, such compensation shall be reduced under clause (a) or, as the case

may be, increased under clause (b) of sub-section (2).

(4) The amount by which the compensation payable under sub-

section (1) in respect of any immovable property acquired under this Chapter falls short of the amount which would have been payable as compensation if that property had been acquired under the Land Acquisition Act, 1894 (1 of 1894), after the issue of a preliminary notice under section 4 of that Act on the date of publication in the Official Gazette of the notice in respect of the property under sub-

section (1) of section 269D, shall be deemed to have been realised by the Central Government as a penalty from the transferee for being a party to a transfer with such object as is referred to in clause (a)

or clause (b) of sub-section (1) of section 269C, and no penalty shall be levied for any assessment year on the transferee-

(a) under clause (iii) of sub-section (1) of section 271, for concealing the particulars or furnishing inaccurate particulars of so much of his income as is utilised by him for paying to the transferor, by way of consideration for the property, any amount in excess of the apparent consideration for the property, notwithstanding that such amount is included in the income of the transferee;

(b) under clause (iii) of sub-section (1) of section 18 of the Wealth-tax Act, 1957 (27 of 1957), for concealing the particulars or furnishing inaccurate particulars of so much of his assets as are utilised by him for paying to the transferor, by way of consideration for the property, any amount in excess of the apparent consideration for the property, notwithstanding that such assets are included in the net wealth of the transferee. 269K. Payment or deposit of compensation

(1) The amount of compensation payable in accordance with the provisions of section 269J for the acquisition of any immovable property shall be tendered to the person or persons entitled thereto, as soon as may be, after the property becomes vested in the Central

Government under sub-section (4) of section 269-1: 1[Provided that in a case falling under the proviso to sub-

section (1) of section 269J, the amounts referred to in clause (i) and clause (ii) of that proviso shall be tendered to the person or persons entitled thereto, as ----------------------------------------------------------------------- 1 Inserted by the income-tax (Amendment) Act, 1981, w.e.f. 1-7-1982. ---------------------------------------------------------------------- 1.748 soon as may be, after the property; becomes vested in the Central Government under section 269-I, and the amount referred to in clause (iii) of the said proviso shall be tendered on the date on which it would be payable in accordance with the agreement between the parties concerned, and where such amount is payable in instalments on different dates, then in such instalments on those dates:] Provided 1[further] that in any case where a reference is or has

to be made under sub-section (2) of section 269J to the court for the determination of the amount by which the compensation payable under

sub-section (1) of that section shall be reduced or increased, the amount of such compensation as reduced or increased by the amount estimated in that behalf by the competent authority for the purposes of such reference shall be tendered as aforesaid.

(2) Notwithstanding anything contained in sub-section (1), if any dispute arises as to the apportionment of the compensation amongst persons claiming to be entitled thereto, the Central Government shall deposit in the court the compensation required to be tendered under

subsection (1) and refer such dispute for the decision of the court and the decision of the court thereon shall be final.

(3) Notwithstanding anything contained in sub-section (1), if the persons entitled to compensation do not consent to receive it, or if there is no person competent to alienate the immovable property, or if there is any dispute as to the title to receive the compensation, the Central Government shall deposit in the court the compensation

required to be tendered under sub-section (1) and refer the matter for the decision of the court: Provided that nothing herein contained shall affect the liability of any person who may receive the whole or any pail of the compensation for any immovable property acquired under this Chapter to pay the same to the person lawfully entitled thereto.

(4) If the Central Government fails to tender under sub-section

(1) or deposit under sub-section (2) or sub-section (3) the whole or any part of the compensation required to be tendered or deposited thereunder within thirty days of the date on which the immovable property to which the compensation relates becomes vested in the

Central Government under sub-section (4) of section 269-I, the Central Government shall be liable to pay simple interest at the rate of 2[fifteen] per cent per annum reckoned from the day immediately following the date of expiry of the said period up to the date on which it so tenders or deposits such compensation or, as the case may be, such part of the compensation.

(5) Where any amount of compensation (including interest, if any, thereon) has been deposited in the court under this section, the court may, either of its own motion or on an application made by or on behalf of any party interested or claiming to be interested in such amount, order the same to be invested in such Government or other securities as it may think proper, and may direct the interest or other proceeds of any such ---------------------------------------------------------------------- 1 Inserted by the income-tax (Amendment') Act, 1981, w.e.f. 1-7-1982. 2 Substituted for "twelve' by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. ---------------------------------------------------------------------- 1.749 investment to be accumulated and paid in such manner as will in its opinion, give the parties interested therein the same benefit therefrom as they might have had from the immovable property in respect whereof such amount has been deposited or as near thereto as may be. 269L. Assistance by Valuation Officers

(1) The competent authority may,- (a) for the purpose of initiating proceedings for the acquisition of any immovable property under section 269C or for the purpose of making an order under section 269F in respect of any immovable property, require a Valuation Officer to determine the fair market value of such property and report the same to him; (b) for the purpose of estimating the amount by which the

compensation payable under sub-section (1) of section 269J in respect of any immovable property may be reduced or, as the case may be, increased under clause (a) or clause (b) of sub-

section (2) of that section, require the Valuation Officer to make such estimate and report the same to him.

(2) The Valuation Officer to whom a reference is made under

clause (a) or clause (b) of sub-section (1) shall, for the purpose of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).

(3) If in an appeal under section 269G against the order for acquisition of any immovable property, the fair market value of such property is in dispute, the Appellate Tribunal shall, on a request being made in this behalf by the competent authority, give an opportunity of being heard to any Valuation Officer nominated for the purpose by the competent authority. Explanation.-In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). 269M. Powers of competent authority The competent authority shall have, for the purposes of this Chapter, all the powers that a Commissioner has, for the purposes of this Act, under section 131. 269N. Rectification of mistakes With a view to rectifying any mistake apparent from the record, the competent authority may amend any order made by him under this Chapter at any time before the time for presenting an appeal against such order has expired, either on his own motion or on the mistake being brought to his notice by any person affected by the order: Provided that if any such amendment is likely to affect any person prejudicially, it shall not be made without giving to such person a reasonable opportunity of being heard. 269-O. Appearance by authorised representative or registered valuer Any person who is entitled or required to attend before a competent authority or the Appellate Tribunal in any proceeding tinder this Chapter, otherwise than when required to attend personally for examination on oath or affirmation, may attend- 1.750 (a) by an authorised representative in connection with any matter; (b) by a registered valuer in connection with any matter relating to the valuation of any immovable property for the purposes of this Chapter or the estimation of the amount by

which the compensation payable under sub-section (1) of section 269J for the acquisition of any immovable property may be reduced or, as the case may be, increased in accordance with the provisions of clause (a) or clause (b) of

sub-section (2) of that section. Explanation.-In this section,- (i) "authorised representative" has the same meaning as in section 288; (ii) "registered valuer" has the same meaning as in clause (oaa) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). 269P. Statement to be furnished in respect of transfers of immovable property

1(1) Notwithstanding anything contained in any other law for the time being in force, no registering officer appointed under the Registration Act, 1908 (16 of 1908), shall register any document which purports to transfer any immovable property belonging to any person unless a statement in duplicate in respect of such transfer, in the prescribed form and verified in the prescribed manner and setting forth such particulars as may be prescribed, is furnished to him along with the instrument of transfer: 2[Provided that the provisions of this sub-section shall not apply in relation to any document which purports to transfer any immovable property for an apparent consideration not exceeding 3[fifty] thousand rupees. Explanation.-For the purposes of this proviso, "apparent consideration" shall have the meaning assigned to it in clause (a) of section 269A subject to the modifications that for the expressions "immovable property transferred" and "instrument of transfer" occurring in that clause, the expressions "immovable property purported to be transferred" and "document purporting to transfer such immovable property" shall, respectively, be substituted.]

(2) The registering officer shall, at the end of every fortnight, for-ward to the competent authority,- (a) one set of the statements received by him under sub-

section (1) during the fortnight; and (b) a return in the prescribed form4 and verified in the prescribed manner and setting forth such particulars as may be prescribed in respect of documents of the nature referred

to in sub-section (1) which have been registered by him during the fortnight. ---------------------------------------------------------------------- 2 Inserted by the Income-tax (Amendment) Act, 1973, w.e.f. 1-1-

3 Substituted for "ten" by the Finance Act, 1984, w.e.f. 1-6-1984. ---------------------------------------------------------------------- 1.751 269Q. Chapter not to apply to transfers to relatives The provisions of this Chapter shall not apply to or in relation to any transfer of immovable property made by a person to his relative on account of natural love and affection for a consideration which is less than its fair market value if a recital to that effect is made in the instrument of transfer. 269R. Properties liable for acquisition under this Chapter not to be acquired under other laws Notwithstanding anything contained in the Land Acquisition Act, 1894 (1 of 1894), or any corresponding law for the time being in force, no immovable property referred to in section 269C shall be acquired for any purpose of the Union under that Act or such law unless the time for initiation of proceedings for the acquisition of such property under this Chapter has expired without such proceedings having been initiated or unless the competent authority has declared that such property will not be acquired under this Chapter. 1[269RR. Chapter not to apply where transfer of immovable property made after a certain date The provisions of this Chapter shall not apply to or in relation to the transfer of any immovable property made after the 30th day of September, 1986.] 269S. Chapter not to extend to State of Jammu and Kashmir The provisions of this Chapter shall not extend to the State of Jammu and Kashmir.] --------------------------------------------------------------------- 1 Inserted by the Finance Act, 19846, w.e.f. 1-10-1986. ---------------------------------------------------------------------- CHAP REQUIREMENT AS TO MODE OF 2 [ACCEPTANCE, PAYMENT OR] REPAYMENT IN CERTAIN CASES TO COUNTERACT EVASION OF TAX 1[CHAPTER XXB REQUIREMENT AS TO MODE OF 2 [ACCEPTANCE, PAYMENT OR] REPAYMENT IN CERTAIN CASES TO COUNTERACT EVASION OF TAX 3[269SS. Mode of taking or accepting certain loans and deposits4 No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,- (a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or (b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or (c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is 5[twenty] thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government; (b) any banking company, post office savings bank or co- operative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government company as defined in section 617 of the Companies Act, 1956 6 (1 of 1956); (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing notify7 in this behalf in the Official Gazette: 8[Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or ----------------------------------------------------------------------- 1 Chapter XXB inserted by the Income-tax (Second Amendment) Act, 1981, w.e.f. 11-7-1981. 2 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. 3 Ibid. 5 Substituted for "ten" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 8 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1989. ----------------------------------------------------------------------- 1.753 accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.] Explanation.-For the purposes of this section,- 1[(i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act;] (ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (iii)"loan or deposit" means loan or deposit of money.] .lm0 2[269T. Mode of repayment of certain deposits'

(1) No company (including a banking company), co-operative society or firm shall repay to any person any deposit other- wise than by an account payee cheque or account payee bank draft where the amount of the deposit, or where the amount of the deposit is to be repaid together with any interest, the aggregate of the amount of the deposit and such interest, is ten thousand rupees or more: Provided that where the repayment is by a banking company or cooperative bank, such repayment may also be made by crediting the amount of such deposit to the account (if any) with such company or bank of the person to whom such deposit has to be repaid: Provided further that nothing in this sub-section shall apply to or in relation to the repayment of any deposit on or after the date on which the Income-tax (Second Amendment) Act, 1981, receives the assent of the President.

(2) No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm 4

[or other person] shall repay any deposit made with it

Explanation to sub-section (8) of section 40A;" 2 Inserted by the Income-tax (Second Amendment) Act, 1981, w.e.f. 11-7-19 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 5 Substituted for 'ten' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.754 company or co-operative bank, such repayment may also be made by crediting the amount of such deposit to the savings bank account or the current account (if any) with such branch of the person to whom such deposit has to be repaid: Provided further that nothing in this sub-section shall apply to or in relation to the repayment of any deposit before the date on which the Income-tax (Second Amendment) Act, 1981, receives the assent of the President. Explanation.-For the purposes of this section,- 1[(i) "banking company" shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS;] 2[(ia) "cooperative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);] 3[(ii) "deposit" means any deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes deposit of any nature.]] 4[269TT. Mode of repayment of Special Bearer Bonds, 1991 5 Notwithstanding anything contained in any other law for the time being in force the amount payable on redemption of Special Bearer Bonds, 1991, shall be paid only by an account payee cheque or account payee bank draft drawn in the name of the person to whom such payment is to be made.]] --------------------------------------------------------------------- 1 Substituted by the Finance Act, 1985, w.e.f. 1-4-1986. Prior to the substitution, clause (i) read as under: "(i) "banking company" shall have the meaning assigned to it in clause (a) of the

Explanation to sub-section (8) of section 40A;" 2 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, clause (ii) read as under: "(ii) "deposit" means any deposit of money which is repayable after notice or repayable after a period." 4 Inserted by the Income-tax (Second Amendment) Act, 1981, w.e.f. 19-9-1981. ----------------------------------------------------------------------- 1.755 CHAP PURCHASE BY CENTRAL GOVERNMENT OF IMMOVABLE PROPERTIES IN CERTAIN CASES OF TRANSFER 1[CHAPTER XXC PURCHASE BY CENTRAL GOVERNMENT OF IMMOVABLE PROPERTIES IN CERTAIN CASES OF TRANSFER 269U. Commencement of Chapter The provisions of this Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, and different dates may be appointed for different areas. 269UA. Definitions In this Chapter, unless the context otherwise requires,- (a) "agreement for transfer" means an agreement, whether registered under the Registration Act, 1908 3 (16 of 1908) or not, for the transfer of any immovable property; (b) "apparent consideration",-

(1) in relation to any immovable property in respect of which an agreement for transfer is made, being immovable property of the nature referred to in sub- clause (i) of clause (d), means,- (i)if the immovable property is to be transferred by way of sale, the consideration for such transfer as specified in the agreement for transfer; (ii)if the immovable property is to be transferred by way of exchange,- (A) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made; ---------------------------------------------------------------------- ------------------------------------------------------------------------ 1.756 (B) in a case where the consideration for the transfer consists of a thing or things and a sum of money, the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made, and such sum;, (iii) if the immovable property is to be transferred by way of lease,- (A) in a case where the consideration for the transfer consists of premium only the amount of premium as specified in the agreement for transfer; (B) in a case where the consideration for the transfer consists of rent only, the aggregate of the moneys (if any) payable by way of rent and the amounts for the service or things forming part of or constituting the rent, as specified in the agreement for transfer; (C) in a case where the consideration for the transfer consists of premium and rent, the aggregate of the amount of the premium, the moneys (if any) payable by way of rent and the amounts for the service or things forming part of or constituting the rent, as specified in the agreement for transfer, and where the whole or any part of the consideration for such transfer is payable on any date or dates falling after the date of such agreement for transfer, the value of the consideration payable after such date shall be deemed to be the discounted value' of such consideration, as on the date of such agreement for transfer, determined by adopting such rate of interest as may be prescribed in this behalf;

(2) in relation to any immovable 'property in respect of which an agreement for transfer is made, being immovable property of the nature refer-red to in sub- clause.(ii) of clause (d), means,- (i) in a case where the consideration for the transfer consists of a sum of money only, such sum; (ii) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made; (iii)in a case where the consideration for the transfer consists of a thing or things and a sum of money, the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made, and such sum, and where the whole or any part of the consideration for such transfer is payable on any date or dates falling after the date of such agreement for transfer, the value of the consideration payable ---------------------------------------------------------------------- ---------------------------------------------------------------------- 1.757 after such date shall be deemed to be the discounted value' of such consideration, as on the date of such agreement for transfer, determined by adopting such rate of interest as may be prescribed in this behalf; 2(c) "appropriate authority" means an authority constituted under section 269UB to perform the functions of an appropriate authority under this Chapter; (d) "immovable property" means- (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation.-For the purposes of this sub-clause, "land, building, part of a building, machinery, plant, furniture, fittings and other things" include any rights therein; (ii) any rights in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant, furniture, fittings or other things, therein) which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building; (e) "persons interested", in relation to any immovable property, includes all persons claiming, or entitled to claim, an interest in the consideration payable on account of the vesting of that property in the Central Government under this Chapter; (f) "transfer",- (i) in, relation to any immovable property referred to in sub-clause (i)of clause (d), means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years, and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 3 (4 of 1882). Explanation.-For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the terms for which such lease is to be granted and the further term or terms for which it can be so extended is not less than twelve years; ---------------------------------------------------------------------- ----------------------------------------------------------------------- 1.758 (ii) in relation to any immovable property of the nature referred to in sub-clause (ii) of clause (d), means the doing of anything (whether by way of admitting as a member of or by way of transfer of shares in a co- operative society or company or other association of persons or by way of any agreement or arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of such property. 269UB . Appropriate authority

(1) The Central Government may, by order,' published in the Official Gazette,- (a) constitute as many appropriate authorities, as it thinks fit, to perform the functions of an appropriate authority under this Chapter; and (b) define the local limits within which the appropriate authorities shall perform their functions under this Chapter.

(2) An appropriate authority shall consist of three persons, two of whom shall be members of the Indian Income-tax Service, Group A, holding the post of Commissioner of Income-tax or any equivalent or higher post, and one shall be a member of the Central Engineering Service, Group A, holding the post of Chief Engineer or any equivalent or higher post.

(3) In respect of any function to be performed by an appropriate authority under any provision of this Chapter in relation to any immovable property referred to in section 269UC, the appropriate authority referred to therein shall,- (a) in a case where such property is situate within the local limits of the jurisdiction of only one appropriate authority, be such appropriate authority; (b) in a case where such property is situate within the local limits of the jurisdiction of two or more appropriate authorities, be the appropriate authority empowered to perform such functions in relation to such property in accordance with the rules made in this behalf by the Board under section 295. Explanation.-For the purposes of this sub-section, immovable property being rights of the nature referred to in sub-clause (ii) of clause (d) of section 269UA in, or with respect to, any land or any building or part of a building which has been constructed or which is to be constructed shall be deemed to be situate at the place where the land is situate or, as the case may be, where the building has been constructed or is to be constructed.

269UC. Restrictions on transfer of immovable property' (1) Notwithstanding anything contained in the Transfer of Property Act, 1882 (4 of 1882), or in any other law for the time being in force, 3[no transfer of any immovable property in such area and of such value ----------------------------------------------------------------------- 3 Substituted for "no transfer of any immovable property of such value exceeding five lakh rupees as may be prescribed" by the Finance Act, 1995, w.e.f. 1-7-1995. ------------------------------------------------------------------------ 1.759 exceeding five lakh rupees, as may be prescribed], shall be effected except after an agreement for transfer is entered into between the person who intends transferring the immovable property (hereinafter referred to as the transferor) and the person to whom it is proposed to be transferred (hereinafter referred to as the transferee) in

accordance with the provisions of sub-section (2) at least 1[four] months before the intended date of transfer.

(2)The agreement referred to in sub-section (1) shall be reduced to writing in the form of a statement by each of the parties to such transfer or by any of the parties to such transfer acting on behalf of himself and on behalf of the other parties.

2(3) Every statement referred to in sub-section (2) shall,- (i) be in the prescribed form; (ii) set forth such particulars as may be prescribed; and (iii) be verified in the prescribed manner, and shall be furnished to the appropriate authority in such manner and within such time as may be prescribed, by each of the parties to such transaction or by any of the parties to such transaction acting on behalf of himself and on behalf of the other parties.

3[(4) Where it is found that the statement referred to in

subjection (2) is defective, the appropriate authority may intimate the defect to the parties concerned and give them an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the appropriate authority may in its discretion, allow and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of' this Chapter, the statement shall be deemed never to have been furnished.] 269UD. Order by appropriate authority for purchase by Central Government of immovable property (1 ) 4 [Subject to the provisions of sub-sections (1A) and (1B), the appropriate authority], after the receipt of the statement under

sub-section (3) of section 269UC in respect of any immovable property, may, notwithstanding any thing contained in any other law or any instrument ---------------------------------------------------------------------- 1 Substituted for "three" by the Finance Act, 1993, w.e.f. 1-6-

3 Inserted by the Finance Act, 1995, w.e.f. 1-7-199.5. 4 Substituted for "The appropriate authority" by the Finance Act, 1993, w.r.e.f. 17-11-1992. ------------------------------------------------------------------------ 1.760 or any agreement for the time being in force, 1[* * *] make an order for the purchase by the Central Government of such immovable property at an amount equal to the amount of apparent consideration: Provided that no such order shall be made in respect of any immovable property after the expiration of a period of two months from the end of the month in which the statement referred to in section 269UC in respect of such property is received by the appropriate authority: 2 [Provided further that where the statement referred to in section 269UC in respect of any immovable property is received by the appropriate authority on or after the 1st day of June, 1993, the provisions of the first proviso shall have effect as if for the words "two months", the words "three months" had been substituted:] 3 [Provided also that the Period of limitation referred to in the second proviso shall be reckoned, where any defect as referred to

in sub-section (4) of section 269UC has been intimated, with reference to the date of receipt of the rectified statement by the appropriate authority:] Provided 4 [also] that in a case where the statement referred to in section 269UC in respect of the immovable property concerned is given to an appropriate authority, other than the appropriate authority having jurisdiction in accordance with the provisions of section 269UB to make the order referred to in this sub-section in relation to the immovable property concerned, the period of limitation referred to in the 5[the first and second provisos] shall be reckoned with reference to the date of receipt of the statement by the appropriate authority having jurisdiction to make the order under this sub-section: 6[Provided also that the period of limitation referred to in the second proviso shall be reckoned, where any stay has been granted by any court against the passing of an order for the purchase of the immovable property under this Chapter, with reference to the date of vacation of the said stay.]

7[(1A) Before making an order under sub-section (1), the appropriate authority shall give a reasonable opportunity of being heard to the transferor, the person in occupation of the immovable property if the transferor is not in occupation of the property, the transferee and to every other person whom the appropriate authority knows to be interested in the property. (1B) Every order made by the appropriate authority under sub-

section (1) shall specify the grounds on which it is made.]

(2) The appropriate authority shall cause a copy of its order

under subsection (1) in respect of any immovable property to be served on the transferor, the person in occupation of the immovable property if the ----------------------------------------------------------------------- 1 The words "and for reasons to be recorded in writing," omitted by the Finance Act, 1993, w.r.e.f. 17-11-1992. 2 Inserted by the Finance Act, 1993, w.e.f. 1-6-1993. 3 Inserted by the Finance Act, 1995, w.e.f. 1-7-199.5. 4 Substituted for "further" by the Finance Act, 1993, w.e.f. 1-6-

w.e.f. 1-6-1993. 6 Inserted, ibid. 7 Inserted by the Finance Act, 1993, w.r.e.f. 17-11-1992. ----------------------------------------------------------------------- 1.761 transferor is not in occupation thereof, the transferee, and on every other person whom the appropriate authority knows to be interested in the property. 269UE. Vesting of property in Central Government

(1)Where an order under sub-section (1) of section 269UD is made by the appropriate authority in respect of an immovable property referred to in sub-clause (i) of clause (d) of section 269UA, such property shall, on the date of such order, vest in the Central Government 1[in terms of the agreement for transfer referred to in

sub-section (1) of section 269UC:] 2[Provided that where the appropriate authority, after giving an opportunity of being heard to the transferor, the transferee or other persons interested in the said property, under sub-section (1A) of section 269UD, is of the opinion that any encumbrance on the property or leasehold interest specified in the aforesaid agreement for transfer is so specified with a view to defeat the provisions of this Chapter, it may, by order, declare such encumbrance or leasehold interest to be void and thereupon the aforesaid property shall vest in the Central Government free from such encumbrance or leasehold interest.]

(2)The transferor or any other person who may be in possession of the immovable property in respect of which an order under sub-section

(1) of section 269UD is made, shall surrender or deliver possession thereof to the appropriate authority or any other person duly authorised by the appropriate authority in this behalf within fifteen days of the service of such order on him: 3 [Provided that the provisions of this sub-section and sub-

sections (3) and (4) shall not apply where the person in possession of the immovable property, in respect of which an order under sub-section

(1) of section 269UD is made, is a bona fide holder of any encumbrance on such property or a bona fide lessee of such property, if the said encumbrance or lease has not been declared void under the proviso to

sub-section (1) and such person is eligible to continue in possession of such property even after the transfer in terms of the aforesaid agreement for transfer.]

(3)If any person refuses or fails to comply with the provisions

of subsection (2), the appropriate authority or other person duly authorised by it under that sub-section may take possession of the immovable property and may, for that purpose, use such force as may be necessary. ----------------------------------------------------------------------- 1 Substituted for "free from all encumbrances" by the Finance Act, 1993, w.r.e.f. 17-11-1992. 2 Inserted, ibid. 3 Inserted by the Finance Act, 1993, w.r.e.f. 17-11-1992. ------------------------------------------------------------------------ 1.762

(4)Notwithstanding anything contained in sub-section (2), the appropriate authority may, for the purpose of taking possession of any

property referred to in sub-section (1), requisition the services of any police officer to assist him and it shall be the duty of such officer to comply with such requisition.

(5)For the removal of doubts, it is hereby declared that nothing in this section shall operate to discharge the transferor or any other person (not being the Central Government) from liability in respect of any encumbrances on the property and, notwithstanding anything contained in any other law for the time being in force, such liability may be enforced against the transferor or such other person.

(6)Where an order under sub-section (1) of section 269UD is made in respect of an immovable property, being rights of the nature referred to in sub-clause (ii) of clause (d) of section 269UA, such order shall have the effect of- (a) vesting such right in the Central Government; and (b) placing the Central Government in the same position in relation to such rights as the person in whom such a right would have continued to vest if such order had not been made.

(7) Where any rights in respect of any immovable property, being rights in, or with respect to, any land or any building or part of a building which has been constructed or which is to be constructed,

have been vested in the Central Government under sub-section (6), the

provisions of sub-sections (1), (2), (3) and (4) shall, so far as may be, have effect as if the references to immovable property therein were references to such land or building or part thereof, as the case may be. 269UF. Consideration for purchase of immovable property by Central Government

(1) Where an order for the purchase of any immovable property by

the Central Government is made under sub-section (1) of section 269UD, the Central Government shall pay, by way of consideration for such purchase, an amount equal to the amount of the apparent consideration.

(2) Notwithstanding anything contained in sub-section (1), where, after the agreement for the transfer of the immovable property referred to in that sub-section has been made but before the property vests in the Central Government under section 269UE, the property has been damaged (otherwise than as a result of normal wear and tear), the amount of the consideration payable under that sub-section shall be reduced by such sum as the appropriate authority, for reasons to be recorded in writing, may by order determine. 269UG. Payment or deposit of consideration

(1) The amount of consideration payable in accordance with the provisions of section 269UF shall be tendered to the person or persons entitled thereto, within a period of one month from the end of the month in which the immovable property concerned becomes vested in the

Central Government under sub-section (1), or, as the case may be, sub-

section (6), of section 269UE: Provided that if any liability for any tax or any other sum remaining payable under this Act, the Wealth-tax Act, 1957 (27 of 1957), the Gift-tax 1.763 Act, 1958 (18 of 1958), the Estate Duty Act, 1953 (34 of 1953), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), by any person entitled to the consideration payable under section 269UF, the appropriate authority may, in lieu of the payment of the amount of consideration, set off the amount of consideration or any part thereof against such liability or sum, after giving an intimation in this behalf to the person entitled to the consideration.

(2)Notwithstanding anything contained in sub-section (1), if any dispute arises as to the apportionment of the amount of consideration amongst persons claiming to be entitled thereto, the Central Government shall deposit with the appropriate authority the amount of

consideration required to be tendered under sub-section (1) within the period specified therein.

(3) Notwithstanding anything contained in sub-section (1), if the person entitled to the amount of consideration does not consent to receive it, or if there is any dispute as to the title to receive the amount of consideration, the Central Government shall deposit with the appropriate authority the amount of consideration required to be

tendered under subsection (1) within the period specified therein: Provided that nothing herein contained shall affect the liability of any person who may receive the whole or any part of the amount of consideration for any immovable property vested in the Central Government under this Chapter to pay the same to the person lawfully entitled thereto.

(4) Where any amount of consideration has been deposited with the appropriate authority under this section, the appropriate authority may, either of its own motion or on an application made by or on behalf of any person interested or claiming to be interested in such amount, order the same to be invested in such Government or other securities as it may think proper, and may direct the interest or other proceeds of any such investment to be accumulated and paid in such manner as will, in its opinion, give the parties interested therein the same benefits therefrom as they might have had from the immovable property in respect whereof such amount has been deposited or as near thereto as may be. 269UH. Re-vesting of property in the transferor on failure of payment or deposit of consideration

(1) If the Central Government fails to tender under sub-section

(1) of section 269UG or deposit under sub-section (2) or sub-section

(3) of the said section, the whole or any part of the amount of consideration required to be tendered or deposited thereunder within the period specified therein in respect of any immovable property

which has vested in the Central Government under sub-section (1) or,

as the case may be, sub-section (6) of section 269UE, the order to purchase the immovable property by the Central Government made under

sub-section (1) of section 269UD shall stand abrogated and the immovable property shall stand revested in the transferor after the expiry of the aforesaid period:

Provided that where any dispute referred to in sub-section (2) or

subsection (3) of section 269UG is pending in any court for decision, the time taken by the court to pass a final order under the said sub- sections shall be excluded in computing the said period. 1.764

(2) Where an order made under sub-section (1) of section 269UD is abrogated and the immovable property re-vested in the transferor

under sub-section (1), the appropriate authority shall make, as soon as may be, a declaration in writing to this effect and shall- (a) deliver a. copy, of the declaration to the persons

mentioned in subsection (2) of section 269UD; and (b) deliver or cause to be delivered possession of the immovable property back to the transferor or, as the case may be, to such other person as was in possession of the property at the time of its vesting in the Central Government under section 269UE. 269UI. Powers of the appropriate authority The appropriate authority shall have, for the purposes of this Chapter, all the powers that a 1[Chief Commissioner or Commissioner] of Income-tax has for the purposes of this Act under section 131. 269UJ. Rectification of mistakes With a view to rectifying any mistake apparent from the record, the appropriate authority may amend any order made by it under this Chapter, either on its own motion or on the mistake being brought to its notice by any person affected by the order: Provided that if any such amendment is likely to affect any person prejudicially, it shall not be made without giving to such person a reasonable opportunity of being heard: Provided further that no Amendment shall be made under this section after the expiry of six months from the end of the month in which the order sought to be amended was made. 269UK. Restrictions on revocation or alteration of certain agreements for the transfer of immovable property or on transfer of certain immovable property

(1) Notwithstanding anything contained in any other law for the time being in force, no person shall revoke or alter an agreement for the transfer of an immovable property or transfer such property in respect of which a statement has been furnished under section 269UC unless,- (a) the appropriate authority has not made an order for the purchase of the immovable property by the Central Government under section 269UD and the period specified for the making of such order has expired; or (b) in a case where an order for the purchase of the immovable property by the Central Government has been made

under subsection (1) of section 269UD, the order stands

abrogated under sub-section (1) of section 269UH.

(2) Any transfer of any immovable property made in contravention

of the provisions of sub-section (1) shall be void. 269UL. Restrictions on registration, etc., of documents in respect of transfer of immovable property

(1) Notwithstanding anything contained in any other law for the time ----------------------------------------------------------------------- 1 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ---------------------------------------------------------------------- 1.765 being in force, no registering officer appointed under the Registration Act, 1908 (16 of 1908), shall register any document which purports to transfer immovable property exceeding the value prescribed under section 269UC unless a certificate from the appropriate authority that it has no objection to the transfer of such property for an amount equal to the apparent consideration therefor as stated in the agreement for transfer of the immovable property in respect of

which it has received a statement under sub-section (3) of section 269UC, is furnished along with such document.

(2) Notwithstanding anything contained in any other law for the time being in force, no person shall do anything or omit to do anything which will have the' effect of transfer of any immovable property unless the appropriate authority certifies that it has no objection to the transfer of such property for an amount equal to the apparent consideration therefor as stated in the agreement for transfer of the immovable property in respect of which it has received

a statement under sub-section (3) of section 269UC.

(3) In a case where the appropriate authority does not make an

order under sub-section (1) of section 269UD for the purchase by the Central Government of an immovable property, or where the order made

under sub-section (1) of section 269UD stands abrogated under sub-

section (1) of section 269UH, the appropriate authority shall issue a

certificate of no objection referred to in sub-section (1) or, as the

case may be,, sub-section (2) and deliver copies thereof to the transferor and the transferee. 269UM. Immunity to transferor against claims of transferee for transfer Notwithstanding anything contained in any other law or in any instrument or any agreement for the time being in force, when an order for the purchase of any immovable property by the Central Government is made under this Chapter, no claim by the transferee shall lie against the transferor by reason of such transfer being not in accordance with the agreement for the transfer of the immovable property entered into between the transferor and the transferee: Provided that nothing contained in this section shall apply if the order for the purchase of the immovable property by the Central

Government is abrogated under sub-section (1) of section 269UH. 269UN. Order of appropriate authority to be final and conclusive Save as otherwise provided in this Chapter, any order made under

subsection (1) of section 269UD or any order made under sub-section

(2) of section 269UF shall be final and conclusive and shall not be called in question in any proceeding under this Act or under any other law for the time being in force. 269UO. Chapter not to apply to certain transfers The provisions of this Chapter shall not apply to or in relation to any immovable property where the agreement for transfer of such property is made by a person to his relative on account of natural love and affection, if a recital to that effect is made in the agreement for transfer.] 1.766 CHAP PENALTIES IMPOSABLE CHAPTER XXI PENALTIES IMPOSABLE

Failure to furnish information regarding securities, etc. 1[270. Failure to furnish information regarding securities, etc.--Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4- 1989.]

Failure to furnish returns, comply with notices, concealment of income, etc . 2 [271. Failure to furnish returns, comply with notices, concealment of income, etc . 2

(1)If the 3[Assessing] Officer or the 4 [Deputy Commissioner (Appeals)] 5[or the Commissioner (Appeals)] in the course of any proceedings under this Act, is satisfied that any person- 6[(a) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] (b) has 7[* * *] failed to comply with a notice under sub-

section (1) of section 142 or sub-section (2) of section 143 8[or fails to comply with a direction issued under sub- section (2A) of section 142], or (c) has concealed the particulars of his income or 9[ * * * ] furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- ---------------------------------------------------------------------- 1 Prior to the omission, section 270, as amended by the Taxation Laws (Amendment & Miscellaneous Provisions) Act,. 1986, w.e.f. 10-9- 1986, read as under: "270. Failure to furnish information regarding securities, etc.- If any person fails to comply with a notice issued under sub-section

(6) of section 94, the Assessing Officer may direct that such person shall pay by way of penalty a sum not exceeding five hundred rupees and by way of further penalty a like amount for every day after the infliction of such penalty during which the failure continues." 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 6 Prior to the omission, clause (a), as amended by the Finance Act, 1963, w.e.f. 28-4-1963 and Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986, read as under: "(a) has failed to furnish the return of total income which

he was required to furnish under sub-section (1) of section

139 or by notice given under subsection (2) of section 139 or section 148 or has failed to furnish it within the time

allowed and in the manner required by sub-section (1) of section 139 or by such notice as the case may be, or" 7 The words ", without reasonable cause," omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-

8 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

9 The word 'deliberately" omitted by the Finance Act, 1964, w.e.f. 1-4-1964. ----------------------------------------------------------------------- 1.767 1[(i) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] 2[(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum which shall not be less than one thousand rupees but which may extend to twenty- five thousand rupees for each such failure;] 3[(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed 4 [three times] the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. 5[Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.] 6 [Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation ----------------------------------------------------------------------- 1 Prior to the omission, clause (i), as substituted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-1962 and Taxation Laws (Amendment) Act, 1975, w.e.f 1-4-1976, read as under: "(i) in the cases referred to in clause (a),- (a) in the case of a person referred to in sub-section (4A) of section 139, where the total income in respect of which he is assessable as a representative assessee does not exceed the maximum amount which is not chargeable to income-tax, a sum not exceeding one per cent of the total income computed under this Act without giving effect to the provisions of sections 11 and 12, for each year or part thereof during which the default continued; (b) in any other case, in addition to the amount of the tax, if any, payable by him, a sum (equal to two per cent of the assessed tax for every month during which the default continued. Explanation.-In this clause "assessed tax" means tax as reduced by the sum, if any, deducted at source under Chapter XVIIB or paid in advance under Chapter XVIIC;" 2 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Prior to the substitution, clause (ii) read as under: "(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent but which shall not exceed fifty per cent of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income". 3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. Earlier, clause (iii) was substituted by the Finance Act, 1968, w.e.f. 1-4-1968. 4 Substituted for "twice" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 5 Prior to the omission, the proviso read as under: "Provided that, if in a case falling under clause (c), the amount of income (as determined by the Assessing Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees, the Assessing Officer shall not issue any direction for payment by way of penalty without the previous approval of the Deputy Commissioner." 6 Substituted for Explanation by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. Earlier, the Explanation was inserted by the Finance Act, 1964, w.e.f. 1-4-1964. ---------------------------------------------------------------------- 1.768 which is found by the 1[Assessing] Officer or the 2[Deputy Commissioner (Appeals)] 3[or the Commissioner (Appeals)] to be false, or (B) such person offers an explanation which is not able to substantiate 4 [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. 5[Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f 10-9-1986.] Explanation 2.-Where the source of any receipt, deposit, outgoing or investment in any assessment year is claimed by any person to be an amount which had been added in computing the income or deducted in computing the loss in the assessment of such person for any earlier assessment year or years but in respect of which no penalty under clause (iii) of this sub-section had been levied, that part of the amount so added or deducted in such earlier assessment year immediately preceding the year in which the receipt, deposit, outgoing or investment appears (such earlier assessment year hereafter in this Explanation referred to as the first preceding year) which is sufficient to cover the amount represented by such receipt, deposit or outgoing or value of such investment (such amount or value hereafter in this Explanation referred to as the utilised amount) shall be treated as the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the first preceding year; and where the amount so added or deducted in the first preceding year is not sufficient to cover the utilised amount, that part of the amount so added or deducted in the year immediately preceding the first preceding year which is sufficient to cover such part of the utilised amount as is not so covered shall be treated to be the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the year immediately preceding the first preceding year and so on, until the entire utilised amount is covered by the amount so added or deducted in such earlier assessment years. ---------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for 'Appellate Assistant Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 4 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. 5 Prior to the omission, the proviso read as under: 'Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such per-son, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him.' ----------------------------------------------------------------------- 1.769 1[Explanation 3.-Where any person who has not previously been assessed under this Act, fails, without reasonable cause, to furnish

within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice

has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub- section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.] Explanation 4.-For the purposes of clause (iii) of this sub- section, the expression "the amount of tax sought to be evaded",- (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) in any case to which Explanation 3 applies, means the tax on the total income assessed; (c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. 1[Explanation 5.-Where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellers or other valuable article or thing (hereafter in this Explanation referred to ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Prior to the substitution, Explanation 3, as amended by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978, read as under: "Explanation 3.-Where any person who has not previously been assessed under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, fails, without reasonable cause, to furnish within the

period specified in sub-clause (iii) of clause (a) of subsection (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the first day of April, 1974, and, until the expiry of the period aforesaid, no notice has been issued to him under sub-section

(2) of section 139 or section 148 and the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148." 2 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-

1.770 as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,- (a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or (b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of

sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, 1[unless,-

(1) such income is, or the transactions resulting in such income are recorded,- (i) in a case falling under clause (a), before the date of the search; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the 2[Chief Commissioner or Commissioner] before the said date; or

(2) he, in the course of the search, makes a statement

under subsection (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in

3[* * *] sub-section (1), of section 139, and also specifies in the statement the manner-in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.] 4 [Explanation 6.-Where any adjustment is made in the income or loss declared in the return under the proviso to clause (a) of sub-

section (1) of section 143 and additional tax charged under that section, the provisions of this sub-section shall not apply in relation to the adjustment so made.] ----------------------------------------------------------------------- 1 Substituted for "unless such income is, or the transactions resulting in such income are, recorded- (i) in a case falling under clause (a), before the date of the Search; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Commissioner before the said date." by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 w.e.f. 10-9- 1986 2 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 The words 'clause (a) or clause (b) of" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 Inserted, ibid. ------------------------------------------------------------------------ 1.771 1[(1A) Where any penalty is imposable by virtue of Explanation 2

to sub-section (1), proceedings for the imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the course of which such penalty proceedings could have been initiated

under sub-section (1) have been completed.

(2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183, then notwithstanding anything contained in the other provisions

of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.

2[(3) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f 1-4-1989.]

(4) If the 3[Assessing] Officer or the 4 [Deputy Commissioner (Appeals)] 5[or the Commissioner (Appeals)] in the course of any proceedings under this Act, is satisfied that the profits of a registered firm have been distributed otherwise than in accordance With the shares of the partners as shown in the instrument of partnership on the basis of which the firm, has been registered under this Act, and that any partner has thereby returned his income below its real amount, he may direct that such partner shall, in addition to the tax, if any, payable by him, pay by way of penalty a sum not exceeding one and a half times the amount of tax which has been avoided, or would have been avoided if the income returned by such partner had been accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by reason of such direction.] ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

2 Prior to the omission, sub-section (3), as amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under:

"(3) Notwithstanding anything contained in this section,- (a) no penalty for failure to furnish the return of

his total income under subsection (1) of section 139

shall be imposed under sub-section (1) on an assessee whose total income does not exceed the maximum amount not chargeable to tax in his case by one thousand five hundred rupees; (b) where a person has failed to comply with a notice

under sub-section (2) of section 139 or section 148 and proves that he has no income liable to tax, the penalty

imposable under sub-section (1) shall not exceed twenty- five rupees;

(c) no penalty shall be imposed under sub-section (1) upon any person assessable under clause (i) of sub-

section (1) of section 160, read with section 161, as the agent of a non-resident for failure to furnish the

return under sub-section (1) of section 139; (d) the penalty imposed under clause (i) of sub-

section (1) and the penalty imposed under clause (iii) of that sub-section, read with Explanation 3 thereto, shall not exceed in the aggregate twice the amount of the tax sought to be evaded: Provided that nothing contained in clause (a) or clause (b) shall apply to a case referred to in sub-clause (a) of clause (i) of sub-

section (1)." 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for 'Appellate Assistant Commissioner", ibid. 5 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. ----------------------------------------------------------------------- 1.772 [(4A) and (4B) Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. They were inserted by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3-1965. Sub-section (4A) was substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4- 1971.]

1[(5) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989 shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.] 2[271A. Failure to keep, maintain or retain books of account, documents, etc. Without prejudice to the provisions of section 271, if any person 3[* * *] fails to keep and maintain any such books of account and other documents as required by section 44AA or the rules made thereunder, in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules, the 4 [Assessing] Officer or the 5[Deputy Commissioner (Appeals)] 6[or the Commissioner (Appeals)] may direct that such person shall pay, by way of penalty, 7 [a sum which shall not be less than two thousand rupees but which may extend to one hundred thousand rupees].] ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 The words ", without reasonable cause," omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f 10-9-

4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Substituted for "Appellate Assistant Commissioner", ibid. 6 Inserted by the Finance (No. 2) Act, 1977, w.e.f 10-7-1978. 7 Substituted for "a sum which shall not be less than ten per cent but which shall not exceed fifty per cent of the amount of tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ------------------------------------------------------------------------ 1.773 1[271B. Failure to get accounts audited2 If any person fails 3[* * *] to get his accounts audited in respect of any previous year or years relevant to an assessment year or 4 [furnish a report of such audit as required under section 44AB], the 5[Assessing] Officer may direct that such person shall pay, by way of penalty, a sum equal to one half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less.] 6 [271BB. Failure to subscribe to the eligible issue of capital Whoever fails to subscribe any amount of subscription to the

units issued under any scheme referred to in sub-section (1) of section 88A to the eligible issue of capital under that sub-section within the period of six months specified therein, may be directed by the Deputy Commissioner to pay, by way of penalty, a sum equal to twenty per cent of such amount.] 7[271C. Penalty for failure to deduct tax at source 8

9[(1)] If any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVIIB, he shall be liable to pay, by way of penalty, a sum equal to the amount of the tax which he failed to deduct as aforesaid.]

10[(2) Any penalty imposable under sub-section (1) shall be imposed by the Deputy Commissioner.] 11[271D. Penalty for failure to comply with the provisions of section 269SS

12[(1) If a person takes or accepts any loan or deposit in ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 3 The words ", without reasonable cause," omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-

4 Substituted for 'obtain a report of such audit as required under section 44AB or furnish the said report along with the return of his

income filed under sub-section (1) of section 139, or along with the return of income furnished in response to a notice under clause (i) of

sub-section (1) of section 142" by the Finance Act, 1995, w.e.f. 1-7- 1995. The italicised words were inserted by the Finance Act' 1988, w.e.f. 1-4-1989. 5 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 9 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 10 Ibid. 11 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 12 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. -------------------------------------------------------------------------- 1.774 contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.]

1[(2) Any penalty imposable under sub-section (1) shall be imposed by the Deputy Commissioner.], 2 [271E. Penalty for failure to comply with the provisions of section 269T

3[(1)] If a person repays any deposit referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the deposit so repaid.

4[(2) Any penalty imposable under sub-section (1) shall be imposed by the Deputy Commissioner.]

Failure to give notice of discontinuance. 5[272. Failure to give notice of discontinuance.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] 5[272A. Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

(1) If any person,- ------------------------------------------------------------------------ 1 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 4 ibid. 5 Prior to the omission section 272 read as under: "272. Failure to give notice of discontinuance.-Where any person fails to give the notice of discontinuance of his business or

profession as required by sub-section (3) of section 176, the Assessing Officer may direct that a sum shall be recovered from him by way of penalty which shall not be less than 10 per cent of the tax but which shall not exceed the amount of tax subsequently assessed on him in respect of any income of the business or profession up to the date of its discontinuance." 6 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 272A, as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and amended by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978; Finance Act, 1982, w.e.f. 1-6-1982; Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986 and Finance Act, 1987, w.e.f. 1-6-1987, read as under: "272A. Penalty for failure to answer questions, sign statements,

allow inspections, etc.-(1) If any person,- (a) being legally bound to state the truth of any matter touching the subject of his assessment, refuses to answer any question demanded of him by an Assessing Officer or a Deputy Commissioner (Appeals) or a Deputy Commissioner or a Commissioner (Appeals) or a Chief Commissioner or Commissioner in the exercise of his powers under this Act; or (b) refuses to sign any statement made by him in the course of any proceeding under this Act which an Assessing Officer or a Deputy Commissioner (Appeals) or a Deputy Commissioner or a Commissioner (Appeals) or a Chief Commissioner or Commissioner may legally require him to sign, he shall pay, by way of penalty, a sum which may extend to one thousand rupees.

(2) If a person fails,- (a) to furnish in due time any of the returns or statements mentioned in section 133, section 206 or section 285B; or (b) to allow inspection of any register referred to in section 134 or of any entry in such register or to allow copies of such register or of any entry therein -> -> 1.775 (a) being legally bound to state the truth of any matter touching the subject of his assessment, refuses to answer any question put to him by an income-tax authority in the exercise of its powers under this Act; or (b) refuses to sign any statement made by him in the course of any proceedings under this Act, which an income-tax authority may legally require him to sign; or

(c) to whom a summons is issued under sub-section (1) of section 131 either to attend to give evidence or produce books of account or other documents at a certain place and time omits to attend or produce books of account or documents at the place or time; or (d) fails to comply with the provisions of section 139A, he shall pay, by way of penalty, a sum which shall not be less than five hundred rupees but which may extend to ten thousand rupees for each such default or failure.

1(2) If any person fails-

(a) to comply with a notice issued under sub-section (6) of section 94; or (b) to give the notice of discontinuance of his business or

profession as required by sub-section (3) of section 176; or (c) to furnish in due time any of the returns, statements or particulars mentioned in section 133 or section 206 or section 206A or section 206B 2[or section 206C] or section 285B; or (d) to allow inspection of any register referred to in section 134 or of any entry in such register or to allow copies of such register or of any entry therein to be taken; or to be taken; or- ----------------------------------------------------------------------- (ba) to deliver or cause to be delivered in due time a copy of the declaration mentioned in section 197A; or (c) to furnish a certificate as required by section 203; or

(d) to deduct and pay tax as required by sub-section (2) of section 226, he shall pay, by way of penalty, a sum which may extend to ten rupees for every day during which the failure continues.

(3) Any penalty imposable under sub-section (1) or sub-section

(2) shall be imposed,- (a) in a case where the contravention, failure or default in respect of which such penalty is imposable occurs in the course of any proceeding before the Chief Commissioner or Commissioner or the Commissioner (Appeals) or the Deputy Commissioner (Appeals), by the Chief Commissioner or Commissioner or the Commissioner (Appeals) or, as the case may be, the Deputy Commissioner (Appeals);

(aa) in a case falling under clause (ba) of sub-section (2), by the Chief Commissioner or Commissioner; and (b) in any other case, by the Deputy Commissioner.

(4) No order under this section shall be passed by any officer

referred to in subsection (3) unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter by such officer." 2 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. ----------------------------------------------------------------------- 1.776 (e) to furnish the return of income which he is required to furnish under sub-section (4A) of section 139 or to furnish it within the time allowed and in the manner required under that sub-section; (f) or to deliver or cause to be delivered in due time a copy of the declaration mentioned in section 197A; or (g) to furnish a certificate as required by section 203 1[or section 206C];or

(h) to deduct and pay tax as required by sub-section (2) of section 226; he shall pay, by way of penalty, a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees, for every day during which the failure continues: 2 [Provided that the amount of penalty for failures in relation to returns under sections 206 and 206C shall not exceed the amount of tax deductible or collectible, as the case may be.]

(3) Any penalty imposable under sub-section (1) or sub-section

(2) shall be imposed- (a) in a case where the contravention, failure or default in respect of which such penalty is imposable occurs in the course of any proceeding before an income-tax authority not lower in rank than a Deputy Director or a Deputy Commissioner, by such income-tax authority;

(b) in a case falling under clause (f) of sub-section (2), by the Chief Commissioner or Commissioner; and (c) in any other case, by the Deputy Director or the Deputy Commissioner.

(4) No order under this section shall be passed by any income-

tax authority referred to in sub-section (3) unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter by such authority. Explanation.-In this section, "income-tax authority" includes a Director General, Director, Deputy Director and an Assistant Director while exercising the powers vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the

matters specified in sub-section (1) of section 131.] 3 [272AA. Penalty for failure to comply with the provisions of section 133B

(1) If a person 4[* fails to comply with the provisions of section 133B, he shall, on an order passed by the 5[Deputy] Commissioner, 6[Assistant Director] or the 7[Assessing] Officer, as the case may be, pay, by way of penalty, a sum which may extend to one thousand rupees. ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 2 Ibid. 3 Inserted by the Finance Act, 1986, w.e.f. 13-5-1986. 4 The words, "without reasonable cause," omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-

5 Substituted for "Inspecting Assistant" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted for "Assistant Director of Inspection", ibid. 7 Substituted for "Income-tax', ibid. ------------------------------------------------------------------------- 1.777

(2) No order under sub-section (1) shall be passed unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter. 1[272B. Penalty for failure to comply with the provisions of section 139A.Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989. It was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.] 2[272BB. Penalty for failure to comply with the provisions of section 203A

(1) If a person fails to comply with the provisions of section 203A, he shall, on an order passed by the 3[Assessing] Officer, pay, by way of penalty, a sum which may extend to five thousand rupees.

(2) No order under sub-section (1) shall be passed unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter.]

False estimate of, or failure to pay, advance tax5 4[273. False estimate of, or failure to pay, advance tax5

6[(1) If the 7 [Assessing] Officer, in the course of any proceedings in connection with the regular assessment for any assessment year, is satisfied that any assessee-

(a) has furnished under clause (a) of sub-section (1) of section 209A a statement of the advance tax payable by him which he knew or had reason to believe to be untrue, or (b) has 8[* * *] failed to furnish a statement of the advance tax payable by him in accordance with the provisions

of clause (a) of subsection (1) of section 209A, he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty a sum- (i) which, in the case referred to in clause (a), shall not be less than ten per cent but shall not exceed one and a half times the amount by which the tax actually paid during the financial year ----------------------------------------------------------------------- 1 Prior to the omission, section 272B, as amended by Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986, read as under: "272B. Penalty for failure to comply with the provisions of

section 139A.-(1) If a person fails to comply with the provisions of section 139A, he shall, on an order passed by the Assessing Officer, pay, by way of penalty, a sum which may extend to five hundred rupees.

(2) No order under sub-section (1) shall be passed unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter." 2 Inserted by the Finance Act, 1987, w.e.f. 1-6-1987. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted by the Finance Act, 1969, w.e.f. 1-4-1970. 5 See Board's Letters F. No. 281/8/86-IT (Inv 111), dated 14-2-1986 and 284/41/72-IT (Inv), dated 30-8-1972, reproduced in Bharat's Direct Taxes Circulars, 1991 edn., P. 1902. 6 Inserted by the Finance Act, 1978, w.e.f. 1-6-1978. 7 Substituted for 'Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 8 The words ", without reasonable cause," omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-

------------------------------------------------------------------------ 1.778 immediately preceding the assessment year under the provisions of Chapter XVIIC falls short of-

(1) seventy-five per cent of the assessed tax as

defined in subsection (5) of section 215, or

(2) the amount which would have been payable by way of advance tax if the assessee had furnished a correct and complete statement in. accordance with the provisions of

clause (a) of sub-section (1) of section 209A, whichever is less; (ii) which, in the case referred to in clause (b), shall not be less than ten per cent but shall not exceed one and a half times of seventy five per cent of the assessed tax as defined

in sub-section (5) of section 215]: 1[Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect as if for the words "seventy-five per cent", at both the places where they occur, the words "eighty-three and one-third per cent" had been substituted.]

2[(2)] If the 3[Assessing] Officer, in the course of any proceedings in connection with the regular assessment for the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year, is satisfied that any assessee-

4[ (a) has furnished under sub-section (1) or sub-section

(2) or subsection (3) or sub-section (5) of section 209A, or

under sub-section (1) or sub-section (2) of section 212, an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, or]

5[(aa) has furnished 6[under sub-section (4) of section 209A or] under sub-section (3A) of section 212 an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, or] (b) has 7[* * *] failed to furnish an estimate of the advance tax payable by him in accordance with the provisions

of 8[clause (b) of subsection (1) of section 209A], or (c) has 9[* * *] failed to furnish an estimate of the advance tax payable ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. 2 Inserted by the Finance Act, 1978, w.e.f. 1-6-1978. 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted by the Finance Act, 1978, w.e.f. 1-6-1978. Earlier, it was amended by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977. 5 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977. 6 Inserted by the Finance Act, 1978, w.e.f. 1-6-1978. 7 The word ", without reasonable cause" omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-

8 Substituted for 'sub-section (3) of section 212" by the Finance Act, 1978, w.e.f. 1-6-1978. 9 The word ", without reasonable cause,' omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-

1.779

by him in accordance with the provisions of 1[sub-section (4) of section 209A or] sub-section (3A) of section 212, he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty a sum- (i) which, in the case referred to in clause (a), shall not be less than ten per cent but shall not exceed one and a half times the amount by which the tax actually paid during the financial year immediately preceding the assessment year under the provisions of Chapter XVIIC falls short of-

(1) seventy-five per cent of the assessed tax as

defined in subsection (5) of section 215, or.

2[ (2) where a statement under clause (a) of sub-

section (1) of section 209A was furnished by the assessee or where a notice under section 210 was issued to the assessee, the amount payable under such statement or, as the case may be, such notice,] whichever is less; 3[(ia) which, in the case referred to in clause (aa), shall not be less than ten per cent but shall not exceed one and a half times the amount by which the tax actually paid during the financial year immediately preceding the assessment year under the provisions of Chapter XVIIC falls short of seventy-five per cent of the assessed tax as defined

in sub-section (5) of section 215;] (ii) which, in the case referred to in clause (b), shall not be less than ten per cent but shall not exceed one and a half times of seventy five per cent of the assessed tax as defined

in sub-section (5) of section 215; and 4[(iii) which, in the case referred to in clause (c), shall not be less than ten per cent but shall not exceed one and a half times the amount by which- (a) where the assessee had sent a statement under clause (a), or an estimate under clause (b) of sub-

section (1) of section 209A, or an estimate in lieu of a

statement under sub-section (2) of that section, the tax payable in accordance with such statement or estimate; or (b) where the assessee was required to pay advance tax in accordance with the notice issued to him under section 210, the tax payable under such notice, falls short of seventy-five per cent of the assessed tax

as defined in sub-section (5) of section 215:]] 5[Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect as if for the words "seventy-five per cent", wherever they occur, the words "eighty-three and one-third per cent" had been substituted. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1978, w.e.f. 1-6-1978. 2 Substituted by the Finance Act, 1978, w.e.f. 1-6-1978. 3 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977. 4 Substituted by the Finance Act, 1978, w.e.f. 1-6-1978. 5 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. ----------------------------------------------------------------------- 1.780 1[Explanation 2[1 ].-For the purposes of clause (ia) the amount paid by the assessee on or before the date extended by the 3[Chief Commissioner or Commissioner] under the 4[first] 5[proviso to sub-

section (4) of section 209A or, as the case may be,] 6[first] 'proviso to sub-section (3A) of section 212 shall, where the date so extended falls beyond the financial year immediately preceding the assessment year, also be regarded as tax actually paid during that financial year.] 7[Explanation 2.-When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183, then, notwithstanding anything contained in the other provisions of this Act, the penalty imposable under this section shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.]

8[(3) The provisions of this section shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, and references in- this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.] 9[273A. Power to reduce or waive penalty, etc., in certain cases 10

(1) Notwithstanding anything contained in this Act, the 11[12[* * *] Commissioner] may, in his discretion, whether on his own motion or otherwise,-

13[(1) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.] (ii) reduce or waive the amount of penalty imposed or

imposable on a person under clause (iii) of sub-section (1) of section 271; 14[or] ---------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977. 2 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

3 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance Act, 1981, w.e.f. 1-4-1981. 5 Inserted by the Finance Act, 1978, w.e.f. 1-6-1978. 6 Inserted by the Finance Act, 1981, w.e.f. 1-4-1981. 7 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

8 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 9 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

10 See Instruction Nos. 1142, dated 25-1-1978 and 1417, dated 29-9- 1981 and Ministry of Law, Justice and Company Affairs' advice, dated 7-8-1981. 11 The words "Chief Commissioner or Commissioner" substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1988. 12 The words 'Chief Commissioner or" omitted by the Finance Act, 1993, w.e.f. 1-6-1993. 13 Prior to the omission, clause (i) read as under: "(i) reduce or waive the amount of penalty imposed or

imposable on a person under clause (i) of sub-section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish

under sub-section (1) of section 139; or" 14 Superfluous, should be deleted. ----------------------------------------------------------------------- 1.781 1[(iii) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.] if he is satisfied that such person- 2[(a) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.] (b) in the case referred to in clause (ii), has, prior to the detection by the 3[Assessing] Officer, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars; 4[(C) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.] and also has, 5[in the case referred to in clause (b)], cooperated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year. Explanation 6[* * *].-For the purposes of this sub-section, a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature

as not to attract the provisions of clause (c) of sub-section (1) of section 271. 7[Omitted by the Finance Act, 1985, w.e.f. 24-5-1985.] ---------------------------------------------------------------------- 1 Prior to the omission, clause (iii) read as under: "(iii) reduce or waive the amount of interest paid or payable

under sub-section (8) of section 139 or section 215 or section 217 or the penalty imposed or imposable under section 273," 2 Prior to the omission, clause (a) read as under: "(a) in the case referred to in clause (i), has, prior to

the issue of a notice to him under sub-section (2) of section 139, voluntarily and in good faith made full and true disclosure of his income;" 3 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Prior to the omission, clause (c) read as under: "(c) in the cases referred to in clause (iii), has, prior to

the issue of a notice to him under sub-section (2) of section 139, or where no such notice, has been issued and the period for the issue of such notice has expired, prior to the issue of notice to him under section 148, voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed," 5 Substituted for "in all the cases referred to in clauses (a), (b) and (c)" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

6 The figure "1" omitted by the Finance Act, 1985, w.e.f. 24-5- 1985. It was inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. 7 Prior to the omission, Explanation 2, as inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984, read as under: "Explanation 2.-Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing belonging to a person are seized under section 132 and within fifteen days of such seizure, the person makes full and true disclosure of his income to the Commissioner, such person shall for the purposes of clause (b) of this sub-section, be deemed to have made, prior to the detection by the Income-tax Officer of the concealment of particulars of income or of the -> -> ----------------------------------------------------------------------- 1.782

(2) Notwithstanding anything contained in sub-section (1),- 1[(a) Omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f 1-4-1989.]] (b) if in a case falling under clause (c) of sub-section

(1) of section 271, the amount of income in respect of which the penalty is imposed or imposable for the relevant assessment year, or, where such disclosure relates to more than one assessment year,. the aggregate amount of such income for those years, exceeds a sum of five hundred thousand rupees,

no order reducing or waiving the penalty under sub-section (1) shall be made by 2[the Commissioner except with the previous approval of the Chief Commissioner- or Director General, as the case may be].

(3) Where an order has been made under sub-section (1) in favour of any person, whether such order relates to one or more assessment years, he shall not be entitled to any relief under this section in relation to any other assessment year at any time after the making of such order: 3[Provided that where an order has been made in favour of any

person under sub-section (1) on or before the 24th day of July, 1991, such person shall be entitled to further relief only once in relation to other assessment year or years if he makes an application to the

income-tax authority referred to in sub-section (4) at any time before the 1st day of April, 1992.]

(4) Without prejudice to the powers conferred on him by any other provision of this Act, the 4[5[* * *] Commissioner] may, on an application made in this behalf by an assessee, and after recording his reasons for so doing, reduce or waive the amount of any penalty payable by the assessee under this Act, or stay; or compound any proceeding for the recovery of any such amount, if he is satisfied that- (i) to do otherwise would cause genuine hardship to the assessee, having regard to the circumstances of the case; and (ii) the assessee has cooperated. in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him: ---------------------------------------------------------------------- -> inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, a disclosure of such particulars." 1 Prior to the omission, clause (a), as amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984, read as under: "(a) if in a case the penalty imposed or imposable under

clause (i) of sub-section (1) of section 271 or the minimum penalty imposable under section 273 for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate of the penalty imposed or imposable under the said clause or of the minimum penalty imposable under the said section for those years, exceeds a sum of one hundred thousand rupees, or" 2 Substituted for "the Chief Commissioner or Commissioner except with the previous approval of the Board" by the Finance Act, 1993, w.e.f. 1-6-1993. Earlier, the italicised words were substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1988. 3 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991. 4 The words "Chief Commissioner or Commissioner" substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1988. 5 The words "Chief Commissioner or' omitted by the Finance Act, 1993, w.e.f. 1-6-1993. ----------------------------------------------------------------------- 1.783 1 [Provided that where the amount of any penalty payable under this Act or, where such application relates to more than one penalty, the aggregate amount of such penalties exceeds one hundred thousand rupees, no order reducing or waiving the amount or compounding any proceeding for its recovery under this sub-section shall be made by 2[the Commissioner except with the previous approval of the Chief Commissioner or Director General, as the case may be].

(5) Every order made under this section shall be final and shall not be called into question by any court or any other authority.]

3[(6) The provisions of this section 4[as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989] shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.]

5[(7) Notwithstanding anything contained in sub-section (6), the

provisions of sub-section (1), sub-section (2) or, as the case may be,

subsection (4) [as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989 (3 of 1989)], shall apply in the case of reduction or waiver of penalty or interest in relation to any assessment for the assessment year commencing on the 1st day of April, 1988 or any earlier assessment year, with the modifications

that the power under the said sub-section (1) shall be exercisable only by the Commissioner and instead of the previous approval of the Board, the Commissioner shall obtain the previous approval of the Chief Commissioner or Director General, as the case may be, while dealing with such case.] 1[273B. Penalty not to be imposed in certain cases Notwithstanding anything contained in the provisions of 2[clause

(b) of sub-section (1) of] 3[section 271, section 271A, section 271B 4[ section 271BB,] section 271C, section 271D, section 271E, clause

(c) or clause (d) of sub-section (1) or sub-section (2) of section

272A, sub-section (1) of section 272AA] or 5[sub-section (1) of

section 272BB or] clause (b) of subsection (1) or clause (b) or clause

(c) of sub-section (2) of section 273, no penalty shall be imposable on the pet-son or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.]

procedure 274. Procedure

(1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.

6 [(2) No order imposing a penalty under this Chapter shall be made- (a) by the Income-tax Officer, where the penalty exceeds ten thousand rupees; (b) by the Assistant Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Deputy Commissioner.]

7[(3) An income-tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer'.]

Bar of limitation for imposing penalties 1[275. Bar of limitation for imposing penalties

2[(1)] No order imposing a penalty under this Chapter shall be passed- 3[(a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) under section 246 or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of 4[the Deputy Commissioner (Appeals) or] the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; (b) in a case where the relevant assessment or other order is the subject-matter of revision under section 263, after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.] ----------------------------------------------------------------------- 1 Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

2 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Clauses (a), (b) and (c) substituted for clauses (a) and (b) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to their substitution, clause (a), as amended by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978, and clause (b) read as under: '(a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) under section 246 or

an appeal to the Appellate Tribunal under sub-section (2) of section 253, after the expiration of a period of- (i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or (ii) six months from the end of the month in which the order of the Deputy Commissioner (Appeals) or the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; (b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.' 4 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

1.786

1[(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any action initiated for the imposition of penalty on or before the 31st day of March,1989.] 2[Explanation.-In computing the period of limitation for the purposes of this section,- (i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129; (ii) any period during which the immunity granted under section 245H remained in force; and (iii) any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order or injunction of any court, shall be excluded.]] ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

----------------------------------------------------------------------- 1.787 CHAP OFFENCES AND PROSECUTIONS CHAPTER XXII OFFENCES AND PROSECUTIONS

1[275A. Contravention of order made under sub-section (3) of section 132 Whoever contravenes any order referred to in 2[the second proviso

to sub-section (1) or] sub-section (3) of section 132 shall be punishable with rigorous imprisonment which may extend to two years and shall-also be liable to fine.]

Removal, concealment, transfer or delivery of property to thwart tax recovery 3[276. Removal, concealment, transfer or delivery of property to thwart tax recovery Whoever fraudulently removes, conceals, transfers or delivers to any person, any property or any interest therein, intending thereby to prevent that property or interest therein from being taken in execution of a certificate under the provisions of the Second Schedule shall be punishable with rigorous imprisonment for a term which may extend to two years and shall also be liable to fine.]

4[276A. Failure to comply with the provisions of sub-sections (1) and

(3) of section 178 If a person 5[* * *],- (i) fails to give the notice in accordance with sub-section

(1) of section 178; or (ii) fails to set aside the amount as required by sub-

section (3) of that section; or (iii) parts with any of the assets of the company or the properties in his hands in contravention of the provisions of the aforesaid subsection, he shall be punishable with rigorous imprisonment for a term which may extend to two years: Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months.] ----------------------------------------------------------------------- 1 Inserted by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3-

2 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, section 276, relating to "Failure to make payments or deliver returns or statements or allow inspection', as amended by the Finance Act, 1968, w.e.f. 1-4-1968 and Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, was omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. 4 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 5 The words ", without reasonable cause or excuse,' omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. ---------------------------------------------------------------------- 1.788 1[276AA. Failure to comply with the provisions of section 269AB or section 269-I-Omitted by the Finance Act, 1986, w.e.f. 1-10-1986. It was inserted by the Income-tax (Amendment) Act, 1981, w.e.f. 1-7- 1982.] 2[276AB. Failure to comply with the provisions of sections 269UC, 269UE and 269UL Whoever 3[* * *] fails to comply with the provisions of section 269UC or fails to surrender or deliver possession of the property

under subsection (2) of section 269UE or contravenes the provisions of

sub-section (2) of section 269UL shall be punishable with rigorous imprisonment for a term which may extend to two years and shall also be liable to fine: Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months.] 4 [276B. Failure to pay the tax deducted at source' If a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVIIB, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine. --------------------------------------------------------------------- "276AA. Failure to comply with the provisions of section 269AB or section 269-I.Whoever, without reasonable cause or excuse, fails to comply with the provisions of section 269AB or with any direction

issued under sub-section (5) of section 269-1 shall be punishable with rigorous imprisonment for a term which may extend to two years and shall also be liable to fine: Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months.' 2 Inserted by the Finance Act, 1986, w.e.f. 13-5-1986. 3 The words ", without reasonable cause or excuse,' omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. 4 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, section 276B, as inserted by the Finance Act, 1968, w.e.f. 1-4-1968; substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975 and amended by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9- 1986, read as under: "276B. Failure to deduct or pay tax.- If a per-son fails to deduct or after deducting, fails to pay the tax as required by or

under the provisions of sub-section (9) of section 80E or Chapter XVIIB, he shall be punishable,- (i) in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine. ----------------------------------------------------------------- 1[276BB. Failure to pay the tax collected at source If a person fails to pay to the credit of the Central Government, the tax collected by him as required under the provisions of section 206C, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.] 2[276C. Wilful attempt to evade tax, etc.

(1)If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,- (i) in a case where the amount sought to be evaded exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.

(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and shall, in the discretion of the court, also be liable to fine. Explanation.-For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person- (i) has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or (ii) makes or causes to be made any false entry or statement in such books of account or other documents; or (iii) wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or (iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.] 3 [276CC. Failure to furnish returns of income If a person wilfully fails to furnish in due time the return of income ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1988, w.e.f. 1-6-1988. 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 10-1975. It was inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 3 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f, 1-10-

1.790

which he is required to furnish under sub-section (1) of section 139

or by notice given under 1[clause (i) of subsection (1) of section 142) or section 148, he shall be punishable,- (i) in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to three years and with fine: Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of income under

subsection (1) of section 139- (i) for any assessment year commencing prior to the 1st day of April, 1975; or (ii) for any assessment year commencing on, or after the 1st day of April, 1975, if- (a) the return is furnished by him before the expiry of the assessment year; or (b) the tax payable by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source, does not exceed three thousand rupees. 2[276D. Failure to produce accounts and documents If a person wilfully fails to produce, or cause to be produced, on or before the date specified in any notice served on him under sub-

section (1) of section 142- such accounts and documents as are referred to in the notice 3[or wilfully fails to comply with a direction issued to him under sub-section (2A) of that section], he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both.] 4 [276DD.-Failure to comply with the provisions of section 269SS.- Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989.] -----------------------------------------------------------------------

1 Substituted for 'sub-section (2) of section 139" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

3 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

4 Prior to the omission, section 276DD, as inserted by the Finance Act, 1984, w.e.f. 1-4-1984, and amended by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986, read as under: "276DD. Failure to comply with the provisions of section 269SS.- If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine equal to the amount of such loan or deposit.' ---------------------------------------------------------------------- 1.791 1[276E. Failure to comply with the provisions of section 269T.Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

False statement in verification, etc. 2[277. False statement in verification, etc. If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable,- (i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.]

Abetment of false return, etc. 3[278. Abetment of false return, etc. If a person abets or induces in any manner another person to make and deliver an account or a statement or declaration relating to any income chargeable to tax which is false and which he either knows to be false or does not believe to be true or to commit an offence under

sub-section (1) of section 276C, he shall be punishable,- (i) in a case where the amount of tax, penalty or interest which would have been evaded, if the declaration, account or statement had been accepted as true, or which is wilfully attempted to be evaded, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.] 4 [278A. Punishment for second and subsequent offences If any person convicted of an offence under section 276B or sub-

section (1) of section 276C or section 276CC 5[or section 276DD] 6[or section 276E] or section 277 or section 278 is again convicted of an offence under any of the aforesaid provisions, he shall be punishable for the second and for every subsequent offence with rigorous imprisonment ---------------------------------------------------------------------- 1 Prior to the omission, section 276E, as inserted by the Income- tax (Second Amendment) Act, 1981, w.e.f. 11-7-1981 and amended by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1987, w.e.f. 10-9-1986, read as under: "276E. Failure to comply with the provisions of section 269T.-If a person repays any deposit referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine equal to the amount of such deposit.' 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 10-1975. 3 Ibid. 4 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

5 Inserted by the Finance Act, 1985, w.e.f. 24-5-1985. 6 Inserted by the Income-tax (Second Amendment) Act, 1981, w.e.f. 11-7-1981. ---------------------------------------------------------------------- 1.792 for a term which shall not be less than six months but which may extend to seven years and with fine.] 1[278AA. Punishment not to be imposed In certain cases Notwithstanding anything contained in the provisions of section 276A, section 276AB 2 [or section 276B,] no person shall be punishable for any failure referred to in the said provisions if he proves that there was reasonable cause for such failure.] 3[278B. Offences by companies

(1) Where an offence under this Act has been committed by a company, every per-son who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to,, be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.-For the purposes of this section,- (a) 'company" means a body corporate, and includes- (i) a firm; and (ii) an association of persons or a body of individuals whether incorporated or not; and (b) "director', in relation to- (i) a firm, means a partner in the firm; (ii) any association of per-sons or a body of individuals, means any member controlling the affairs thereof.] 4 [278C. Offences by Hindu undivided families

(1) Where an offence under this Act has been committed by a Hindu undivided family, the karta thereof shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render the karta liable to any punishment if he proves that the offence was ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986 2 Substituted for 'section 276B, section 276DD or section 276E" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Inserted by the Taxation Laws (Amendment) Act 1975, w.e.f. 1-10-

4 Ibid. ------------------------------------------------------------------------- 1.793 committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

(2)Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a Hindu undivided family and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any member of the Hindu undivided family, such member shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.] 1[278D. Presumption as to assets, books of account, etc., in certain cases

(1)Where during the course of any search made under section 132, any money, bullion, jewellery or other valuable article or thing (hereafter in this section referred to as the assets) or any books of account or other documents has or have been found in the possession or control of any person and such assets or books of account or other documents are tendered by the prosecution in evidence against such person or against such person and the person refer-red to in section 278 for an offence under this Act, the provisions of sub-section (4A) of section 132 shall, so far as may be, apply in relation to such assets or books of account or other documents.

(2)Where any assets or books of account or other documents taken into custody, from the possession or control of any person, by the officer or authority refer-red to in clause (a) or clause (b) or

clause (c), as the case may be, of sub-section (1) of section 132A are

delivered to the requisitioning officer under sub-section (2) of that section and such assets, books of account or other documents are tendered by the prosecution in evidence against such person or against such person and the person referred to in section 278 for an offence under this Act, the provisions of sub-section (4A) of section 132 shall, so far as may be, apply in relation to such assets or books of account or other documents.] 2 [278E. Presumption as to culpable mental state

(1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation.-In this sub-section, "culpable mental state" includes intention, motive or knowledge of a fact or belief in, or reason to believe, a fact.

(2)For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.) ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986. ---------------------------------------------------------------------- 1.794

Prosecution to be at the instance of 1[Chief Commissioner or Commissioner] 279. Prosecution to be at the instance of 1[Chief Commissioner or Commissioner]

2[(1) A person shall not be proceeded against for an offence under section 275A, section 276, section 276A, section 276B, section 276BB, section 276C, section 276CC, section 276D, section 277 or section 278 except with the previous sanction of the Commissioner or Commissioner (Appeals) or the appropriate authority: Provided that the Chief Commissioner or, as the case may be, Director General may issue such instructions or directions to the aforesaid income-tax authorities as he may deem fit for institution of proceedings under this sub-section. Explanation.-For the purposes of this section, "appropriate authority" shall have the same meaning as in clause (c) of section 269UA.] 3[(1A) A person shall not be proceeded against for an offence under section 276C or section 277 in relation to the assessment for an assessment year in respect of which the penalty imposed or imposable

on him under clause (iii) of sub-section (1) of section 271 has been reduced or waived by an order under section 273A.]

4 [(2) Any offence under this Chapter may, either before or after the ---------------------------------------------------------------------- 1 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

Prior to the substitution, sub-section (1) read as under:

'(1) A person shall not be proceeded against for an offence under section 275A, section 276, section 276A, section 276B, section 276BB, section 276C, section 276CC, section 276D, section 277 or section 278 except with the previous sanction of the Chief Commissioner or Director General or Commissioner: Provided that no such sanction shall be required if the prosecution is at the instance of Commissioner (Appeals) or the appropriate authority. Explanation.-For the purposes of this section, "appropriate authority' shall have the same meaning as in clause (c) of section 269UA."

The above sub-section (1) was substituted for the following sub-

section (1) by the Finance Act, 1988, w.e.f. 1-4-1989 :

"(1) A person shall not be proceeded against for an offence under section 275A, section 276A, section 276AA, section 276B, section 276C, section 276CC, section 276D, section 276DD, section 276E, section 277, section 278 or section 278A except at the instance of the Chief Commissioner or Commissioner.- Earlier, it was amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975; Income-tax (Second Amendment) Act, 1981, w.e.f. 11-7-1981; Finance Act, 1982, w.e.f. 1-4-1982; Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1984 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 10-1975. It was inserted by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3-1965. 4 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

Prior to the substitution, sub-section (2), as substituted by the Finance Act, 1988, w.e.f. 1-4-1989, read as under :

"(2) Any offence under this Chapter may, either before or after the institution of proceedings, be compounded by- (a) the Board or a Chief Commissioner or a Director General authorised by the Board in this behalf, in a case where the prosecution would lie at the instance of the Commissioner (Appeals) or the appropriate authority; (b) the Chief Commissioner or Director General or Commissioner, in any other case.' ---------------------------------------------------------------------- 1.795 institution of proceedings, be compounded' by the Chief Commissioner or Director General.]

2[(3) Where any proceeding has been taken against any person

under sub-section (1), any statement made or account or other document produced by such person before any of the income-tax authorities specified in 3[clauses (a) to (g)] of section 116 shall not be inadmissible as evidence for the purpose of such proceedings merely on the ground that such statement was made or such account or other document was produced in the belief that the penalty imposable would be reduced or waived, 4 [under section 273A] or that the offence in respect of which such proceeding was taken would be compounded.] 5[Explanation.-For the removal of doubts, it is hereby declared that the power of the Board to issue orders, instructions, or directions under this Act shall include and shall be deemed always to have included the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under this section.] 6 [279A. Certain offences to be non-cognizable Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), an offence punishable under section 276B or section 276C or section 276CC or section 277 or section 278 shall be deemed to be non-cognizable within the meaning of that Code.] ---------------------------------------------------------------------- 2 Inserted by the Income-tax (Amendment) Act, 1965, w.e.f. 12-3-

3 Substituted for 'clauses (a), (b), (c), (d) and (e)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for "under subsection (4A) of section 271' by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. 5 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1962. 6 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

1.796 1[279B. Proof of entries in records or documents Entries in the records or other documents in the custody of an income-tax authority shall be admitted in evidence in any proceedings for the prosecution of any person for an offence under this Chapter, and all such entries may be proved either by the production of the records or other documents in the custody of the income-tax authority containing such entries, or by the production of a copy of the entries certified by the income-tax authority having custody of the records or other documents under its signature and stating that it is a true copy of the original entries and that such original entries are contained in the records or other documents in its custody.]

Disclosure of particulars by public servants 280. Disclosure of particulars by public servants

(1) If a public servant 2[furnishes any information or produces

any document in contravention of the provisions of sub-section (2) of section 138], he shall be punishable with imprisonment which may extend to six months, and shall also be liable to fine.

(2) No prosecution shall be instituted under this section except with the previous sanction of the Central Government. CHAP ANNUITY DEPOSITS CHAPTER XXIIA ANNUITY DEPOSITS Chapter XXIIA, comprising of sections 280A, 280B, 280C, 280D, 280E, 280F, 280G, 280H, 280-I, 280J, 280K, 280L, 280M, 280N, 280-0, 280P, 280Q, 280R, 280S, 280T, 280U, 280V, 28OW and 28OX, omitted by the Finance Act, 1988, w.e.f. 1-4-1988. The Chapter was inserted by the Finance Act, 1964, w.e.f 1-4-1964 and was not in operation since 1-4-1969 as a consequence of an amendment in section 280C by the Finance Act, 1968, w.e.f. 1-4-1968.] --------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

2 Substituted for 'discloses any particulars, the disclosure of which is prohibited by section 137" by the Finance Act, 1964, w.e.f. 1-4-1964. ---------------------------------------------------------------------- 1.797 CHAP TAX CREDIT CERTIFICATES CHAPTER XXIIB TAX CREDIT CERTIFICATES Chapter XXIIB, consisting of sections 280Y, 280Z, 1 280ZA, 280ZB, 280ZC, 280ZD and 280ZE, omitted by the Finance Act, 1990, w.e.f. 1-4- 1990. The Chapter was inserted by the Finance Act, 1965, w.e.f 1-4- 1965.] 2 [280Y. Definitions.-Omitted by the Finance Act, 1990, w.e.f. 1-4-1990.] 3[280Z. Tax credit certificates to certain equity shareholders.-Omitted by the Finance Act, 1990, w.e.f. 1-4-1990.] ----------------------------------------------------------------------- 1 Section 48 of the Finance Act, 1990 also provided that no tax credit certificate granted under section 28OZ or section 280ZC shall be produced before the Assessing Officer after the 31st day of March,

1991, for the purposes of sub-section (6) of section 28OZ or, as the

case may be, sub-section (4) of section 280ZC. 2 Prior to the omission, section 280Y read as under: "280Y Definitions.-In this Chapter,- (a) 'eligible issue of capital' means an issue of ordinary shares specified as such in the scheme; (b) 'public company' means a public company as defined in section 3 of the Companies Act, 1956 (1 of 1956); (c) 'scheme' means a scheme made under this Chapter, (d) 'urban area' means any area which the Central Government may, having regard to the population, concentration of industries, need for proper planning of the area and other relevant factors, by general or special order, declare to be an urban area for the purposes of this Chapter." 3 Prior to the omission, section 280Z, as amended by the Finance Act, 1968, w.e.f. 1-4-1968 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "280Z. Tax credit certificates to certain equity shareholders.-

(1) An individual shall be granted a tax credit certificate if he by himself or some other person on his behalf has subscribed to, and made payments in respect of, any eligible issue of capital.

(2) A Hindu undivided family shall also be granted a tax credit certificate if any person has subscribed to, and made payments in respect of, any eligible issue of capital on behalf of that Hindu undivided family.

(3) A tax credit certificate granted under the-provisions of this section shall be for the amount or the aggregate of the amounts computed as hereunder with reference to the capital so subscribed and paid :- (i) on the first Rs. 15,000 of the amount paid in the at the rate of financial year 5 per per cent; (ii) on the next Rs. 10,000 of the amount paid in the at the rate of financial year 3 per cent; (iii) on the next Rs. 10,000 of the amount paid in the at the rate of financial year 2 per cent; (iv) on the balance of the amount paid in the nil. financial year Explanation.-For the purposes of this section- (i) 'subscribed' includes acquisition of the shares forming part of an eligible issue of capital from a person who is specified as an underwriter in pursuance of clause 11 of Part I of Schedule II to the Companies Act, 1956 (1 of 1956) (hereinafter in this section referred to as the underwriter); (ii) a payment shall be treated as having been made to the extent to which and on the date on which the amount of the said payment has been credited to the share capital account of the company.

(4) A tax credit certificate for the amount specified in sub-

section (3) shall be granted to an individual or Hindu undivided family- ----------------------------------------------------------------------- 1.798 1[280ZA. Tax credit certificates for shifting of industrial undertaking from urban area.-Omitted by the Finance Act, 1987, w.e.f 1-4-1988.] ---------------------------------------------------------------------- (a) where payment by way of subscription has been made to the company, in respect of the financial year in which payment has been made and each of the three financial years following that year; and (b) where the acquisition has been made from the underwriter, in respect of the financial year in which the capital was so acquired and each one, if any, of the following financial years not falling beyond the third financial year from the end of the financial year in which the payment by way of subscription has been made to the company by the underwriter: Provided that, in either case, the capital is held by or on behalf of the individual or on behalf of the Hindu undivided family, as the case may be, at the end of the relevant financial year: Provided further that where any part of the capital in respect of which a tax credit certificate had been granted in a financial year (hereinafter referred to as the earlier financial year) is sold, transfer-red or otherwise disposed of in a subsequent financial year, the tax credit certificate to be granted with reference to the remaining capital in respect of the said subsequent financial year or any financial year following that year shall be for such amount as bears to the amount for which the tax credit certificate was granted in the earlier financial year in the same proportion as the amount of the remaining capital as on the 31st day of March of the subsequent financial year bears to the total amount of the capital with reference to which the tax credit certificate was granted in the earlier financial year.

(5) If any individual by himself or on behalf of any other individual or on behalf of any Hindu undivided family has acquired any shares forming part of an eligible issue of capital from the underwriter, he shall not be entitled to a tax credit certificate under this section, unless his name is entered as a shareholder in respect of such shares in the register of shareholders of the company.

(6) The amount shown on a tax credit certificate granted to an individual or Hindu undivided family shall, on the certificate being produced before the Assessing Officer, be adjusted against any liability of such individual or Hindu undivided family under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, existing on the date on which the certificate was produced before Assessing Officer and where the amount of such certificate exceeds such liability, or where there is no such liability, the excess or the whole of such amount, as the case may be, shall, notwithstanding anything contained in Chapter XIX, be deemed, on the said date, to be refund due to such individual or Hindu undivided family, as the case may be, under that Chapter and the provisions of this Act shall apply accordingly.

(7) The Central Government may specify in a scheme any issue of ordinary shares by a public company as eligible issue of capital.

(8) In specifying any issue of ordinary shares as eligible issue of capital, the Central Government shall have regard to the following factors, namely:- (a) the total amount of the capital issued; (b) the terms and conditions subject to which the capital is issued; (c) the trade or business in which the company concerned is engaged; (d) the purposes for which the issue is being made; (e) any other relevant factor. 1 Prior to the omission section 280ZA, as amended by the Finance Act, 1968, w.e.f. 1-4-1968; Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and the Finance Act, 1983, w.e.f. 1-4-1984, read as under: "280ZA. Tax Credit Certificates for shifting of industrial

undertaking from urban area.-(1) If any company owning an industrial undertaking situate in an urban area shifts, with the prior approval of the Board, such under-taking to any area (not being the area in which such undertaking is situate), it shall be granted a tax credit certificate. ----------------------------------------------------------------------- 1.799 1[280ZB. Tax credit certificates to certain manufacturing companies in certain cases.-Omitted by the Finance Act, 1990, w.e.f. 1-4-1990.] ----------------------------------------------------------------------

(2) The tax credit certificate to be granted under sub-section

(1) shall be for an amount computed in the following manner with reference to the amount of the tax payable by the company on its income chargeable under the head "Capital gains" arising from the transfer of capital assets, being machinery or plant or buildings or lands or any rights in buildings or lands used for the purposes of the business of the said undertaking in the urban area, effected in the course of or in consequence of the shifting of such industrial undertaking, namely:- (a) the amount of expenditure incurred by the company in- (i) purchasing new machinery or plant for the purposes of the business of the company in the area to which the undertaking is shifted; (ii) acquiring lands or constructing buildings for the purposes of its business in the said area; and (iii) shifting its machinery or plant and other effects and transferring its establishment to such area, within a period of three years, from the date of the approval

referred to in subsection (1) or such further period as the Board may allow, shall first be ascertained; (b) the amount of the tax credit certificate shall bear to the amount of tax payable by the company on its income chargeable under the head "Capital gains' as aforesaid, the same proportion as the amount of expenditure ascertained under clause (a) bears to the amount of the said income: Provided that the amount of the tax credit certificate shall in no case exceed the amount of the tax aforesaid.

(3) The amount shown on a tax credit certificate granted to a company under this section shall, on the certificate being produced before the Income-tax Officer, be adjusted against any liability of the company under the Indian Income-tax Act, 1922 (11 of 1922) or this Act, existing on the date on which the certificate was produced before the Income-tax Officer and where the amount of such certificate exceeds such liability, or where there is no such liability, the excess or the whole of such amount, as the case may be, shall, notwithstanding anything contained in Chapter XIX, be deemed, on the said date, to be refund due to the company under that Chapter and the provisions of this Act shall apply accordingly.

(4) Where a capital asset, being machinery or plant purchased for the purposes of the business of the company in the area to which the under-taking is shifted or building or land, or any right in building or land, acquired, or as the case may be, constructed in the said area, is transferred by the company within a period of five years from the date of purchase, acquisition or, as the case may be, the date of completion of construction to any person other than 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), an amount equal to one- half of the amount for which a tax credit certificate has been granted

to the company under sub-section (1) shall be deemed to be tax due from the company on the thirtieth day following the date of transfer under a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly. Explanation.-Any land or building used for the residence of persons employed in the business of the company or for the use of such persons as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch-room shall, for the purposes of this section, be deemed to be land or building used for the purposes of the business of the company.' 1 Prior to the omission, section 280ZB, as amended by the Finance Act, 1966, w.e.f. 1-4-1966; Finance Act, 1968, w.e.f. 1-4-1968; Finance Act, 1987, w.e.f. 1-4-1988 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: ---------------------------------------------------------------------- 1.800 ---------------------------------------------------------------------- -> ->"280ZB. Tax credit certificate to certain manufacturing companies in certain cases.-41) Where any company engaged in the manufacture or production of any of the articles mentioned in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), is, in respect of its profits and gains attributable to such manufacture or production,- (i) liable to pay any tax for the assessment year commencing on the 1st day of April, 1965 (hereinafter referred to as the base year), and for any one or more of the five assessment years next following that year; or (ii) not liable to pay any tax for the base year but becomes so liable for any succeeding year (hereinafter referred to as the succeeding base year), and also for any one or more of the assessment years following that year, not being an assessment year commencing on the first day of April, 1971, or any subsequent assessment year, and the tax for any such succeeding year exceeds- (a) in the case refer-red to in clause (i), the tax payable for the base year; (b) in the case referred to in clause (ii), the tax payable for the succeeding base year, then the company shall be granted a tax credit certificate for an amount equal to twenty per cent of such excess: Provided that the amount of the tax credit certificate shall not for any assessment year exceed ten per cent of such tax payable by the company for that year.

(2) The amount shown on a tax credit certificate granted to any company under this section shall, on the certificate being produced before the Assessing Officer, be adjusted against any liability of the company under the Indian Income-tax Act, 1922 (1 1 of 1922), or this Act, existing on the date on which the certificate was produced before the Assessing Officer and where the amount of such certificate exceeds such liability, or where there is no such liability, the excess or the whole of such amount, as the case may be, shall, notwithstanding anything contained in Chapter XIX, be deemed, on the said date, to be refund due to such company under that Chapter and the provisions of this Act shall apply accordingly: Provided that the adjustment or refund, as the case may be, under this sub-section shall be only for such amount, not exceeding the amount of the certificate, as is used within such period as may be specified in the Scheme- (i) for repayment of loans taken by the company from any of the financial institutions notified in this behalf by the Central Government, or (ii ) for redemption of its debentures, or (iii) for the acquisition of any capital asset in India, including the construction of any building, for the purposes of the business of the company. Explanation 1.-In this section, 'tax' means income-tax payable under this Act and surtax, if any, payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964). Explanation 2.-The amount of income-tax in respect of the profits or gains attributable to the manufacture or production of the articles

referred to in sub-section (1) shall be an amount bearing to the total amount of income-tax payable on the total income (such income-tax being computed in the manner specified hereunder) the same proportion as the amount of such profits or gains bears to the total income. The amount of income-tax payable by the company for any assessment year shall be computed after making allowance for any relief, rebate or deduction in respect of income-tax to which the company is entitled under the provisions of this Act or the annual Finance Act and after deducting from such amount of income-tax-

[(a) * * *]

referred to in sub-section (1) shall be an amount bearing to the total amount of surtax payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964), the same proportion as the amount of such chargeable profits bears to the whole of the chargeable profits. 1 Prior to the omission, section 280ZC, as amended by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1964; Finance (No. 2) Act, 1965, w.e.f. 11-9-1965 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under:

"280ZC. Tax credit certificate in relation to exports.-(1) Subject to the provisions of this section, a person who exports any goods or merchandise out of India after the 28th day of February, 1965, and receives the sale proceeds thereof in India in accordance with the Foreign Exchange Regulation Act, 1947 (7 of 1947), and the rules made thereunder, shall be granted a tax credit certificate for an amount calculated at a rate not exceeding fifteen per cent on the amount of such sale proceeds. 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 subsection, a person who exports any goods or merchandise in respect of which the declaration ill pursuance of rule 3 of the Foreign Exchange Regulation Rules, 1952, is required to be in Form E.P. or Form EPI in the First Schedule to the said rules, shall not in respect of such goods or merchandise be deemed to have received the sale proceeds in India in accordance with the Foreign Exchange Regulation Act, 1947 (7 of 1947), and the rules made thereunder unless he receives the same in India through an authorised dealer as defined in the said Act.

(2) The goods or merchandise in respect of which a tax credit

certificate shall be granted under sub-section (1) (including the destination of their export) and the rate at which the amount of such certificate shall be calculated shall be such as may be specified in the Scheme: Provided that different rates may be specified in respect of different goods or merchandise.

(3) In specifying the goods or merchandise (including the destination of their export) and the rates, the Central Government shall have regard to the following factors, namely:- (a) the cost of manufacture or production of such goods or merchandise and prices of similar goods in the foreign markets; (b) the need to develop foreign markets for such goods or merchandise; (c) the need to earn foreign exchange; (d) any other relevant factor.

(4) The amount shown on a tax credit certificate granted to any person under this section shall, on the certificate being produced before the Assessing Officer, be adjusted against any liability of that person under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, existing on the date on which the certificate was produced before the Assessing Officer and where the amount of such certificate exceeds such liability, or where there is no such liability, the excess or the whole of such amount, as the case may be, shall, notwithstanding anything contained in Chapter XIX, be deemed, on --------------------------------------------------------------------- 1.802 1[280ZD. Tax credit certificates in relation to increased production of certain goods.-Omitted by the Finance Act, 1990, w.e.f 1-4-1990.] ---------------------------------------------------------------------- the said date, to be refund due to such person under that Chapter and the provisions of this Act shall apply accordingly." 1 Prior to the omission, section 280ZD, as amended by the Finance Act, 1968, w.e.f. 1-41968 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: "280ZD. Tax credit certificates in relation to increased

production of certain goods.(1) Subject to the provisions of this section, a person, who during any financial year commencing on the 1st day of April, 1965, or any subsequent financial year (not being a year commencing on the 1st day of April, 1970, or any financial year thereafter) manufactures or produces any goods, shall be granted a tax credit certificate for an amount calculated at a rate not exceeding twenty-five per cent of the amount of the duty of excise payable by him on that quantum of the goods cleared by him during the relevant financial year which exceeds the quantum of the goods cleared by him during the base year, whether the clearance in either case is for home consumption or export.

(2) The goods in respect of which a tax credit certificate shall

be granted under sub-section (1) and the rate at which the amount of such certificate shall be calculated shall be such as may be specified in the Scheme: Provided that different rates may be specified in respect of different goods.

(3) In specifying the goods and the rates under sub-section (1), the Central Government shall have regard to the following factors, namely:- (a) the need for stimulating industrial output; (b) the need for financial assistance to industrial undertakings engaged in the manufacture or production of such goods; (c) any other relevant factor.

(4) Where any undertaking begins, after the 1st day April in the base year, to manufacture or produce any goods in respect of which a

tax credit certificate may be granted under sub-section (1), the quantum of goods cleared in that year shall, for the purposes of that sub-section, be determined in such manner as may be provided in the scheme.

(5) The amount shown on a tax credit certificate granted to any person under this section shall, on the certificate being produced before the Assessing Officer, be adjusted against any liability of that person under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, existing on the date on which the certificate was produced before the Assessing Officer and where the amount of such certificate exceeds such liability, or where there is no such liability, the excess or the whole of such amount, as the case may be, shall, notwithstanding anything contained in Chapter XIX, be deemed, on the said date, to be refund due to such person under that Chapter and the provisions of this Act shall apply accordingly: Provided that the adjustment or refund, as the case may be, under this sub-section shall be only for such amount, not exceeding the amount of the certificate, as is used within such period as may be specified in the Scheme- (i) for repayment of loans taken by the person from any of the financial institutions notified in this behalf by the Central Government, or (ii) for the acquisition of any capital asset in India, including the construction of any building, for the purposes of his business, or (iii) where the person is a company, also for redemption of its debentures.

(6) In this section- (a) "base year", in relation to an existing undertaking which manufactures or produces the goods referred to in sub-

section (1), means the financial year commencing on the 1st day of April, 1964, and in relation to any other undertaking, the financial year in which such undertaking begins to manufacture or produce such goods; (b) 'duty of excise" means the duty of excise leviable under the Central Excises and Salt Act, 1944 (1 of 1944)." ----------------------------------------------------------------------- 1.803 1[280ZE. Tax Credit Certificate Scheme.-Omitted by the Finance Act, 1990, w.e.f. 1-4-1990.] ----------------------------------------------------------------------- 1 Prior to the omission, section 280ZE read as under:

"280ZE. Tax Credit Certificate Scheme.-(1) The Central Government shall, by notification in the Official Gazette, frame one or more scheme or schemes to be called Tax Credit Certificate Scheme or Schemes in relation to tax credit certificates to be granted under this Chapter.

(2) A scheme framed under sub-section (1) may provide for- (a) the form and manner in which, and the authority to which, applications for the grant of tax credit certificates shall be made; (b) the form in which, and the intervals at which, and the authority by which, such certificates shall be issued; (c) the verification of any information or particulars furnished, or contained in any application made, by or on behalf of any person entitled to tax credit certificates; (d) the determination of the rights and obligations of a person to whom such certificate has been granted and the circumstances in which any right in or title to the said certificate may be transferred to or devolve on any other person by succession or otherwise; (e) the determination of the rights and obligations of persons who jointly subscribe to an eligible issue of capital; (f) the determination of the tights and obligations of persons who subscribe to an eligible issue of capital, on behalf, or for the benefit, of any other person; (g) the appointment of any officer of Government or of the Reserve Bank of India to exercise any rights or perform any duties in connection with the grant of the said certificates; (h) the goods or merchandise and the rate or rates for the purposes of section 280ZC and section 280ZD and the destination of the export of such goods or merchandise for the purposes of section 280ZC; (i) any other matter which may be necessary or proper for the effective implementation of the provisions of this Chapter or the Scheme.

(3) The Central Government may, by notification in the Official Gazette, add to, amend, vary or rescind any scheme made under this section.

(4) Any scheme made under this section shall be laid, as soon as may be, after it is made, before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two successive sessions, and if, before the expiry of the session in which it is so laid or the session immediately following, both Houses agree in making any modification in any provision of the Scheme or both Houses agree that any provision in the Scheme should not be made, that provision of the Scheme shall thereafter have effect only in such modified form or be of no effect, as the case may be, so however, that any such modification or annulment shall be without prejudic to the validity of anything previously done under that provision." ---------------------------------------------------------------------- 1.804 CHAP MISCELLANEOUS CHAPTER XXIII MISCELLANEOUS

Certain transfers to be void 1[281. Certain transfers to be void

(1)Where, during the pendency of any proceeding under this Act or after the completion thereof, but before the service of notice under rule 2 of the Second Schedule, any assessee creates a charge on, or parts with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of the said proceeding or otherwise: Provided that such charge or transfer shall not be void if it is made- (i) for adequate consideration and without notice of the pendency of such proceeding or, as the case may be, without notice of such tax or other sum payable by the assessee; or (ii) with the previous permission of the 2[Assessing] Officer.

(2) This section applies to cases where the amount of tax or other sum payable or likely to be payable exceeds five thousand rupees and the assets charged or transferred exceed ten thousand rupees in value. Explanation.-In this section, "assets" means land, building, machinery, plant, shares, securities and fixed deposits in banks, to the extent to which any of the assets aforesaid does not form part of the stock-in-trade of the business of the assessee.] 3[281A. Effect of failure to furnish information in respect of properties held benami.-Repealed by the Benami Transactions (Prohibition) Act, 1988, w.e.f. 19-5-1988.] ---------------------------------------------------------------------- 1 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 10-1975. 2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Prior to the repeal, section 281A, as inserted by the Taxation Laws (Amendment) Act, 1972, w.e.f. 15-11-1972 and amended by the Finance Act, 1984, w.e.f. 1-4-1984, read as under: "281A. Effect of failure to furnish information in respect of properties held benami.-

(1) No suit to enforce any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be instituted in any court by or on behalf of a person (hereafter in this section referred to as the claimant) claiming to be the real owner of such property unless notice in the prescribed form and containing the prescribed particulars in respect of the property has been given by the claimant within a period of one year from the date of acquisition of the property to the Chief Commissioner or Commissioner. (1A) Where any such property is acquired by the claimant before

the 1st day of March, 1984, the provisions of sub-section (1) shall be deemed to have been fulfilled if notice in the prescribed form and containing the prescribed particulars in respect of the property is given by the claimant, within a period of one year from the said date, to the Chief Commissioner or Commissioner.

(1B) Notwithstanding anything contained in sub-section (1) or sub-section (1A), in relation to any suit relating to any immovable property of a value not exceeding fifty thousand rupees, the

provisions of sub-section (1) or, as the case may be, -> -> ----------------------------------------------------------------------- 1.805 1[281B. Provisional attachment to protect revenue in certain cases

(1) Where, during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment, the 2[Assessing] Officer is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, he may, with the previous approval of the 3[Chief Commissioner or Commissioner], by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule. 4 [Explanation.-For the purposes of this sub-section,

proceedings, under sub-section (5) of section 132 shall be deemed to be proceedings for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment.]

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order

made under sub-section (1): Provided that the 5[Chief Commissioner or Commissioner] may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two years:] 6 [Provided further that where an application for settlement under section 245C is made, the period commencing from the date on which such application is made and ending with the date on which an

order under sub-section (1) of section 245D is made shall be excluded from the period specified in the preceding proviso.]

Service of notice generally 282.Service of notice generally

(1) A notice or requisition under this Act may be served on the person ---------------------------------------------------------------------- -> -> sub-section (1A), shall be deemed to have been fulfilled if, at any time before the suit, notice in the prescribed form and containing the prescribed particulars in respect of the property has been given by the claimant to the Chief Commissioner or Commissioner.

(2) The Chief Commissioner or Commissioner shall, on an application made in the prescribed manner, by the claimant or any person acting on his behalf or claiming under him, and on payment of the prescribed fees, issue, for the purposes of a suit referred to in

sub-section (1), a certified copy of any notice given by the claimant

under sub-section (1) or sub-section (1A) or sub-section (1B), within fourteen days from the date of receipt of the application.

(3) This section shall not apply to any suit of a value not exceeding two thousand rupees which is tried by,- (a) a Court of Small Causes constituted under the Presidency Small Cause Courts Act, 1882 (15 of 1882), or the Provincial Small Cause Courts Act, 1887 (9 of 1887); or (b) a court invested with the jurisdiction of a Court of Small Causes, by or under any enactment for the time being in force, in the exercise of such jurisdiction." --------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted for "Commissioner", ibid. 4 Inserted by the Finance Act, 1988, w.e.f. 1-4-1988. 5 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Inserted by the Finance Act, 1988, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.806 therein named either by post or as if it were a summons issued by a court under the Code of Civil Procedure, 1908 (5 of 1908).

(2) Any such notice or requisition may be addressed- (a) in the case of a firm or a Hindu undivided family, to any member of the firm or to the manager or any adult member of the family; (b) in the case of a local authority or company, to the principal officer thereof; (c) in the case of any other association or body of individuals, to the principal officer or any member thereof; (d) in the case of any other person (not being an individual), to the person who manages or controls his affairs. -----------------------------------------------------------------------

Service of notice when family is disrupted or firm, etc., is dissolved 283. Service of notice when family is disrupted or firm, etc., is dissolved

(1) After a finding of total partition has been recorded by the 1[Assessing] Officer under section 171 in respect of any Hindu family, notices under this Act in respect of the income of the Hindu family shall be served on the person who was the last manager of the Hindu family, or, if such person is dead, then on all adults who were members of the Hindu family immediately before the partition.

(2) Where a firm or other association of persons is dissolved, notices under this Act in respect of the income of the firm or association may be served on any person who was a partner (not being a minor) or member of the association, as the case may be, immediately before its dissolution.

Service of notice in the case of discontinued business 284. Service of notice in the case of discontinued business Where an assessment is to be made under section 176, the 2[Assessing] Officer may serve on the person whose income is to be assessed, or, in the case of a firm or an association of persons, on any person who was a member of such firm or association at the time of its discontinuance or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements

which may be included in a notice under sub-section (2) of section 139, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that section.

Information by persons responsible for paying interest. 3[285. Information by persons responsible for paying interest.- Omitted by the Finance Act, 1987, w.e.f 1-6-1987.] ----------------------------------------------------------------------- 1 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Prior to the omission, section 285 read as under: "285. Information by pet-sons responsible for paving interest.- The person responsible for paying any interest, not being "interest on securities" shall, on or before the fifteenth day of June in each year, furnish to the Income-tax Officer having jurisdiction to assess him, a return in the prescribed form and verified in the prescribed manner of the names and addresses of all persons to whom during the previous financial year he has paid interest or aggregate interest exceeding such amount, not being less than four hundred rupees, as may be prescribed in this behalf, together with the amount paid to each such person." ----------------------------------------------------------------------- 1.807 1[285A. Information by contractors in certain cases.-Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. It was inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964.] 2[285B. Submission of statements by producers of cinematograph films, Any person carrying on the production of a cinematograph film during the whole or any part of any financial year shall, in respect of the period during which such production is carried on by him in such financial year, prepare and deliver or cause to be delivered to the 4 [Assessing] Officer, within thirty days from the end of such financial year or within thirty days from the date of the completion of the production of the film, whichever is earlier, a statement in the prescribed form' containing particulars of all payments of over five thousand rupees in the aggregate made by him or due from him to each such person as is engaged by him in such production 6[* * *].]

Information by companies respecting shareholders to whom dividends have been paid. 7[286. Information by companies respecting shareholders to whom dividends have been paid.-Omitted by- the Finance Act, 1987, w.e.f. 1- 6-1987.] ---------------------------------------------------------------------- 1 Prior to the omission'-section 285A, as amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under:

"285A. Information by contractors in certain cases.-(1) Where any person (hereinafter referred to as the contractor) enters into a contract with another person for carrying out any work or for the supply of goods or services in connection therewith, the value of which work or supply or both exceeds fifty thousand rupees, he shall, within one month of the making of the contract, furnish to the Income- tax Officer having jurisdiction to assess the contractor such particulars relating to the contract and in such form as may be prescribed.

(2) Without prejudice to the provisions of any other law for the time being in force, where any contractor contravenes the provisions

of sub-section (1), the Commissioner may impose upon him such fine not exceeding fifty rupees as he thinks fit for every day during which the contravention continues, so, however, that the amount of fine so imposed shall not, in the aggregate, exceed twenty-five per cent of the value of the contract.

(3) The Commissioner shall, on making an order under this section imposing a fine, forthwith send a copy of the same to the Income-tax Officer." 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 See Instruction No. 1727, dated 22-8-1986, reproduced in Bharat's Direct Taxes Circulars, 1991 edn., p. 1901. 4 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 The words "as employee or otherwise" omitted by the Finance Act, 1989, w.e.f. 1-6-1989. 7 Prior to the omission, section 286 read as under: "286. Information by companies respecting shareholders to whom dividends have been paid--The principal officer of every company which is an Indian company or a company which has made such arrangements as may be prescribed for the declaration and payment of dividends in India, shall, on or before the fifteenth day of June in each year, furnish to the prescribed officer a return in the prescribed form and verified in the prescribed manner of the names and of the addresses, as entered in the register of shareholders maintained by the company, of the shareholders to whom a dividend or aggregate dividends exceeding such amount as may be prescribed in this behalf has or have been distributed during the preceding year and of the amount so distributed each shareholder." ---------------------------------------------------------------------- 1.808

Publication of information respecting assessees in certain cases 1[287. Publication of information respecting assessees in certain cases

(1) If the Central Government is of opinion that it is necessary or expedient in the public interest to publish the names of any assessees and any other particulars relating to any proceedings 2[or prosecutions] under this Act in respect of such assessees, it may cause to be published such names and particulars in such manner as it thinks fit.

3[(2) No publication under this section shall be made in relation to any penalty imposed under this Act until the time for presenting an appeal to the 4[Deputy Commissioner (Appeals)] 5[or, as the case may be, the Commissioner (Appeals)] has expired without an appeal having been presented or the appeal, if presented, has been disposed of.] Explanation.-In the case of a firm, company or other association of persons, the names of the partners of the firm, directors, managing agents, secretaries and treasurers, or managers of the company, or the members of the association, as the case may be, may also be published if, in the opinion of the Central Government, the circumstances of the case justice it.] 6[287A. Appearance by registered valuer in certain matters Any assessee who is entitled or required to attend before any income-tax authority or the Appellate Tribunal in connection with any matter relating to the valuation of any asset, otherwise than when required under section 131 to attend personally for examination on oath or affirmation, may attend by a registered valuer. Explanation.-In this section, "registered valuer" has the same meaning as in clause (oaa) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]

Appearance by authorised representative 7 288. Appearance by authorised representative7

(1) Any assessee who is entitled or required to attend before any income-tax authority or the Appellate Tribunal in connection with any proceeding under this Act otherwise than when required under section 131 to attend personally for examination on oath or affirmation, may, subject to the other provisions of this section, attend by an authorised representative.

(2) For the purposes of this section, "authorised representative" means a person authorised by the assessee in writing to appear on his behalf, being- (i) a person related to the assessee in any manner, or a person regularly employed by the assessee; or (ii) any officer of a scheduled bank with which the assessee maintains a current account or has other regular dealings; or ----------------------------------------------------------------------- 1 Substituted by the Finance Act, 1964, w.e.f. 1-4-1964. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 10-1975. 4 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 6 Inserted by the Taxation Laws (Amendment) Act, 1972, w.e.f. 1-1-

------------------------------------------------------------------------ 1.809 (iii) any legal practitioner who is entitled to practise in any civil court in India; or (iv) an accountant; or (v) any person who has passed any accountancy examination recognised in this behalf by the Board-,' or (vi) any person who has acquired such educational qualifications as the Board may prescribe for this purpose; or 1[(via)any person who, before the coming into force of this Act in the Union territory of Dadra and Nagar Haveli, Goa, Daman and Diu, or Pondicherry, attended before an income-tax authority in the said territory on behalf of any assessee otherwise than in the capacity of an employee or relative of that assessee; or] (vii) any other person who, immediately before the commencement of this Act, was an income-tax practitioner

within the meaning of clause (iv) of sub-section (2) of section 61 of the Indian Income-tax Act, 1922 (11 of 1922), and was actually practising as such. Explanation.-In this section, "accountant" means a chartered accountant within the meaning of the Chartered Accountants Act, 19492 (38 of 1949), and includes, in relation to any State, any person who

by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.

3[(3) Omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984.]

(4) No person- (a) who has been dismissed or removed from Government service after the 1st day of April, 1938; or (b) who has been convicted of an offence connected with any income-tax proceeding or on whom a penalty has been imposed under this Act, other than a penalty imposed on him under 4

[clause (ii) of subsection (1) of] section 271; or

shall be qualified to represent an assessee under sub-section (1), for all ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Extension to Union Territories) Regulations, 1963, w.e.f. 1-4-1963.

5 Section 2(1)(b) of the Chartered Accountants Act, 1949 defines "chartered accountant" as under: "(b) "chartered accountant" means a person who is a member of the Institute;"

3 Prior to the omission, sub-section (3) read as under:

"(3) Notwithstanding anything contained in this section, if the authorised representative is a person formerly employed as an income- tax authority, not below the rank of Income-tax Officer, and has retired or resigned from such employment after having served for not less than three years in any capacity under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), from the date of his first employment as such, he shall not be entitled to represent any assessee for a period of two years from the date of his retirement or resignation, as the case may be." 4 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. Earlier, the

words "clauses (i) and (ii) of sub-section (1) of" were omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.810 times in the case of a person referred to in sub-clause (a), for such time as the 1[Chief Commissioner or Commissioner] may by order determine in the case of a person referred to in sub-clause (b), and for the period during which the insolvency continues in the case of a person referred to in sub-clause (c).

(5) If any person- (a) who is a legal practitioner or an accountant is found guilty of misconduct in his professional capacity by any authority entitled to institute disciplinary proceedings against him, an order passed by that authority shall have effect in relation to his right to attend before an income- tax authority as it has in relation to his right to practise as a legal practitioner or accountant, as the case may be; 2(b) who is not a legal practitioner or an accountant, is found guilty of misconduct in connection with any income-tax proceedings by the prescribed authority, the prescribed authority may direct that he shall thenceforth be

disqualified to represent an assessee under sub-section (1).

(6) Any order or direction under clause (b) of sub-section (4)

or clause (b) of sub-section (5) shall be subject to the following conditions, namely:- (a) no such order or direction shall be made in respect of any person unless he has been given a reasonable opportunity of being heard; (b) any person against whom any such order or direction is made may, within one month of the making of the order or direction-, appeal to the Board to have the order or direction cancelled; and (c) no such order or direction shall take effect until the expiration of one month from the making thereof, or where an appeal has been preferred, until the disposal of the appeal.

(7) A person disqualified to represent an assessee by virtue of

the provisions of sub-section (3) of section 61 of the Indian Income- tax Act, 1922 (11 of 1922), shall be disqualified to represent an

assessee under sub-section (1) 3[288A. Rounding off of income 4 [The amount of total income] computed in accordance with the ---------------------------------------------------------------------- 1 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e,f. 1-4-1988. 3 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.

4 Substituted for "(1) Subject to the provisions of sub-section

(2), the amount of total income" by the Finance Act, 1968, w.e.f. 1-4-

1.811 foregoing provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten; and the amount so rounded off shall be deemed to be the total income of the assessee for the purposes of this Act. 1[* * *] 2[288B. Rounding off of tax, etc.3 The amount of tax (including tax deductible at source or payable in advance), interest, penalty, fine or any other sum payable, and the amount of refund due, under the provisions of this Act shall be rounded off to the nearest rupee and, for this purpose, where such amount contains a part of a rupee consisting of paise then, if such part is fifty paise or more, it shall be increased to one rupee and if such part is less than fifty paise it shall be ignored.]

Receipt to be given 289. Receipt to be given A receipt shall be given for any money paid or recovered under this Act.

Indemnity 290. Indemnity Every person deducting, retaining, or paying any tax in pursuance of this Act in respect of income belonging to another person is hereby indemnified for the deduction, retention, or payment thereof.

Power to tender immunity from prosecution 291. Power to tender immunity from prosecution

(1)The Central Government may, if it is of opinion (the reasons for such opinion being recorded in writing) that with a view to obtaining the evidence of any person appearing to have been directly or indirectly concerned in or privy to the concealment of income-,or to the evasion of payment of tax on income 4[it is necessary or expedient so to do], tender to such person immunity from prosecution for any offence under this Act or under the Indian Penal Code, 1860 (45 of 1860), or under any other Central Act for the time being in force and also from the imposition of ----------------------------------------------------------------------

1 Sub-section (2) and Explanation omitted by the Finance Act, 1968, w.e.f. 1-4-1969. 2 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. 4 Inserted by the Finance Act, 1963, w.e.f. 28-4-1963. -------------------------------------------------------------------------- 1.812 any penalty under this Act on condition of his making a full and true disclosure of the whole circumstances relating to the concealment of income or evasion of payment of tax on income.

(2) A tender of immunity made to, and accepted by, the person concerned, shall, to the extent to which the immunity extends, render him immune from prosecution for any offence in respect of which the tender was made or from the imposition of any penalty under this Act.

(3) If it appears to the Central Government that any person to whom immunity has been tendered under this section has not complied with the condition on which the tender was made or is wilfully concealing anything or is giving false evidence, the Central Government may record a finding to that effect, and thereupon the immunity shall be deemed to have been withdrawn, and any such person may, be tried for the offence in respect of which the tender of immunity was made or for any other offence of which he appears to have been guilty in connection with the same matter and shall also become liable to the imposition of any penalty under this Act to which he would otherwise have been liable.

Cognizance of offences 292. Cognizance of offences No court inferior to that of a Presidency Magistrate or a Magistrate of the first class shall try any offence under this Act. 1[292A. Section 360 of the Code of Criminal Procedure, 1973, and the Probation of Offenders Act, 1958, not to apply Nothing contained in section 360 of the Code of Criminal Procedure, 19732 (2 of 1974), or in the Probation of Offenders Act, 1958 3 (20 of 1958), shall apply to a person convicted of an offence under this Act unless that person is under eighteen years of age.] 4 [292B. Return of income, etc., not to be invalid on certain grounds No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.]

Bar of suits in civil courts 293. Bar of suits in civil courts No suit shall be brought in any civil court to set aside or modify 5[any 6 [proceeding taken or order made]] under this Act, and no prosecution, suit or other proceeding shall lie against 7[the Government or] any officer of the Government for anything in good faith done or intended to be done under this Act. ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

3 Ibid. 4 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

5 Substituted for "any assessment order made" by the Finance Act 1987, w.e.f. 1-3-1987. 6 Substituted for 'any order made" by the Finance Act, 1988, w.e.f. 1-3-1988. 7 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. ------------------------------------------------------------------------ 1.813 1[293A. Power to make exemption, etc., in relation to participation in the business of prospecting for, extraction, etc., of mineral oils

(1)If the Central Government is satisfied that it is necessary or expedient so to do in the public interest, it may, by notification 2 in the Official Gazette, make an exemption, reduction in rate or other modification in respect of income-tax in favour of any class of

persons specified in sub-section (2) or in regard to the whole or any part of the income of such class of persons 3[or in regard to the status in which such class of persons or the members thereof are to be assessed on their income from the business referred to in clause (a)

of sub-section (2): Provided that the notification for modification in respect of the Status may be given effect from an assessment year beginning on or after the 1st day of April, 1993.]

(2)The persons referred to in sub-section (1) are the following, namely:- (a) persons with whom the Central Government has entered into agreements for the association or participation of that Government or any person authorised by that Government in any business consisting of the prospecting for or extraction or production of mineral oils; (b) persons providing any services or facilities or supplying any ship, aircraft, machinery or plant (whether by way of sale or hire) in connection-with any business consisting of the prospecting for or extraction or production of mineral oils carried on by that Government or any person specified by that Government in this behalf by notification in the Official Gazette; and (c) employees of the persons referred to in clause (a) or clause (b).

(3) Every notification issued under this section shall be laid before each House of Parliament. 4 [Explanation.-For the purposes of this section,- (a) "mineral oil" includes petroleum and natural gas; (b) "status" means the category under which the assessee is assessed as "individual", "Hindu undivided family" and so on.] 5[293B. Power of Central Government or Board to condone delays in obtaining approval Where, under any provision of this Act, the approval of the Central Government or the Board is required to be obtained before a specified date, it shall be open to the Central Government or, as the case may be, the Board to condone, for sufficient cause, any delay in obtaining such approval.] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1981, w.e.f. 1-4-1981. 2 For notifications, refer Bharat's Direct Taxes Circulars. 3 Inserted by the Finance Act, 1995, w.r.e.f. 1-4-1993. 4 Substituted by the Finance Act, 1995, w.r.e.f. 1-4-1993. Prior to the substitution, the Explanation, as originally enacted, read as under: "Explanation.-For the purposes of this section, "mineral oil" includes petroleum and natural gas." 5 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1989. ------------------------------------------------------------------------ 1.814

Act to have effect pending legislative provision for charge of tax 294.Act to have effect pending legislative provision for charge of tax If on the 1st day of April in any assessment year provision has not yet been made by a Central Act for the charging of income-tax 1[* * *] for that assessment year, this Act shall nevertheless have effect until such provision is so made as if the provision in force in the preceding assessment year or the provision proposed in the Bill then before Parliament, whichever is more favourable to the assessee, were actually in force. 2[294A. Power to make exemption, etc., in relation to certain Union territories If the Central Government considers it necessary or expedient so to do for avoiding any hardship or anomaly or removing any difficulty that may arise as a result of the application of this Act to the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, or in the case of the Union territory of Pondicherry, for implementing any provision of the Treaty of Cession concluded between France and India on the 28th day of May, 1956, that Government may, by general or special order, make an exemption, reduction in rate or other modification in respect of income-tax or super-tax in favour of any assessee or class of assessees or in regard to the whole or any part of the income of any assessee or class of assessees: Provided that the power conferred by this section shall not be exercisable after the 31st day of March, 1967, except for the purpose of rescinding an exemption, reduction or modification already made.]

Power to make rules3 295. Power to make rules3

(1) The Board may, subject to the control of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out the purposes of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:- (a) 4the ascertainment and determination of any class of income; (b) the manner in which and the procedure by which the income shall be arrived at in the case of- (i) 'income derived in part from agriculture and in part from business; (ii) 6 persons residing outside India; 7[(iii) an individual who is liable to be assessed

under the provisions of sub-section (2) of section 64;] ------------------------------------------------------------------------ 1 The word 'or super-tax" omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 2 Inserted by the Taxation Laws (Extension to Union Territories) Regulation, 1963, w.e.f. 1-4-1963. 7 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

1.815 (c) 'the determination of the value of any perquisite chargeable to tax under this Act in such manner and on such basis as appears to the Board to be proper and reasonable; (d) 'the percentage on the written down value which may be allowed as depreciation in respect of buildings, machinery, plant or furniture; 3[(dd) 4the extent to which, and the conditions subject

to which, any expenditure refer-red to in sub-section (3) of section 37 may be allowed;]

5[(dda) 6the matters specified in sub-sections (2) and (3) of section 44AA;] (e) the percentage or the amount to be prescribed 7 [under

clause (i) of sub-section (4) of section 80C;] 8[(ee) 9the conditions or limitations subject to which any payment of rent made by an assessee shall be deducted under section 80GG; (eea) the cases, the nature and value of assets, the limits and heads of expenditure and the out goings, which are

required to be prescribed under sub-section (6) of section 139; (eeb) 10the time within which any person may apply for the allotment of a permanent account number, the form and the manner in which such application may be made and the particulars which such application shall contain and the transactions with respect to which permanent account numbers shall be quoted on documents relating to such transactions under section 139A; (eec) "the form of the report of audit and the particulars which such report shall contain under sub-section (2A) of section 142;] (f) 12 the manner in which and the period to which any such income as is referred to in section 180 may be allocated; (g) 13the authority to be prescribed for any of the purposes of this (g) Act; ------------------------------------------------------------------------ 3 Inserted by the Finance Act, 1964, w.e.f. 1-4-1965. 5 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

7 Substituted for 'under clause (i) of sub-section (3) of section

87 or clause (i) of subsection (4) of section 80A, as the case may be" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 8 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

1.816 (h) the procedure for giving effect to the terms of any agreement for the granting of relief in respect of double taxation or for the avoidance of double taxation which may be entered into by the Central Government under this Act; (i) the form and manner in which any application, claim, return or information may be made or furnished and the fees that may be levied in respect of any application or claim; (j) the manner in which any document required to be filed under this Act may be verified; (k) 'the procedure to be followed on applications for refunds; 2[(kk) 'the procedure to be followed in calculating interest payable by assessees or interest payable by Government to assessees under any provision of this Act, including the rounding off of the period for which such interest is to be calculated in cases where such period includes a fraction of a month, and specifying the circumstances in which and the extent to which petty amounts of interest payable by assessees may be ignored;]

(1) 4 the regulation of any matter for which provision is made in section 230; (m) 'the form and manner in which any appeal or cross- objection may be filed under this Act, the fee payable in respect thereof and the manner in which intimation of any

such order as is referred to in clause (c) of sub-section (2) of section 249 may be served; 6[(mm) 7the circumstances in which, the conditions subject to which and the manner in which, the 8[Deputy Commissioner (Appeals)] 9[or the Commissioner (Appeals)] may permit an appellant to produce evidence which he did not produce or which he was not allowed to produce before the 10[Assessing] Officer;] 11[(mma) 12 the form in which the statement under section 285B shall be delivered to the 13[Assessing] Officer;] ----------------------------------------------------------------------- 2 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

6 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 8 Substituted for "Appellate Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 9 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 10 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 11 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

13 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.817 (n) 'the maintenance of a register of persons other than legal practitioners or accountants as defined in sub-section

(2) of section 288 practising before income-tax authorities and for the constitution of and the procedure to be followed

by the authority referred to in sub-section (5) of that section; (o) the issue of certificate veryfing the payment of tax by assessees; (p) any other matter which by this Act is to be, or may be, prescribed.

(3) In cases coming under clause (b) of sub-section (2), where the income liable to tax cannot be definitely ascertained, or can be ascertained only with an amount of trouble and expense to the assessee which in the opinion of the Board is unreasonable, the rules made under this section may- (a) prescribe methods by which an estimate of such income may be made; and (b) in cases coming under sub-clause (i) of clause (b) of

sub-section (2) specify the proportion of the income which shall be deemed to be income liable to tax, and an assessment based on such estimate or proportion shall be deemed to be duly made in accordance with the provisions of this Act.

2[(4) The power to make rules conferred by this section shall include the power to give retrospective effect, from a date not earlier than the date of commencement of this Act, to the rules or any of them and, unless the contrary is permitted (whether expressly or by necessary implication), no retrospective effect shall be given to any rule so as to prejudicially affect the interests of assessees.]

Rules and certain notifications to be placed before Parliament 3[296. Rules and certain notifications to be placed before Parliament The Central Government shall cause every rule made under this Act 4[, the rules of procedure framed by the Settlement Commission under

subsection (7) of section 245F, the Authority for Advance Rulings

under section 245V and the Appellate Tribunal under sub-section (5) of section 2551 and every notification issued under sub-clause (iv) of clause (23C) of section 10 to be laid as soon as may be after the rule is made or the notification is issued before each House of Parliament while it is in session for a total period of thirty days, which may be comprised in one session or in two or more successive sessions, and, if before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or notification or both Houses agree that the rule or notification should not be made or issued, that rule or notification shall thereafter have effect, only in such modified form or be of no effect, as the case may be; so, ----------------------------------------------------------------------- 2 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 18-8-

3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. Restored to its original provision by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. 4 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. --------------------------------------------------------------------- 1.818 however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or notification.]

Repeals and savings 297.Repeals and savings

(1) The Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed.

(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),- (a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed; (b) where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under section 34 of the repealed Act by any per-son for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act; (c) any proceeding pending on the commencement of this Act before any income-tax authority, the Appellate Tribunal or any court, by way of appeal, reference, or revision, shall be continued and disposed of as if this Act had not been passed; (d) where in respect of any assessment year after the year ending on the 31st day of March, 1940,- (i) a notice under section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed; (ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly; (e) 1[subject to the provisions of clause (g) and clause (j) of this subsection,] section 23A of the repealed Act shall continue to have effect in relation to the assessment of any company or its shareholders for the assessment year ending on the 31st day of March, 1962 or any earlier year, and the provisions of the repealed Act shall apply to all matters arising out of such assessment as fully and effectually as if this Act had not been passed; (f) any proceeding for the imposition of a penalty in respect of any assessment completed before the first day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed; ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1963, w.r.e.f. 1-4-1962. ---------------------------------------------------------------------- 1.819 (g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act; (h) any election or declaration made or option exercised by an assessee under any provision of the repealed Act and in force immediately before the commencement of this Act shall be deemed to have been an election or declaration made or option exercised under the corresponding provision of this Act; (i) where, in respect of any assessment completed before the commencement of this Act, a refund falls due after such commencement or default is made after such commencement in the payment of any sum due under such completed assessment, the provisions of this Act relating to interest payable by the Central Government on refunds and interest payable by the assessee for default shall apply; (j) any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the repealed Act may be recovered under this Act, but without prejudice to any action already taken for the recovery of such sum under the repealed Act; (k) any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Act, be deemed to have been entered into, made, granted, given, or issued under the corresponding provision aforesaid and shall continue in force accordingly;

(1) any notification issued under sub-section (1) of section 60 1[or section 60A] of the repealed Act and in force immediately before the commencement of this Act shall, to the extent to which provision has not been made under this Act, continue in force 2[* * *] : 3[Provided that the Central Government may rescind any such notification or amend it so as to rescind any exemption, reduction in rate or other modification made thereunder;] (m) where the period prescribed for any application, appeal, reference or revision under the repealed Act had expired on or before the commencement of this Act, nothing in this Act shall be construed as enabling any such application, appeal, reference or revision to be made under this Act by reason only of the fact that a longer period therefore is prescribed or provision is made for extension of time in suitable cases by the appropriate authority. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1966, w.r.e.f. 1-4-1962. 2 The words 'until rescinded by the Central Government omitted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.e.f. 9-9-1972. 3 Inserted, ibid. ------------------------------------------------------------------------ 1.820

Power to remove difficulties 298. Power to remove difficulties

(1) If any difficulty arises in giving effect to the provisions of this Act the Central Government may, by general or special order, do anything not inconsistent with such provisions which appears to it to be necessary or expedient for the purposes of removing the difficulty.

(2) In particular, and without prejudice to the generality of the foregoing power, any such order may provide for the adaptations or modifications subject to which the repealed Act shall apply in relation to the assessments for the assessment year ending on the 31st day of March, 1962, or any earlier year.

1[(3) If any difficulty arises in giving effect to the provisions of this Act as amended by the Direct Tax Laws (Amendment) Act, 1987, the Central Government may, by order, do anything not inconsistent with such provisions for the purpose of removing the difficulty: Provided that no such order shall be made after the expiration of three years from the 1st day of April, 1988.

(4) Every order made under sub-section (3) shall be laid before each House of Parliament.] --------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

1.821 SCHE INSURANCE BUSINESS THE FIRST SCHEDULE INSURANCE BUSINESS

[See section 44]

6. Profits and gains of non-resident person.-(1) The profits and gains of the branches in India of a person not resident in India and carrying on any business of insurance, may, in the absence of more reliable data, be deemed to be that proportion of the world income of such person which corresponds to the proportion which his premium income derived from India bears to his total premium income.

(2) For the purposes of this rule, the world income in relation to life insurance business of a per-son not resident in India shall be computed in the manner laid down in this Act for the computation of the profits and gains of life insurance business carried on in India.

7. Interpretation.-(1) For the purposes of these rules- 2[(i) * * *] (ii) "investments" includes securities, stocks and shares; 3[(iii) * * *] (iv) "life insurance business" means life insurance business

as defined in clause (11) of section 2 of the Insurance Act, 19384 (4 of 1938); (v) "rule" means a rule contained in this Schedule.

(2) References in these rules to the Insurance Act, 1938 (4 of 1938), or any provision thereof, shall, in relation to the Life Insurance Corporation of India, be construed as references to that Act or provision as read with section 43 of the Life Insurance Corporation Act, 1956 (31 of 1956). ---------------------------------------------------------------------- "(b) any amount either written off or reserved in the accounts to meet depreciation of or loss on the realisation of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation of or gains on the realisation of investments shall be treated as a part of the profits and gains: Provided that the Assessing Officer is satisfied about the reasonableness of the amount written off or reserved in the accounts, as the case may be, to meet depreciation of or loss on the realisation of investments;' 1 See rule 6E. 2 Omitted by the Finance Act, 1976, w.e.f. 1-4-1977. Earlier, it was amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 3 Omitted by the Finance Act, 1976, w.e.f. 1-4-1977.

4 Section 2(11) of the Insurance Act, 1938 defines 'life insurance business" as under:

"(11) "life insurance business' means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent on human life, and any contract which is subject to payment of premiums for a term dependent on human life and shall be deemed to include- (a) the granting of disability and double or triple indemnity accident benefits, if so provided in the contract of insurance; (b) the granting of annuities upon human life; and (c) the granting of superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged or who have been engaged in any particular Profession, trade or employment or of the dependents of such person;' ---------------------------------------------------------------------- 1.823 SCHE PROCEDURE FOR RECOVERY OF TAX THE SECOND SCHEDULE PROCEDURE FOR RECOVERY OF TAX 1[[See sections 222 and 276]] PART I GENERAL PROVISIONS 1. Definitions.-In this Schedule, unless the context otherwise requires,- 2 [(a) "certificate", except in rules 7, 44, 65 and sub-

rule (2) of rule 66, means the certificate drawn up by the Tax Recovery Officer under section 222 in respect of any assessee referred to in that section;] (b) "defaulter" means the assessee mentioned in the certificate; (c) "execution", in relation to a certificate, means recovery of arrears in pursuance of the certificate; (d) "movable property" includes growing crops; (e) "officer" means a person authorised to make an attachment or sale under this Schedule; (f) "rule" means a rule contained in this Schedule; and (g) "share in a corporation" includes Stock, debenture- stock, debentures or bonds. 2. Issue of notice.-3[When a certificate has been drawn up by the Tax Recovery Officer] for the recovery of arrears under this Schedule, the Tax Recovery Officer shall cause to be served upon the defaulter a notice requiring the defaulter to pay the amount specified in the certificate within fifteen days from the date of service of the notice and intimating that in default steps would be taken to realise the amount under this Schedule. 3. When certificate may be executed.-No step in execution of a certificate shall be taken until the period of fifteen days has elapsed since the date of the service of the notice required by the preceding rule: Provided that, if the Tax Recovery Officer is satisfied that the defaulter is likely to conceal, remove or dispose of the whole or any part of such of his movable property as would be liable to attachment in execution of a decree of a civil court and that the realisation of the amount ---------------------------------------------------------------------- 1 Substituted for "[See section 222]" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, clause (4) read as under: "(a) 'certificate' means a certificate received by the Tax Recovery Officer from the Assessing Officer for the recovery of an-ears under this Schedule;' The italicised word was substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 3 Substituted for 'When a certificate has been received -by the Tax Recovery Officer from the Assessing Officer' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. The italicised word was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-

1.824 of the certificate would in consequence be delayed or obstructed, he may at any time direct, for reasons to be recorded in writing, an attachment of the whole or any part of such property: Provided further that if the defaulter whose property has been so attached furnishes security to the satisfaction of the Tax Recovery Officer, such attachment shall be cancelled from the date on which such security is accepted by the Tax Recovery Officer. 4. Mode of recovery.-If the amount mentioned in the notice is not paid within the time specified therein or within such further time as the Tax Recovery Officer may grant in his discretion, the Tax Recovery Officer shall proceed to realise the amount by one or more of the following modes:- (a) by attachment and sale of the defaulter's movable property; (b) by attachment and sale of the defaulter's immovable property; (c) by arrest of the defaulter and his detention in prison; (d) by appointing a receiver for the management of the defaulter's movable and immovable properties. 5. Interest, costs and charges recoverable.-There shall be recoverable, in the proceedings in execution of every certificate,- (a) such interest upon the amount of tax or penalty or other sum to which the certificate relates as is payable in

accordance with subsection (2) of section 220, and (b) all charges incurred in respect of- (i) the service of notice upon the defaulter to pay the arrears, and of warrants and other processes, and (ii) all other proceedings taken for realising the arrears.

6. Purchaser's title.-(1) Where property is sold in execution of a certificate, there shall vest in the purchaser merely the right, title and interest of the defaulter at the time of the sale, even though the property itself be specified.

(2) Where immovable property is sold in execution of a certificate, and such sale has become absolute, the purchaser's right, title and interest shall be deemed to have vested in him from the time when the property is sold, and not from the time when the sale becomes absolute. 7. Suit against purchaser not maintainable on ground of

purchase being made on behalf of plaintiff.-(1) No suit shall be maintained against any person claiming title under a purchase certified by the Tax Recovery Officer in the manner laid down in this Schedule, on the ground that the purchase was made on behalf of the plaintiff or on behalf of some one through whom the plaintiff claims.

(2) Nothing in this section shall bar a suit to obtain a declaration that the name of any purchaser certified as aforesaid was inserted in the certificate fraudulently or without the consent of the real purchaser, or interfere with the right of a third person to proceed against that property, though ostensibly sold to the certified purchaser, on the ground that it is liable to satisfy a claim of such third person against the real owner. 1.825

1[8. Disposal of proceeds of execution.-(1) Whenever assets are realised by sale or otherwise in execution of a certificate, the proceeds shall be disposed of in the following manner, namely:- (a) they shall first be adjusted towards the amount due under the certificate in execution of which the assets were realised and the costs incurred in the course of such execution; (b) if there remains a balance after the adjustment referred to in clause (a), the same shall be utilised for satisfaction of any other amount recoverable from the assessee under this Act which may be due on the date on which the assets were realised; and (c) the balance, if any, remaining after the adjustments under clauses (a) and (b) shall be paid to the defaulter.

(2) If the defaulter disputes any adjustment under clause (b) of

sub-rule (1), the Tax Recovery Officer shall determine the dispute.] 9. General bar to jurisdiction of civil courts, save where fraud alleged.-Except as otherwise expressly provided in this Act, every question arising between the 2[Tax Recovery] Officer and the defaulter or their representatives, relating to the execution, discharge or satisfaction of a certificate 3[* * *], or relating to the confirmation or setting aside by an order under this Act of a sale held in execution of such certificate, shall be determined, not by suit, but by order of the Tax Recovery Officer before whom such question arises: Provided that a suit may be brought in a civil court in respect of any such question upon the ground of fraud.

10. Property exempt from attachment.-(1) All such property as is by the Code of Civil Procedure, 1908 (5 of 1908), exempted from attachment and sale in execution of a decree of a civil court shall be exempt from attachment and sale under this Schedule. ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, rule 8, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988, read as under:

"8. Disposal of proceeds of execution.-(1) Whenever assets are realised, by sale or other-wise in execution of a certificate, they shall be disposed of in the following manner.- (a) there shall first be paid to the Assessing Officer the costs incurred by him; (b) there shall, in the next place, be paid to the Assessing Officer the amount due under the certificate in execution of which the assets were realised; (c) if there remains a balance after these sums have been paid, there shall be paid to the Assessing Officer therefrom any other amount recoverable under the procedure provided by this Act which may be due upon the date upon which the assets were realised; and (d) the balance (if any) remaining after the payment of the amount (if any) referred to in clause (c) shall be paid to the defaulter.

(2) If the defaulter disputes any claim made by the Assessing Officer to receive any amount referred to in clause (c), the Tax Recovery Officer shall determine the dispute.' 2 Substituted for 'Assessing' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, which was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-1988. 3 The words 'duly filed under this Act" omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ----------------------------------------------------------------------- 1.826

(2) The Tax Recovery Officer's decision as to what property is so entitled to exemption shall be conclusive.

11. Investigation by Tax Recovery Officer.-(1) Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection: Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed.

(2) Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Recovery Officer shall deem fit.

(3) The claimant or objector must adduce evidence to show that- (a) (in the case of immovable property) at the date of the service of the notice issued under this Schedule to pay the arrears, or (b) (in the case of movable property) at the date of the attachment, he had some interest in, or was possessed of, the property in question.

(4) Where, upon the said investigation, the Tax Recovery Officer is satisfied that, for the reason stated in the claim or objection, such property was not, at the said date, in the possession of the defaulter or of some person in trust for him or in the occupancy of a tenant or other person paying rent to him, or that, being in the possession of the defaulter at the said date, it was so in his possession, not on his own account or as his own property, but on account of or in trust for some other person, or partly on his own account and partly on account of some other person, the Tax Recovery Officer shall make an order releasing the property, wholly or to such extent as he thinks fit, from attachment or sale.

(5) Where the Tax Recovery Officer is satisfied that the property was, at the said date, in the possession of the defaulter as his own property and not on account of any other person, or was in the possession of some other person in trust for him, or in the occupancy of a tenant or other person paying rent to him, the Tax Recovery Officer shall disallow the claim.

(6) Where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive. 12. Removable of attachment on satisfaction or cancellation of certificate.-Where- (a) the amount due, with costs and all charges and expenses resulting from the attachment of any property or incur-red in order to hold a sale, are paid to the Tax Recovery Officer, or (b) the certificate is cancelled, 1.827 the attachment shall be deemed to be withdrawn and, in the case of immovable property, the withdrawal shall, if the defaulter so desires, be proclaimed at his expense, and a copy of the proclamation shall be affixed in the manner provided by this Schedule for a proclamation of sale of immovable property. 13. Officer entitled to attach and sell.-The attachment and sale of movable property and the attachment and sale of immovable property may be made by such persons as the Tax Recovery Officer may from time to time direct. 14. Defaulting purchaser answerable for loss on resale.-Any deficiency of price which may happen on a resale by reason of the purchaser's default, and all expenses attending such resale, shall be certified to the Tax Recovery Officer by the officer holding the sale, and shall, at the instance of either the 1[Tax Recovery] Officer or the defaulter, be recoverable from the defaulting purchaser under the procedure provided by this Schedule: Provided that no such application shall be entertained unless filed within fifteen days from the date of resale.

15. Adjournment or stoppage of sale.-(1) The Tax Recovery Officer may, in his discretion, adjourn any sale hereunder to a specified day and hour; and the officer conducting any such sale may, in his discretion, adjourn the sale, recording his reasons for such adjournment: Provided that, where the sale is made in, or within the precincts of, the office of the Tax Recovery Officer, no such adjournment shall be made without the leave of the Tax Recovery Officer.

(2) Where a sale of immovable property is adjourned under sub-

rule (1) for a longer period than one calendar month, a fresh proclamation of sale under this Schedule shall be made unless the defaulter consents to waive it.

(3) Every sale shall be stopped if, before the lot is knocked down, the arrears and costs (including the costs of the sale) are tendered to the officer conducting the sale, or proof is given to his satisfaction that the amount of such arrears and costs has been paid to the Tax Recovery Officer who ordered the sale.

16. Private alienation to be void in certain cases.-(1) Where a notice has been served on a defaulter under rule 2, the defaulter or his representative- in-interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer, nor shall any civil court issue any process against such property in execution of a decree for the payment of money.

(2)Where an attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment. ---------------------------------------------------------------------- 1 Substituted for 'Assessing, by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, which was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.828 17. Prohibition against bidding or purchase by officer.-No officer or other person having any duty to perform in connection with any sale under this Schedule shall, either directly or indirectly, bid for, acquire or attempt to acquire any interest in the property sold. 18. Prohibition against sale on holidays.-No sale under this Schedule shall take place on a Sunday or other general holiday recognised by the State Government or on any day which has been notified by the State Government to be a local holiday for the area in which the sale is to take place. 19. Assistance by police.-Any officer authorised to attach or sell any property or to arrest the defaulter or charged with any duty to be performed under this Schedule, may apply to the officer-in- charge of the nearest police station for such assistance as may be necessary in the discharge of his duties, and the authority to whom such application is made shall depute a sufficient number of police officers for furnishing such assistance. 1[19A. Entrustment of certain functions by Tax Recovery Officer.-A Tax Recovery Officer may, with the previous approval of the Deputy Commissioner, entrust any of his functions as the Tax Recovery Officer to any other officer lower than him in rank (not being lower in rank than an Inspector of Income-tax) and such officer shall, in relation to the functions so entrusted to him, be deemed to be a Tax Recovery Officer.] PART II ATTACHMENT AND SALE OF MOVABLE PROPERTY Attachment 20. Warrant.-Except as otherwise provided in this Schedule, when any movable property is to be attached, the officer shall be furnished by the Tax Recovery Officer (or other officer empowered by him in that behalf) a warrant in writing and signed with his name specifying the name of the defaulter and the amount to be realised. --------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution. rule 19A, as inserted by the Finance Act, 1963, w.r.e.f. 1-4-1962 and amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975, read as under: "19A. Entrustment of certain functions by Collector or

Additional Collector.-(1) A Tax Recovery Officer, being a Gazetted Officer of the Central Government, who is authorised to exercise the powers of a Tax Recovery Officer under this Act, may entrust any of his functions as Tax Recovery Officer to any other officer lower than him in rank (not being lower in rank than an Inspector of Income-tax) and such officer shall, in relation to the functions so entrusted to him, be deemed to be a Tax Recovery Officer: Provided that where the Tax Recovery Officer is an Income-tax Officer any entrustment under this sub-rule shall be made only with the approval of the Deputy Commissioner.

(2) A Tax Recovery Officer, being a Collector or an Additional Collector, may, subject to the approval of the State Government, entrust any of his functions as Tax Recovery Officer to any other officer lower than him in rank who is empowered to effect recovery of arrears of land revenue or other public demand under any law relating to land revenue or other public demand for the time being in force in the State and such officer shall in relation to functions so entrusted to him, be deemed to be a Tax Recovery Officer.' ----------------------------------------------------------------------- 1.829 21. Service of copy of warrant.-The officer shall cause a copy of the warrant to be served on the defaulter. 22. Attachment.-If, after service of the copy of the warrant, the amount is not paid forthwith, the officer shall proceed to attach the movable property of the defaulter. 23. Property in defaulter's possession.-Where the property to be attached is movable property (other than agricultural produce) in the possession of the defaulter, the attachment shall be made by actual seizure, and the officer shall keep the property in his own custody or the custody- of one of his subordinates and shall be responsible for due custody thereof: Provided that when the property seized is subject to speedy and natural decay or when the expense of keeping it in custody is likely to exceed its value, the officer may sell it at once. 24. Agricultural produce.-Where the property to be attached is agricultural produce, the attachment shall be made by affixing a copy of the war-rant of attachment- (a) where such produce is growing crop,-on the land on which such crop has grown, or (b) where such produce has been cut or gathered,-on the threshing floor or place for treading out grain or the like, or fodder-stack, on or in which it is deposited, and another copy on the outer door or on some other conspicuous part of the house in which the defaulter ordinarily resides, or with the leave of the Tax Recovery Officer, on the outer door or on some other conspicuous part of the house in which he carries on business or personally works for gain, or in which he is known to have last resided or carried on business or personally worked for gain. The produce shall, thereupon, be deemed to have passed into the possession of the Tax Recovery Officer.

25. Provisions as to agricultural produce under attachment.-(1) Where agricultural produce is attached, the Tax Recovery Officer shall make such arrangements for the custody, watching, tending, cutting and gathering thereof as he may deem sufficient; 1[and he shall have power to defray] the cost of such arrangements.

(2) Subject to such conditions as may be imposed by the Tax Recovery Officer in this behalf, either in the order of attachment or in any subsequent order, the defaulter may tend, cut, gather and store the produce and do any other act necessary for maturing or preserving it; and, if the defaulter fails to do all or any of such acts, any person appointed by the Tax Recovery Officer in this behalf may, subject to the like conditions, do all or any of such acts, and the costs incurred by such person shall be recoverable from the defaulter as if they were included in the certificate. ---------------------------------------------------------------------- 1 Substituted for "and the Assessing Officer shall bear such sum as the Tax Recovery Officer shall require in order to defray' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. The italicised word was substituted for "Income-tax" by the same Amendment Act, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.830

(3) Agricultural produce attached as a growing crop shall not be deemed to have ceased to be under attachment or to require reattachment merely because it has been severed from the soil.

(4) Where an order for the attachment of a growing crop has been made at a considerable time before the crop is likely to be fit to be cut or gathered, the Tax Recovery Officer may suspend the execution of the order for such time as he thinks fit, and may, in his discretion, make a further order prohibiting the removal of the crop pending the execution of the order of attachment.

(5) A growing crop which from its nature does not admit of being stored shall not be attached under this rule at any time less than twenty days before the time at which it is likely to be fit to be cut or gathered.

26. Debts and shares, etc.-(1) In the case of- (a) a debt not secured by a negotiable instrument, (b) a share in a corporation, or (c) other movable property not in the possession of the defaulter except property deposited in, or in the custody of, any court, the attachment shall be made by a written order prohibiting,- (i) in the case of the debt-the creditor from recovering the debt and the debtor from making payment thereof until the further order of the Tax Recovery Officer; (ii) in the case of the share-the person in whose name the share may be standing from transferring the same or receiving any dividend thereon; (iii) in the case of the other movable property (except as aforesaid)the person in possession of the same from giving it over to the defaulter.

(2) A copy of such order shall be affixed on some conspicuous part of the office of the Tax Recovery Officer, and another copy shall be sent, in the case of the debt, to the debtor, in the case of the share, to the proper officer of the corporation, and in the case of the other movable property (except as aforesaid), to the person in possession of the same.

(3) A debtor prohibited under clause (i) of sub-rule (1) may pay the amount of his debt to the Tax Recovery Officer, and such payment shall discharge him as effectually as payment to the party entitled to receive the same.

27. Attachment of decree.-(1) The attachment of a decree of a civil court for the payment of money or for sale in enforcement of a mortgage or charge shall be made by the issue to the civil court of a notice requesting the civil court to stay the execution of the decree unless and until- (i) the Tax Recovery Officer cancels the notice, or (ii) the 1[Tax Recovery] Officer or the defaulter applies to the court receiving such notice to execute the decree. ----------------------------------------------------------------------- 1 Substituted for 'Assessing" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, which was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.831

(2) Where a civil court receives an application under clause

(ii) of subrule (1), it shall, on the application of the 1[Tax Recovery] Officer or the defaulter and subject to the provisions of the Code of Civil Procedure, 1908 (5 of 1908), proceed to execute the attached decree and apply the next proceeds in satisfaction of the certificate.

(3) The 2[Tax Recovery] Officer shall be deemed to be the representative of the holder of the attached decree, and to be entitled to execute such attached decree in any manner lawful for the holder thereof.. 28. -Share in movable property.-Where the property to be attached consists of the share or interest of the defaulter in movable property belonging to him and another as co-owners, the attachment shall be made by a notice to the defaulter prohibiting him from transferring the share or interest or charging it in any way. 29. Salary of Government servants.-Attachment of the salary or allowances of servants of the Government or a local authority may be made in the manner provided by rule 48 of Order 21 of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908), and the provisions of the said rule shall, for the purposes of this rule, apply subject to such modifications as may be necessary. 30. Attachment of negotiable instrument.-Where the property is a negotiable instrument not deposited in a court nor in the custody of a public officer, the attachment shall be made by actual seizure, and the instrument shall be brought before the Tax Recovery Officer and held subject to his orders. 31. Attachment of property in custody of court or public officer:Where the property to be attached is in the custody of any court or public officer, the attachment shall be made by a notice to such court or officer, requesting that such property, and any interest or dividend becoming payable thereon, may be held subject to the further orders of the Tax Recovery Officer by whom the notice is issued: Provided that, where such property is in the custody of--a court, any question of title or priority arising between the 3[Tax Recovery] Officer and any other person, not being the defaulter, claiming to be interested in such property by virtue of any assignment, attachment or other-wise, shall be determined by such court.

32. Attachment of partnership property.-(1) Where the property to be attached consists of an interest of the defaulter, being a partner, in the partnership property, the Tax Recovery Officer may make an order charging the share of such partner in the partnership property and profits with payment of the amount due under the certificate, and may, by the same or subsequent order, appoint a receiver of the share of such partner in the profits, whether already declared or accruing and of any other money which may become due to him in respect of the partnership, and ---------------------------------------------------------------------- 1 Substituted for 'Assessing' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, which was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-1988. 2 ibid. 3 ibid. ---------------------------------------------------------------------- 1.832 direct accounts and inquiries and make an order for the sale of such interest or such other order as the circumstances of the case may require.

(2) The other persons shall, be at liberty at any time to redeem the interest charged or, in the case of a sale being directed, to purchase the same. 33. Inventory.-In the case of attachment of movable property by actual seizure, the officer shall, after attachment of the property, prepare an inventory of all the property attached, specifying in it the place where it is lodged or kept, and shall forward the same to the Tax Recovery Officer and a copy of the inventory shall be delivered by the officer to the defaulter. 34. Attachment not to be excessive.-The attachment by seizure shall not be excessive, that is to say, the property attached shall be as nearly as possible proportionate to the amount specified in the warrant. 35. Seizure between sunrise and sunset.-Attachment by seizure shall be made after sunrise and before sunset and not otherwise. 36. Power to break open doors, etc.-The officer may break open any inner or outer door or window of any building and enter any building in order to seize any movable property if the officer has reasonable grounds to believe that such building contains movable property liable to seizure under the warrant and the officer has notified his authority and intention of breaking open if admission is not given. He shall, however, give all reasonable opportunity to women to withdraw. Sale 37. Sale.-The Tax Recovery Officer may direct that any movable property attached under this Schedule or such portion thereof as may seem necessary to satisfy the certificate shall be sold. 38. Issue of proclamation.-When any sale of movable property is ordered by the Tax Recovery Officer, the Tax Recovery Officer shall issue a proclamation, in the language of the district, of the intended sale, specifying the time and place of sale and whether the sale is subject to confirmation or not.

39. Proclamation how made.-(1) Such proclamation shall be made by beat of drum or other customary mode,- (a) in the case of property attached by actual seizure- (i) in the village in which the property was seized, or, if the property was seized in a town or city, then, in the locality in which it was seized; and (ii) at such other places as the Tax Recovery Officer may direct; (b) in the case of property attached otherwise than by actual seizure, in such places, if any, a,; the Tax Recovery Officer may direct.

(2) A copy of the proclamation shall also be affixed in a conspicuous part of the office of the Tax Recovery Officer. 40. Sale after fifteen days.-Except where the property is subject to speedy and natural decay or when the expense of keeping it in custody is likely to exceed its value, no sale of movable property under this Schedule shall, without the consent in writing of the defaulter, take place until after the expiry of at least fifteen days calculated from the date on which a 1.833 copy of the sale proclamation was affixed in the office of the Tax Recovery Officer.

41. Sale of agricultural produce--(1) Where the property to be sold is agricultural produce, the sale shall be held,- (a) if such produce is a growing crop-on or near the land on which such crop has grown, or (b) if such produce has been cut or gathered-at or near the threshing floor or place for treading out grain or the like, or fodder-stack, on or in which it is deposited: Provided that the Tax Recovery Officer may direct the sale to be held at the nearest place of public resort, if he is of opinion that the produce is thereby likely to sell to greater advantage.

(2) Where, on the produce being Out up for sale,- (a) a fair price, in the estimation of the person holding the sale, is not offered for it, and (b) the owner of the produce, or a person authorised to act on his behalf, applies to have the sale postponed till the next day or, if a market is held at the place of sale, the next market day, the sale shall be postponed accordingly, and shall be then completed, whatever price may be offered for the produce.

42. Special provisions relating to growing crops.-(1) Where the property to be sold is a growing crop and the crop from its nature admits of being stored but has not yet been stored, the day of the sale shall be so fixed as, to admit of the crop being made ready for storing before the arrival of such day, and the sale shall not be held until the crop has been cut or gathered and is ready for storing.

(2) Where the crop from its nature does not admit of being stored or can be sold to a greater advantage in an unripe stage (e.g., as green wheat), it may be sold before it is cut and gathered, and the purchaser shall be entitled to enter on the land, and to do all that is necessary for the purpose of tending or cutting or gathering the crop. 43. Sale to be by auction.-The property shall be sold by public auction in one or more lots as the officer may consider advisable, and if the amount to be realised by sale is satisfied by the sale of a portion of the property, the sale shall be immediately stopped with respect to the remainder of the lots.

44. Sale by public auction.-(1) Where movable property is sold by public auction, the price of each lot shall be paid at the time of sale or as soon after as the officer holding the sale directs and in default of payment, the property shall forthwith be resold.

(2) On payment of the purchase-money, the officer holding the sale shall grant a certificate specifying the property purchased, the price paid and the name of the purchaser, and the sale shall become absolute.

(3) Where the movable property to be sold is a share in goods belonging to the defaulter and a co-owner, and two or more persons, of whom one is such co-owner respectively bid the same sum for such property or for any lot, the bidding shall be deemed to be the bidding of the co-owner. 1.834 45. Irregularity not to vitiate sale, but any person injured may sue.-No irregularity in publishing or conducting the sale of movable property shall vitiate the sale, but any per-son sustaining substantial injury by reason of such irregularity at the hand of any other person may institute a suit in a civil court against him for compensation, or (if such other person is the purchaser) for the recovery of the specific property and for compensation in default of such recovery. 46. Negotiable instruments and shares in a corporation. Notwithstanding anything contained in this Schedule, where the property to be sold is a negotiable instrument or a share in a corporation, the Tax Recovery Officer may, instead of directing the sale to be made by public auction, authorise the sale of such instrument or share through a broker. 47. Order for payment of coin or currency notes to the 1[Assessing] Officer.-Where the property attached is current coin or currency notes, the Tax Recovery Officer may, at any time during the continuance of the attachment, 2[direct that such coins or notes shall be credited to the Central Government and the amount so credited shall be dealt with in the manner specified in rule 8]. PART III ATTACHMENT AND SALE OF IMMOVABLE PROPERTY Attachment 48. Attachment.-Attachment of the immovable property of the defaulter shall be made by an order prohibiting the defaulter from transferring or charging the property in any way and prohibiting all persons from taking any benefit under such transfer or charge. 49. Service of notice of attachment.-A copy of the order of attachment shall be served on the defaulter. 50. Proclamation of attachment.-The order of attachment shall be proclaimed at some place on or adjacent to the property attached by beat of drum or other customary mode, and a copy of the order shall be affixed on a conspicuous part of the property and on the notice board of the office of the Tax Recovery Officer. 51. Attachment to relate back from the date of service of notice. Where any immovable property is attached under this Schedule, the attachment shall relate back to, and take effect from, the date on which the notice to pay the arrears, issued under this Schedule, was served upon the defaulter. Sale

52. Sale and proclamation of sale.-(1) The Tax Recovery Officer may direct that any immovable property which has been attached, or such portion thereof as may seem necessary to satisfy the certificate, shall be sold. --------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 2 Substituted for 'direct that such coins or notes, or a part thereof sufficient to satisfy the certificate, be paid over to the 'Assessing Officer' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. The italicised word was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-1988. --------------------------------------------------------------------- 1.835

(2)Where any immovable property is ordered to be sold, the Tax Recovery Officer shall cause a proclamation of the intended sale to be made in the language of the district. 53. Contents of proclamation.-A proclamation of sale of immovable property shall be drawn up after notice to the defaulter, and shall state the time and place of sale, and shall specify, as fairly and accurately as possible,- (a) the property to be sold; (b) the revenue, if any, assessed upon the properly or any part thereof; (c) the amount for the recovery of which the sale is ordered; 1[* * *] 2[(CC) the reserve price, if any, below which the property may not be sold; and] (d) any other thing which the Tax Recovery Officer considers it material for a purchaser to know, in order to judge the nature and value of the property.

54. Mode of making proclamation.-(1) Every proclamation for the sale of immovable property shall be made at some place on or near such property by beat of drum or other customary mode, and a copy of the proclamation shall be affixed on a conspicuous part of the property and also upon a conspicuous part of the office of the Tax Recovery Officer.

(2) Where the Tax Recovery Officer so directs, such proclamation shall also be published in the Official Gazette or in a local newspaper, or in both; and the cost of such publication shall be deemed to be costs of the sale.

(3) Where the property is divided into lots for the purpose of being sold separately, it shall not be necessary to make a separate proclamation for each lot, unless proper notice of the sale cannot, in the opinion of the Tax Recovery Officer, otherwise be given. 55. Time of sale.-No sale of immovable property under this Schedule shall, without the consent in writing of the defaulter, take place until after the expiration of at least thirty days calculated from the date on which a copy of the proclamation of sale has been affixed on the property or in the office of the Tax Recovery Officer, whichever is later. 56. Sale to be by auction.-The sale shall be by public auction to the highest bidder and shall be subject to confirmation by the Tax Recovery Officer: 3 [Provided that no sale under this rule shall be made if the amount bid by the highest bidder is less than the reserve price, if any, specified under clause (cc) of rule 53.]

57. Deposit by purchaser and resale in default.-(1) On every sale of immovable property, the person declared to be the purchaser shall pay, immediately after such declaration, a deposit of twenty- five per cent on the amount of his purchase money, to the officer conducting the sale; and, in default of such deposit, the property shall forthwith be resold. ---------------------------------------------------------------------- 1 The word 'and" omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. 2 Inserted, ibid. 3 Ibid. ---------------------------------------------------------------------- 1.836

(2) The full amount of purchase money payable shall be paid by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of the sale of the property. 58. Procedure in default of payment.-In default of payment within the period mentioned in the preceding rule, the deposit may, if the Tax Recovery Officer thinks fit, after defraying the expenses of the sale, be forfeited to the Government, and the property shall be resold, and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may subsequently be sold.

59. Authority to bid.-1[(1) Where the sale of a property, for which a reserve price has been specified under clause (cc) of rule 53, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for an 2[Assessing] Officer, if so authorised by the 3[Chief Commissioner or Commissioner] in this behalf, to bid for the property on behalf of the Central Government at any subsequent sale.]

4[(2)] All persons, bidding at the sale shall be required to declare, if they are bidding on their own behalf or on behalf of their principals. In the latter case, they shall be required to deposit their authority, and in default their bids shall be rejected.

5[(3) Where the 6[Assessing] Officer referred to in sub-rule (1) is declared to be the purchaser of the property at any subsequent sale, nothing contained in rule 57 shall apply to the case and the amount of the purchase price shall be adjusted towards the amount specified in the certificate.] 60. Application to set aside sale of immovable property on

deposit.-(1) Where immovable property has been sold in execution of a certificate, the defaulter, or any per-son whose interests are affected by the sale, may, at any time within thirty days from the date of the sale, apply to the Tax Recovery Officer to set aside the sale, on his depositing- 7(a) 8[* * *] the amount specified in the proclamation of sale as that for the recovery of which the sale was ordered with interest thereon at the rate of 9[fifteen] per cent per annum, calculated from the date ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 3 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1975, w.e.f. 1- 10-1975. 5 Inserted by the Taxation Laws (Amendment) Act, 1987, w.e.f. 1-4-

6 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 8 The words "for payment to the Assessing Officer' omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. The italicised word was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-1988. 9 Substituted for 'twelve' by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-10-1984. Section 84 of the Amendment Act has clarified that the increase in the rate of interest will apply in respect of any period falling after 30-9-1984, also in cases where the interest became chargeable or payable from an earlier date. Earlier, 'twelve' was substituted for 'nine' by the Finance Act, 1972, w.e.f. 1-4-1972 and 'nine' for 'six' by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. ---------------------------------------------------------------------- 1.837 of the proclamation of sale to the date when the deposit is made; and (b) for payment to the purchaser, as penalty, a sum equal to five per cent of the purchase money, but not less than one rupee.

(2) Where a person makes an application under rule 61 for setting aside the sale of his immovable property, he shall not, unless he withdraws that application, be entitled to make or prosecute an application under this rule. 61. Application to set aside sale of immovable.-property on ground of non-service of notice or Irregularity.-Where immovable property has been sold in execution of a certificate, 1[such Income- tax Officer as may be authorised by the Chief Commissioner or Commissioner in this behalf], the defaulter, or any person whose interests are affected by the sale, may, at any time, within thirty days from the date of the sale, apply to the Tax Recovery Officer to set aside the sale of the immovable property on the ground that notice was not served on the defaulter to pay the arrears as required by this Schedule or on the ground of a material irregularity in publishing or conducting the sale: Provided that- (a) no sale shall be set aside on any such ground unless the Tax Recovery Officer is satisfied that the applicant has sustained substantial injury by reason of the non-service or irregularity; and (b) an application made by a defaulter under this rule shall be disallowed unless the applicant deposits the amount recoverable from him in the execution of the certificate. 62. Setting aside sale where defaulter has no saleable interest.-At any time within thirty days of the sale, the purchaser may apply to the Tax Recovery Officer to set aside the sale on the ground that the defaulter had no saleable interest in the property sold.

63. Confirmation of sale.-(1) Where no application is made for setting aside the sale under the foregoing rules or where such an application is made and disallowed by the Tax Recovery Officer, the Tax Recovery Officer shall (if the full amount of the purchase money has been paid) make an order confirming the sale, and, thereupon, the sale shall become absolute.

(2)Where such application is made and allowed, and where, in the case of an application made to set aside the sale on deposit of the amount and penalty and charges, the deposit is made within thirty days from the date of the sale, the Tax Recovery Officer shall make an order setting aside the sale: Provided that no order shall be made unless notice of the application has been given to the persons affected thereby. 64. Return of purchase money in certain cases.-Where a sale of immovable property is set aside, any money paid or deposited by the purchaser on account of the purchase, together with the penalty, if any, ---------------------------------------------------------------------- 1 Substituted for 'the Assessing Officer' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. The italicised word was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-

1.838 deposited for payment to the purchaser, and such interest as the Tax Recovery Officer may allow, shall be paid to the purchaser.

65. Sale certificate--(1) Where a sale of immovable property has become absolute, the Tax Recovery Officer shall grant a certificate specifying the property sold, and the name of the per-son who at the time of sale is declared to be the purchaser.

(2) Such certificate shall state the date on which the sale became absolute. 66. Postponement of sale to enable defaulter to raise amount due

under certificate--(1) Where an order for the sale of immovable property has been made, if the defaulter can satisfy the Tax Recovery Officer that there is reason to believe that the amount of the certificate may be raised by the mortgage or lease or private sale of such property, or some part thereof, or of any other immovable property of the defaulter, the Tax Recovery Officer may, on his application, postpone the sale of the property comprised in the order for sale, on such terms, and for such period as he thinks proper, to enable him to raise the amount.

(2) In such case, the Tax Recovery Officer shall grant a certificate to the defaulter, authorising him within a period to be mentioned therein, and notwithstanding anything contained in this Schedule, to make the proposed mortgage, lease or sale: Provided that all moneys payable under such mortgage, lease or sale shall be paid, not to the defaulter, but to the Tax Recovery Officer: Provided also that no mortgage, lease or sale under this rule shall become absolute until it has been confirmed by the Tax Recovery Officer. 67. Fresh proclamation before re-sale.-Every re-sale of immovable property, in default of payment of the purchase money within the period allowed for such payment, shall be made after the issue of a fresh proclamation in the manner and for the period hereinbefore provided for the sale. 68. Bid of co-sharer to have preference.-Where the property sold is a share of undivided immovable property, and two or more persons, of whom one is a co-sharer, respectively bid the same sum for such property or for any lot, the bid shall be deemed to be the bid of the co-sharer. 1[68A. Acceptance of property in satisfaction of amount due from

the defaulter.-(1) Without prejudice to the provisions contained in this Part, an 2[Assessing] Officer, duly authorised by the 3[Chief Commissioner or Commissioner] in this behalf, may accept in satisfaction of the whole or any part of the amount due from the defaulter the property, the sale of which has been postponed for the

reason mentioned in sub-rule (1) of rule 59, at such price as may be agreed upon between the 4[Assessing] Officer and the defaulter. ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 3 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.839

(2) Where any property is accepted under sub-rule (1), the defaulter shall deliver possession of such property to the 1[Assessing] Officer and on the date the possession of the property is delivered to the 2[Assessing] Officer, the property shall vest in the Central Government and the Central Government shall, where necessary, intimate the concerned Registering Officer appointed under the Registration Act, 1908 (16 of 1908), accordingly.

(3) Where the price of the property agreed upon under sub-rule

(1) exceeds the amount due from the defaulter, such excess shall be paid by the 3[Assessing] Officer to the defaulter within a period of three months from the date of delivery of possession of the property and where the 4[Assessing] Officer fails to pay such excess within the period aforesaid, the Central Government shall, for the period commencing on the expiry of such period and ending with the date of payment of the amount remaining unpaid, pay simple interest at twelve per cent per annum to the defaulter on such amount.]

5[68B. Time limit for sale of attached immovable property.-(1) No sale of immovable property shall be made under this Part after the expiry of three years from the end of the financial year in which the order giving rise to a demand of any tax, interest, fine, penalty or any other sum, for the recovery of which the immovable property has been attached, has become conclusive under the provisions of section 245-I or, as the case may be, final in terms of the provisions of Chapter XX: Provided that where the immovable property is required to be resold due to the amount of highest bid being less than the reserve price or under the circumstances mentioned in rule 57 or rule 58 or where the sale is set aside under rule 61, the aforesaid period of limitation for the sale of the immovable property shall stand extended by one year.

(2) In computing the period of limitation under sub-rule (1), the period- (i) during which the levy of the aforesaid tax, interest, fine, penalty or any other sum is stayed by an order or injunction of any court; or (ii) during which the proceedings of attachment or sale of the immovable property are stayed by an order or injunction of any court; or (iii) commencing from the date of the presentation of any appeal against the order passed by the Tax Recovery Officer under this Schedule and ending on the day the appeal is decided, shall be excluded: Provided that where immediately after the exclusion of the aforesaid period, the period of limitation for the sale of the immovable property is ---------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1992, w.e.f. 1-6-1992. ------------------------------------------------------------------------- 1.840 less than 180 days, such remaining period shall be extended to 180 days and the aforesaid period of limitation shall be deemed to be extended accordingly.

(3) Where any immovable property has been attached under this Part before the 1st day of June, 1992, and the order giving rise to a demand of any tax, interest, fine, penalty or any other sum, for the recovery of which the immovable property has been attached, has also become conclusive or final before the said date, that date shall be deemed to be the date on which the said order has become conclusive or, as the case may be, final.

(4) Where the sale of immovable property is not made in

accordance with the provisions of sub-rule (1), the attachment order in relation to the said property shall be deemed to have been vacated on the expiry of the time of limitation specified under this rule.] PART IV APPOINTMENT OF RECEIVER

69. Appointment of receiver for business.-(1) Where the property of a defaulter consists of a business, the Tax Recovery Officer may attach the business and appoint a person as receiver to manage the business.

(2) Attachment of a business under this rule shall be made by an order prohibiting the defaulter from transfer-ring or charging the business in any way and prohibiting all persons from taking any benefit under such transfer or charge, and intimating that the business has been attached under this rule. A copy of the order of attachment shall be served on the defaulter, and another copy shall be affixed on a conspicuous part of the premises in which the business is carried on and on the notice board of the office of the Tax Recovery Officer. 70. Appointment of receiver for immovable property.-Where immovable property is attached, the Tax Recovery Officer may, instead of directing a sale of the property, appoint a person as receiver to manage such property.

71. Powers of receiver.-(1) Where any business or other property is attached and taken under management under the foregoing rules, the receiver shall, subject to the control of the Tax Recovery Officer, have such powers as may be necessary for the proper management of the property and the realisation of the profits, or rents and profits, thereof.

(2) The profits, or rents and profits, of such business or other property, shall, after defraying the expenses of management, be adjusted towards discharge of the arrears, and the balance, if any, shall be paid to the defaulter. 72. Withdrawal of management.-The attachment and management under the foregoing rules may be withdrawn at any time at the discretion of the Tax Recovery Officer, or if the arrears are discharged by receipt of such profits and rents or are otherwise paid. PART V ARREST AND DETENTION OF THE DEFAULTER

73. Notice to show cause.-(1) No order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him 1.841 to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied- (a) that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after 1[the drawing up of the certificate by the Tax Recovery Officer], dishonestly transferred, concealed, or removed any part of his property, or (b) that the defaulter has, or has had since 2[the drawing up of the certificate by the Tax Recovery Officer] the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.

(2) Notwithstanding anything contained in sub-rule (1), a warrant for the arrest of the defaulter may be issued by the Tax Recovery Officer if the Tax Recovery Officer is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Tax Recovery Officer.

(3) Where appearance is not made in obedience to a notice issued

and served under sub-rule (1), the Tax Recovery Officer may issue a warrant for the arrest of the defaulter. 3[(3A) A warrant of arrest issued by a Tax Recovery Officer under

subrule (2) or sub-rule (3) may also be executed by any other Tax Recovery Officer within whose jurisdiction the defaulter may for the time being be found.]

(4) Every person arrested in pursuance of a warrant of arrest under 4[this rule] shall be brought before the Tax Recovery Officer 5[issuing the warrant] as soon as practicable and in any event within twenty-four hours of his arrest (exclusive of the time required for the journey): Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him. 6[Explanation.-For the purposes of this rule, where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter.) 74. Hearing.-When a defaulter appears before the Tax Recovery Officer in obedience to a notice to show cause or is brought before the Tax Recovery Officer under rule 73, the 7[the Tax Recovery Officer shall ---------------------------------------------------------------------- 1 Substituted for 'the receipt of the certificate in the office of the Tax Recovery Officer" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 2 Ibid. 3 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

4 Substituted for 'sub-rule (2) or sub-rule (3)" by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-1975. 5 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

6 Ibid. 7 Substituted for 'the Tax Recovery Officer shall proceed to hear the Assessing Officer and take all such evidence as may be produced-by him in support of execution by arrest, and shall then give the defaulter' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4- 1989. The italicised word was substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.842 give the defaulter] an opportunity of showing cause why he should not be committed to the civil prison. 75. Custody pending hearing.-Pending the conclusion of the inquiry, the Tax Recovery Officer may, in his discretion, order the defaulter to be detained in the custody of such officer as the Tax Recovery Officer may think fit or release him on his furnishing security to the satisfaction of the Tax Recovery Officer for his appearance when required.

76. Order of detention.-(1) Upon the conclusion of the inquiry, the Tax Recovery Officer may. make an order for the detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not already under arrest: Provided that in order to give the defaulter an opportunity of satisfying the arrears, the Tax Recovery Officer may, before making the order. of detention, leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding 15 days, or release him on his furnishing security to the satisfaction of the Tax Recovery Officer for his appearance at the expiration of the specified period if the arrears are not so satisfied.

(2) When the Tax Recovery Officer does not make an order of

detention under sub-rule (1) he shall, if the defaulter is under arrest, direct his release.

77. Detention In and release from prison.-(1) Every person detained in the civil prison in execution of a certificate may be so detained,- (a) where the certificate is for a demand of an amount exceeding two hundred and fifty rupees-for a period of six months, and (b) in any other case-for a period of six weeks: Provided that he shall be released from such detention- (i) on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of the civil prison, or 1[(ii) on the request of the Tax Recovery Officer on any ground other than the grounds mentioned in rules 78 and 79.] 2 [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989.]

(2) A defaulter released from detention under this rule shall not, merely by reason of his release, be discharged from his liability for the arrears; but he shall not be liable to be re-arrested under the certificate in execution of which he was detained in the civil prison. ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, clause (ii) as amended by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988, read as under: "(ii) on the request of the Assessing Officer who has issued the certificate or of the Tax Recovery Officer on any ground other than the grounds mentioned in rules 78 and 79." 2 Prior to the omission, the proviso, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 14-1988, read as under: "Provided that where he is to be released on the request of the Assessing Officer, he shall not be so released without the order of the Tax Recovery Officer.' ------------------------------------------------------------------------ 1.843

78. Release.-(1) The Tax Recovery Officer may order the release of a defaulter who has been arrested in execution of a certificate upon being satisfied that he has disclosed the whole of his property and has placed it at the disposal of the Tax Recovery Officer and that he has not committed any act of bad faith.

(2) If the Tax Recovery Officer has ground for believing the

disclosure made by a defaulter under sub-rule (1) to have been untrue, he may order the rearrest of the defaulter in execution of the certificate, but the period of his detention in the civil prison shall not in the aggregate exceed that authorised by rule 77.

79. Release on ground of illness.-(1) At any time after a warrant for the arrest of a defaulter has been issued, the Tax Recovery Officer, may cancel it on the ground of his serious illness.

(2) Where a defaulter has been arrested, the Tax Recovery Officer may release him if, in the opinion of the Tax Recovery Officer, he is not in a fit state of health to be detained in the civil prison.

(3) Where a defaulter has been committed to the civil prison, he may be released therefrom by the Tax Recovery Officer on the ground of the existence of any infectious or contagious disease, or on the ground of his suffering from any serious illness.

(4) A defaulter released under this rule may be re-arrested, but the period of his detention in the civil prison shall not in the aggregate exceed that authorised by rule 77. 80. Entry into dwelling house.-For the purpose of making an arrest under this Schedule- (a) no dwelling house shall be entered after sunset and before sunrise; (b) no outer door of a dwelling house shall be broken open unless such dwelling house or a portion thereof is in the occupancy of the defaulter and he or other occupant of the house refuses or in any way prevents access thereto; but, when the person executing any such warrant has duly gained access to any dwelling house, he may break open the door of any room or apartment if he has reason to believe that the defaulter is likely to be found there; (c) no room, which is in the actual occupancy of a woman who, according to the customs of the country, does not appear in public, shall be entered into unless the officer authorised to make the arrest has given notice to her that she is at liberty to withdraw and has given her reasonable time and facility for withdrawing. 81. Prohibition against arrest of women or minors, etc.-The Tax Recovery Officer shall riot order the arrest and detention in the civil prison of- (a) a woman, or (b) any person who, in his opinion, is a minor or of unsound mind. 1.844 PART VI MISCELLANEOUS 82. Officers deemed to be acting judicially.-Every 1[Chief Commissioner or Commissioner], Tax Recovery Officer or other officer acting under this Schedule shall, in the discharge of his functions under this Schedule, be deemed to be acting judicially within the meaning of the Judicial Officers Protection Act, 18502 (18 of 1850). 83. Power to take evidence.-Every 3[Chief Commissioner or Commissioner], Tax Recovery Officer or other officer acting under the provisions of this Schedule shall have the powers of a civil court while trying a suit for the purpose of receiving evidence, administering oaths, enforcing the attendance of witnesses and compelling the production of documents. 84. Continuance of certificate.-No certificate shall cease to be in force by reason of the death of the defaulter. 85. Procedure on death of defaulter.-4[If at any time after the certificate is drawn up by the Tax Recovery Officer] the defaulter dies, the proceedings under this Schedule (except arrest and detention) may be continued against the legal representative of the defaulter, and the provisions of this Schedule shall apply as if the legal representative were the defaulter.

86. Appeals.-5[(1) An appeal from any original order passed by the Tax Recovery Officer under this Schedule, not being an order which is conclusive, shall lie to the Chief Commissioner or Commissioner.] ---------------------------------------------------------------------- 1 Substituted for 'Tax Recovery Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, it was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972. 2 For the provision, refer Bharat's Handbook to Direct Taxes, 1995 edn. 3 Substituted for 'Tax Recovery Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, it was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972. 4 Substituted for 'if at any time after the issue of the certificate by the Assessing Officer to the Tax Recovery Officer' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, the italicised word was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-1988. 5 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, rule 86, as substituted by the Finance Act, 1963, w.r.e.f. 1-4-1962 and again by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972, read as under:

"(1) An appeal from any original order passed by the Tax Recovery Officer under this Schedule, not being an order which is conclusive, shall lie- (a) in the case of a Tax Recovery Officer, being a Collector or an Additional Collector, to the revenue authority to which appeals ordinarily lie against the orders of a Collector under the law relating to land revenue of the State concerned; (b) in the case of a Tax Recovery Officer, being an officer

refer-red to in sub-clause (ii)of clause (44) of section 2, to the revenue authority to which an appeal or an application for revision would ordinarily lie, if the order passed by him were the order under the law relating to land revenue or other public demand for the time being in force in the State concerned; and (c) in the case of a Tax Recovery Officer, being an officer

referred to in sub-clause (iii) of clause (44) of section 2, to the Tax Recovery Commissioner.' ----------------------------------------------------------------------- 1.845

(2) Every appeal under this rule must be presented within thirty days from the date of the order appealed against.

(3) Pending the decision of any appeal, execution of the certificate may be stayed if the appellate authority so directs, but not otherwise.

1[(4) Notwithstanding anything contained in sub-rule (1), where a Chief Commissioner or Commissioner is authorised to exercise powers as such in respect of any area, then, all appeals against the orders passed before the date of such authorisation by any Tax Recovery Officer authorised to exercise powers as such in respect of that area, or an area which is included in that area, shall lie to such Chief Commissioner or Commissioner.] 87. Review.-Any order passed under this Schedule may, after notice to all persons interested, be reviewed by the 2[Chief Commissioner or Commissioner], Tax Recovery Officer or other officer who made the order, or by his successor-in-office, on account of any mistake apparent from the record. 88. Recovery from surety.-Where any person has under this Schedule become surety for the amount due by the defaulter, he may be proceeded against under this Schedule as if he were the defaulter. 3[89. Penalties.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

90. Subsistence allowance.-(1) When a defaulter is arrested or detained in the civil prison, the sum payable for the subsistence of the defaulter from the time of arrest until he is released shall be borne by the 4[Tax Recovery] Officer. ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, sub-section (4), as inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972, read as under:

"(4) Notwithstanding anything contained in sub-rule (1), where a Tax Recovery Commissioner is authorised to exercise powers as such in respect of any area, then,- (a) all appeals against the orders passed before the date of such authorisation by any Tax Recovery Officer authorised to exercise powers as such in respect of that area or an area which is included in that area, shall lie to such Tax Recovery Commissioner; and (b) any proceeding by way of appeal against any orders referred to in clause (a) pending on the date mentioned in that clause before an appellate authority referred to in

clause (a) or clause (b) of sub-rule (1) shall stand transferred to such Tax Recovery Commissioner for disposal.' 2 Substituted for 'Tax Recovery Commissioner' by the Direct Tax Laws (Amendment) Act 1987, w.e.f 1-4-1989. Earlier, it was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972. 3 Prior to the omission, rule 89 read as under: "89. Penalties.-Whoever fraudulently removes, conceals, transfers or delivers to any person any property or any interest therein, intending thereby to prevent that property or interest therein, from being taken in execution of a certificate, shall be deemed to have committed an offence punishable under section 206 of the Indian Penal Code, 1860 (45 of 1860)." 4 Substituted for 'Assessing' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, which was substituted for 'Income-tax' by the same Amendment Act, w.r.e.f. 1-4-1988. ------------------------------------------------------------------------ 1.846

(2)Such sum shall be calculated on the scale fixed by the State Government for the subsistence of judgment-debtors arrested in execution of a decree of a civil court.

(3) Sums payable under this rule shall be deemed to be costs in the proceeding: Provided that the defaulter shall not be detained in the civil prison or arrested on account of any sum so payable. 91. Forms.-The Board may prescribe the Form to be used for any order, notice, warrant, or certificate to be issued under this Schedule.

92. Power to make rules.-(1) The Board may make rules, consistent with the provisions of this Act, regulating the procedure to be followed by '(Chief Commissioners, Commissioners], Tax Recovery Officers and other officers acting under this Schedule.

(2) In particular, and without prejudice to the generality of

the power conferred by sub-rule (1), such rules may provide for all or any of the following matters, namely:- (a) the area within which 2[Chief Commissioners, Commissioners] or Tax Recovery Officers may exercise jurisdiction; (b) the manner in which any property sold under this Schedule may be delivered; (c) the execution of a document or the' endorsement of a negotiable instrument or a share in a corporation, by or on behalf of the Tax Recovery Officer where such execution or endorsement is required to transfer such negotiable instrument or share to a person who has purchased it under a sale under this Schedule; (d) the procedure for dealing with resistance or obstruction offered by any person to a purchaser of any immovable property sold under this Schedule, in obtaining possession of the property; (e) the fees to be charged for any process issued under this Schedule; (f) the scale of charges to be recovered in respect of any other proceeding taken under this Schedule; (g) recovery of poundage fee; (h) the maintenance and custody, while under attachment, of livestock or other movable property, the fees to be charged for such maintenance and custody, the sale of such livestock or property, and the disposal of proceeds of such sale; (i) the mode of attachment of business. 93. Saving regarding charge.-Nothing in this Schedule shall affect any provision of this Act whereunder the tax is a first charge upon any asset. ---------------------------------------------------------------------- 1 Substituted for 'Tax Recovery Commissioners" by the Direct Tax laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, it was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972. 2 Substituted for 'Tax Recovery Commissioners' by the Direct Tax laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, it was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972. ------------------------------------------------------------------------ 1.847 1[94. Continuance of certain pending proceedings and power to remove difficulties.-All proceedings for the recovery of tax pending immediately before the coming into force of the amendments to this Schedule by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988) shall be continued under this Schedule as amended by that Act from the stage they had reached, and for this purpose, every certificate, issued by the 2[Assessing] Officer under section 222 before such amendment shall be deemed to be a certificate drawn up by the Tax Recovery Officer under that section after such amendment, and if any difficulty arises in continuing the said proceedings, the Board may issue (whether by way of modification, not affecting the substance of any rule in this Schedule or other-wise) general or special orders which appear to it to be necessary or expedient for the purpose of removing the difficulty.] --------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 14-

2 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.848 SCHE PROCEDURE FOR DISTRAINT BY 1[ASSESSING] OFFICER2[OR TAX RECOVERY OFFICER] THE THIRD SCHEDULE PROCEDURE FOR DISTRAINT BY 1[ASSESSING] OFFICER 2[OR TAX RECOVERY OFFICER]

[See section 226(5)]

[See sections 2(38), 10(12), 10(25), 36(1)(iv), 87(1)(d)2, 111,

192(4)] 1. Application of Part.-This Part shall not apply to any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies. 2. Definitions.-In this Part, unless the context otherwise requires,- (a) "employee' means any per-son who maintains a provident fund for the benefit of his or its employees, being-- (i) a Hindu undivided family, company, firm or other association of persons, or (ii) an individual engaged in a business or profession the profits and gains whereof are assessable to income- tax under the head "Profits and gains of business or profession"; (b) employee" means an employee participating in a provident fund, but does not include a personal or domestic servant; (c) "contribution" means any sum credited by or on behalf of any employee out of his salary, or by an employer out of his own moneys, to the individual account of an employee, but does not include any sum credited as interest; (d) "balance to the credit of an employee" means the total amount to the credit of his individual account in a provident fund at any time; (e) "annual accretion", in relation to the balance to the credit of an employee, means the increase to such balance in any year, arising from contributions and interest; (f) "accumulated balance due to an employee" means the balance to his credit, or such portion thereof as may be claimable by him under the regulations of the fund, on the day he ceases to be an employee of the employer maintaining the fund; (g) "regulations of a fund" means the special body of regulations governing the constitution and administration of a particular provident fund; and (h) "salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

3. According and withdrawal of recognition.-(1) The 3[Chief Commissioner or Commissioner] may accord recognition to any provident fund which, in his opinion, satisfies the conditions prescribed in rule 4 and the rules made by the Board in this behalf, and may, at any time, withdraw such recognition if, in his opinion, the provident fund contravenes any of those conditions. ----------------------------------------------------------------------

2 Should now be substituted by "88(2)(vi)". 3 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.850

(2) An order according recognition shall take effect on such date as the 1[Chief Commissioner or Commissioner] may fix in accordance with any rules the Board may make in this behalf, such date not being later than the last day of the financial year in which the order is made.

(3) An order withdrawing recognition shall take effect from the date on which it is made.

(4) An order according recognition to a provident fund shall not, unless the 2[Chief Commissioner or Commissioner] otherwise directs, be affected by the fact that the fund is subsequently amalgamated with another provident fund on the occurrence of an amalgamation of the undertakings in connection with which the two funds are maintained, or that it subsequently absorbs the whole or a part of another provident fund belonging to an undertaking which is wholly or in part transferred to or merged in the undertaking of the employer maintaining the first mentioned fund. 4. Conditions to be satisfied by recognised provident funds.-In order that a provident fund may receive and retain recognition, it shall subject to the provisions of rule 5, satisfy the conditions set out below and any other conditions which the Board may, by rules, specify- (a) all employees shall be employed in India, or shall be employed by an employer whose principal place of business is in India; (b) the contributions of an employee in any year shall be a definite proportion of his salary for that year and shall be deducted by the employer from the employee's salary in that proportion, at each periodical payment of such salary in that year, and credited to the employee's individual account in the fund; (c) the contributions of an employer to the individual account of an employee in any year shall not exceed the amount of the contributions of the employee in that year, and shall be credited to the employee's individual account at intervals not exceeding one year; (d) the fund shall be vested in two or more trustees or in the official trustee under a trust which shall not be revocable, save with the consent of all the beneficiaries; (e) the fund shall consist of contributions as above specified, received by the trustees, of accumulations thereof, and of interest credited in respect of such contributions and accumulations, and of securities purchased therewith and of any capital gains arising from the transfer of capital assets of the fund, and of no other sums; (f) the employer shall not be entitled to recover any sum whatsoever from the fund, save in cases where the employee is dismissed for misconduct or voluntarily leaves his employment otherwise than on account of ill-health or other unavoidable cause before the expiration of the terms of service specified in this behalf in the regulations of the fund: ----------------------------------------------------------------------- 1 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. ----------------------------------------------------------------------- 1.851 Provided that in such cases the recoveries made by the employer shall be limited to the contributions made by him to the individual account of the employee, and to interest credited in respect of such contributions in accordance with the regulations of the fund and the accumulations thereof, (g) the accumulated balance due to an employee shall be payable on the day he ceases to be an employee of the employer maintaining the fund; (h) save as provided in clause (g) or in accordance with such conditions and restrictions as the Board may, by rules, specify, no portion of the balance to the credit of an employee shall be payable to him.

5. Relaxation of conditions.-(1) Notwithstanding anything contained in clause (a) of rule 4, the '(Chief Commissioner or Commissioner] may, if he thinks fit and subject to such conditions, if any, as he thinks proper to attach to the recognition, accord recognition to a fund maintained by an employer whose principal place of business is not in India, provided the proportion of employees employed outside India does not exceed ten per cent.

(2) Notwithstanding anything contained in clause (b) of rule 4, an employee who retains his employment while serving in the armed forces of the Union or when taken into or employed in the national service under any law for the time being in force, may, whether he receives from the employer any salary or not contribute to the fund during his service in the armed forces of the Union or while so taken into or employed in the national service a sum not exceeding the amount he would have contributed had he continued to serve the employer.

(3) Notwithstanding anything contained in clause (e) or clause (g) of rule 4,- (a) at the request made in writing by the employee who ceases to-be an employee of the employer maintaining the fund, the trustees of the fund may consent to retain the whole or any part of the accumulated balance due to the employee to be drawn by him at any time on demand; (b) where the accumulated balance due to an employee who has ceased to be an employee is retained in the fund in accordance with the preceding clause, the fund may consist also of interest in respect of such accumulated balance; 2[(c) the fund may also consist of any amount transfer-red from the individual account of an employee in any recognised provident fund maintained by his former employer and the interest in respect thereof.] ---------------------------------------------------------------------- 1 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Inserted by the Finance Act, 1974, w.e.f. 1-4-1974. ----------------------------------------------------------------------- 1.852

(4) Subject to any rules' which the Board may make in this behalf, the 2[Chief Commissioner or Commissioner] may, in respect of any particular fund, relax the provisions of clause (c) of rule 4,- (a) so as to permit the payment of larger contributions by an employer to the individual accounts of employees whose salaries do not in each case exceed five hundred rupees per mensem; and (b) so as to permit the crediting by employers to the individual accounts of employees of periodical bonuses or other contributions of a contingent nature, where the calculation and payment of such bonuses or other contributions is provided for on definite principles by the regulations of the fund.

(5) Notwithstanding anything contained in clause (h) of rule 4, in order to enable an employee to pay the amount of tax assessed on

his total income as determined under sub-rule (4) of rule 1 1, he shall be entitled to withdraw from the balance to his credit in the recognised provident fund a sum not exceeding the difference between such amount and the amount to which he would have been assessed if the

transferred balance referred to in sub-rule (2) of rule 11 had not been included in his total income. 6. Employer's annual contributions, when deemed to be income received by employee.-That portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognised provident fund as consists of- (a) contributions made by the employer in excess of ten per cent of the salary of the employee, and (b) interest credited on the balance to the credit of the employee in so far as it 3[* * *] is allowed at a rate exceeding such rate as may be fixed by the Central Government in this behalf by notification 4 in the Official Gazette, shall be deemed to have been received by the employee in that previous year and shall be included in his total income for that previous year, and shall be liable to income-tax If* * *]. 6[7. Exemption for employee's contributions.-An employee participating in a recognised provident fund shall, in respect of his own contributions to his individual account in the fund in the previous year, be entitled to a deduction in the computation of his total income of an amount determined in accordance with 7[section 80C].] --------------------------------------------------------------------- 2 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 The words 'exceeds one-third of the salary of the employee or" omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 5 The words 'and super-tax" omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 6 Substituted, ibid. 7 Substituted for 'section 80A or, as the case may be to a deduction from the amount of income-tax with which he is chargeable on his total income of an amount of income-tax determined in accordance with section 87" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. ----------------------------------------------------------------------- 1.853 8. Exclusion from total income of accumulated balance.-The accumulated balance due and becoming payable to an employee participating in a recognised provident fund shall be excluded from the computation of his total income- (i) if he has rendered continuous service with his employer for a period of five years or more, or (ii) if, though he has not rendered such continuous service, the service has been terminated by reason of such employee's ill-health, or by the contraction or discontinuance of the employer's business or other cause beyond the control of the employee, 1[or] 2[(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transfer-red to his individual account in any recognised provident fund maintained by such other employer. Explanation.-Where the accumulated balance due and becoming payable to an employee participating in a recognised provident fund maintained by his employer includes any amount transferred from his individual account in any other recognised provident fund or funds maintained by his former employer or employers, then, in computing the period of continuous service for the purposes of clause (i) or clause (ii) the period or periods for which such employee rendered continuous service under his former employer or employers aforesaid shall be included.]

9. Tax on accumulated balance (1) Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income owing to the provisions of rule 8 not being applicable the 3[Assessing] Officer shall calculate the total of the various SUMS of 4 [tax] which would have been payable by the employee in respect of his total income for each of the years concerned if the fund had not been a recognised provident fund, and the amount by which such total exceeds the total of all sums paid by or on behalf of such employee by way of tax for such years shall be payable by the employee in addition to any other 5[tax] for which he may be liable for the previous year in which the accumulated balance due to him becomes payable.

(2) Where the accumulated balance due to an employee participating in a recognised provident fund which is not included in his total income under the provisions of rule 8 becomes payable, an amount equal to the aggregate of the amounts of super-tax on annual accretions that would have been payable under section 58E of the Indian Income-tax Act, 1922 (11 of 1922), for any assessment year up to and including the assessment year 1932-33, if the Indian Income-tax (Second Amendment) Act, 1933 (18 of 1933), had come into force on the 15th day of March, 1930, shall be payable by the employee in addition to any other tax payable by him for the previous year in which such balance becomes payable. ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1974, w.e.f. 1-4-1975. 2 Ibid. 3 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for 'income-tax and super-tax' by the Finance Act, 1965, w.e.f. 1-4-1965. 5 Ibid. ----------------------------------------------------------------------- 1.854 10. Deduction at source of tax payable on accumulated balance.The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances

due to employees, shall, in cases where sub-rule (1) of rule 9 applies, at the time an accumulated balance due to an employee is paid, deduct therefrom the amount payable under that rule and all the provisions of Chapter XVIIB shall apply as if the accumulated balance were income chargeable under the head "Salaries". 11.Treatment of balance In newly recognised provident fund.Where recognition is accorded to a provident fund with existing balances, an account shall be made of the fund up to the day immediately preceding the day on which the recognition takes effect, showing the balance to the credit of each employee on such day, and containing such further particulars as the Board may prescribe.

(2)The account shall also show in respect of the balance to the credit of each employee the amount thereof which is to be transferred to that employee's account in the recognised provident fund, and such amount (hereinafter called his transferred balance) shall be shown as the balance to his credit in the recognised provident fund on the date

on which the recognition of the fund takes effect, and sub-rule (4) of

this rule and subrule (5) of rule 5 shall apply thereto.

(3)Any portion of the balance to the credit of an employee in the existing fund which is not transferred to the recognised fund shall be excluded from the accounts of the recognised fund and shall be liable to income-tax 1[* * *] in accordance with the provisions of this Act, other than this Pail.

(4)Subject to such rules as the Board may make in this behalf, the 2[Assessing] Officer shall make a calculation of the aggregate of all sums comprised in a transfer-red balance which would have been liable to income-tax if this Part had been in force from the date of the institution of the fund, without regard to any tax which may have been paid on any sum, and such aggregate (if any) shall be deemed to be income received by the employee in the previous year in which the recognition of the fund takes effect and shall be included in the employee's total income for that previous year, and, for the purposes of assessment, the remainder of the transferred balance shall be disregarded, but no other exemption or relief, by way of refund or otherwise, shall be granted in respect of any sum comprised in such transferred balance: Provided that, in cases of serious accounting difficulty, the 3[Chief Commissioner or Commissioner] may, subject to the said rules, make a summary calculation of such aggregate.

(5)Nothing in this rule shall affect the rights of the persons administering an unrecognised provident fund or dealing with it, or with the balance to the credit of any individual employee before recognition is accorded, in any manner which may be lawful. ---------------------------------------------------------------------- 1 The words 'and super-tax' omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 2 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Ibid. ----------------------------------------------------------------------- 1.855

12. Accounts of recognised provident funds.-(1) The accounts of a recognised provident fund shall be maintained by the trustees of the fund and shall be in such form and for such periods, and shall contain such particulars, as the Board may prescribe.

(2)The accounts shall be open to inspection at all reasonable times by income-tax authorities, and the trustees shall furnish to the 1[Assessing] Officer such abstracts thereof as the Board may prescribe.

13. Appeals.-(1) An employer objecting to an order of the 2[Chief Commissioner or Commissioner] refusing to recognise or an order withdrawing recognition from a provident fund may appeal, within sixty days of such order, to the Board.

(2)The appeal shall be in such form and shall be verified in such manner and shall be subject to the payment of such fee as the Board may prescribe.

14. Treatment of fund transferred by employer to trustee.-(1) Where an employer, who maintains a provident fund (whether recognised or not) for the benefit of his employees and has not transfer-red the fund or any portion of it, transfers such fund or portion to trustees in trust for the employees participating in the fund, the amount so transferred shall be deemed to be of the nature of capital expenditure.

(2)When an employee participating in such fund is paid the accumulated balance due to him therefrom, any portion of such balance as represents his share in the amount so transferred to the trustees (without addition of interest, and exclusive of the employee's contributions and interest thereon) shall, if the employer has made effective arrangements to secure that tax shall be deducted at source from the amount of such shares when paid to the employee, be deemed to be an expenditure by the employer within the meaning of section 37, incurred in the previous year in which the accumulated balance due to the employee is paid.

15.Provisions relating to rules3.-(1) In addition to any power confer-red by this Part, the Board may make rules- (a) prescribing the statements and other information to be submitted along with an application for recognition; (b) limiting the contributions to a recognised provident fund by employees of a company who are shareholders in the company; 4[(bb) regulating the investment or deposit of the moneys of a recognised provident fund: Provided that no rule made under this clause shall require the investment of more than fifty per cent of the moneys of such fund in Government securities as defined in section 2 of the Public Debt Act, 19445 (18 of 1944);] ---------------------------------------------------------------------- 1 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for 'Commissioner, ibid. 4 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

------------------------------------------------------------------------ 1.856 (c) providing for the assessment by way of penalty of any consideration received by an employee for an assignment of, or creation of a charge upon, his beneficial interest in a recognised provident fund; (d) determining the extent to and the manner in which exemption from payment of 1[tax] may be granted in respect of contributions and interest credited to the individual accounts of employees in a provident fund from which recognition has been withdrawn; and (e) generally, to carry out the purposes of this Part and to secure such further control over the recognition of provident funds and the administration of recognised provident funds as it may deem requisite.

(2) All rules made under this Part shall be subject to the provisions of section 296. PART B APPROVED SUPERANNUATION FUNDS2

[See sections 2(6), 10(13) 10(25)(iii), 36(1)(iv), 87(1)(e)3, 192(5), 4[206]] 1. Definitions.-In this Part, unless the context otherwise requires, "employer", "employee", "contribution" and "salary" have, in relation to superannuation funds, the meanings assigned to those expressions in rule 2 of Part A in relation to provident funds.

2. Approval and withdrawal of approval.-(1) The 5[Chief Commissioner or Commissioner] may accord approval to any superannuation fund or any part of a superannuation fund which, in his opinion, complies with the requirements of rule 3, and may at any time withdraw such approval, if, in his opinion, the circumstances of the fund or part cease to warrant the continuance of the approval.

(2) The 6[Chief Commissioner or Commissioner] shall communicate in writing to the trustees of the fund the grant of approval with the date on which the approval is to take effect, and, where the approval is granted subject to conditions, those conditions.

(3) The 7[Chief Commissioner or Commissioner] shall communicate in writing to the trustees of the fund any withdrawal of approval with the reasons for such withdrawal and the date on which the withdrawal is to take effect.

(4) The 8[Chief Commissioner or Commissioner) shall neither refuse nor withdraw approval to any superannuation fund or any part of a ---------------------------------------------------------------------- 1 Substituted for 'income-tax and super-tax' by the Finance Act, 1965, w.e.f. 1-4-1965.

3 Should now be substituted by "88(2)(vii)".

4 Substituted for '206(2)" by the Finance Act, 1987, w.e.f. 1-6-

5 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 ]bid. 7 Ibid. 8 Ibid. ----------------------------------------------------------------------- 1.857 superannuation fund unless he has given the trustees of that fund a reasonable opportunity of being heard in the matter. 3. Conditions for approval.-In order that a superannuation fund may receive and retain approval, it shall satisfy the conditions set out below and any other conditions which the Board may, by rules, prescribe- (a) the fund shall be a fund established under an irrevocable trust in connection with a trade or under-taking carried on in India, and not less than ninety per cent of the employees shall be employed in India; (b) the fund shall have for its sole purpose the provision of annuities for employees in the trade or undertaking on their retirement at or after a specified age or on their becoming incapacitated prior to such retirement, or for the widows, children or dependents of persons who are or have been such employees on the death of those persons; (c) the employer in the trade or undertaking shall be a contributor to the fund; and (d) all annuities, pensions and other benefits granted from the fund shall be payable only in India.

4. Application for approval.-(1) An application for approval of a superannuation fund or part of a superannuation fund shall be made in writing by the trustees of the fund to the 1[Assessing] Officer by whom the employer is assessable, and shall be accompanied by a copy of the instrument under which the fund is established and by two copies of the rules 2[and where the fund has been in existence during any year or years prior to the financial year in which the application for approval is made, also two copies of the accounts of the fund relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made)] for which such accounts have been made up, but the 2[Chief Commissioner or Commissioner] may require such further information to be supplied as he thinks proper.

(2) If any alteration in the rules, constitution, objects or conditions of the fund is made at any time after the date of the application for approval, the trustees of the fund shall forthwith communicate such alteration to the 4[Assessing] Officer mentioned in

sub-rule (1), and in default of such communication, any approval given shall, unless the 2[Chief Commissioner or Commissioner] otherwise orders, be deemed to have been withdrawn from the date on which the alteration took effect. 5. Contributions by employer when deemed to be income of employer.-Where any contributions by an employer (including the interest thereon, if any) are repaid to the employer, the amount so repaid --------------------------------------------------------------------- 1 Substituted for 'Income-tax', by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for 'and of the accounts of the fund for the last year' by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 3 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted for 'Income-tax', ibid. 5 Substituted for 'Commissioner', ibid. ----------------------------------------------------------------------- 1.858 shall be deemed for the purpose of income-tax 1[* * *] to be the income of the employer of the previous year in which it is so repaid. 6. Deduction of tax on contributions paid to an employee.-Where any contributions made by an employer, including interest on contributions, if any, are paid to an employee during his lifetime

2[in circumstances other than those referred to in clause (13) of section 10], 3[tax] on the amount so paid shall be deducted at the average rate of 4[tax] at which the employee was liable to 5[tax] during the preceding three years or during the period, if less than three years, when he was a member of the fund, and shall be paid by the trustees to the credit of the Central Government within the prescribed time and in such manner as the Board may direct. 7. Deduction from pay of and contributions on behalf of employee to be included in return.-Where an employer deducts from the emoluments paid to an employee or pays on his behalf any contributions of that employee to an approved superannuation fund, he shall include all such deductions or payments in the return which he is required to furnish under 6[* * *] section 206.

8. Appeals.-(1) An employer objecting to an order of the 7[ Chief Commissioner or Commissioner] refusing to accord approval to a superannuation fund or an order withdrawing such approval may appeal, within sixty days of such order, to the Board.

8(2) The appeal shall be in such form and shall be verified in such manner and shall be subject to the payment of such fee as may be prescribed. 9. Liability of trustees on cessation of approval.-If a fund or a part of a fund for any reason ceases to be an approved superannuation fund, the trustees of the fund shall nevertheless remain liable to tax on any sum paid on account of returned contributions (including interest on contributions, if any), in so far as the sum so paid is in respect of contributions made before the fund or part of the fund ceased to be an approved superannuation fund under the provisions of this Pall. 10. Particulars to be furnished in respect of superannuation funds.-The trustees of an approved superannuation fund and any employer who contributes to an approved superannuation fund shall, when required by notice from the 9[Assessing] Officer, within such period, not being less than twenty-one days from the date of the notice, as may be specified in the notice, furnish such return, statement, particulars or information, as the 10[Assessing] Officer may require. ---------------------------------------------------------------------- 1 The words 'and super-tax' omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 2 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 3 Substituted for 'income-tax and super-tax', ibid. 4 Ibid. 5 ibid.

6 The words 'sub-section (1) of' omitted by the Finance Act, 1987, w.e.f. 1-6-1987. 7 Substituted for 'Commissioner' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 8 See rule 97 and Form No. 43. 9 Substituted for 'Income-tax' by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 Ibid. ------------------------------------------------------------------------ 1.859

11. Provisions relating to rules.-(1) In addition to any power confer-red by this Part, the Board may make rules- (a) prescribing the statements and other information to be submitted along with an application for approval; (b) prescribing the returns, statements, particulars or information which the 1[Assessing] Officer may require from the trustees of an approved superannuation fund or from the employer; (c) limiting the ordinary annual contribution and any other contributions to an approved superannuation fund by an employer; 2[(cc) regulating the investment or deposit of the moneys of an approved superannuation fund: Provided that no rule made under this clause shall require the investment of more than fifty per cent of the moneys of such fund in Government securities as defined in section 2 of the Public Debt Act, 19443 (18 of 1944);] (d) providing for the assessment by way of penalty of any consideration received by an employee for an assignment of, or creation of a charge upon, his beneficial interest in an approved superannuation fund; (e) determining the extent to, and the manner in which exemption from payment of 4[tax] may be granted in respect of any payment made from a superannuation fund from which approval has been withdrawn; (f) providing for the withdrawal of approval in the case of a fund which ceases to satisfy the requirements of this Part or of the rules made thereunder; and (g) generally, to carry out the purposes of this Part and to secure such further control over the approval of the superannuation funds and the administration of approved superannuation funds as it may deem requisite.

(2) All rules made under this Part shall be subject to the provisions of section 296. PART C APPROVED GRATUITY FUNDS5

[See sections 2(5), 6[10(25)(iv),] 17(1)(iii), 36(1)(v)]

4 Substituted for 'income-tax and super-tax" by the Finance Act, 1965, w.e.f. 1-4-1965. 6 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. ------------------------------------------------------------------------ 1.860

2. Approval and withdrawal of approval.-(1) The 1[Chief Commissioner or Commissioner] may accord approval to any gratuity fund which, in his opinion, complies with the requirements of rule 3 and may at any time withdraw such approval if, in his opinion, the circumstances of the fund cease to warrant the continuance of the approval.

(2) The 2[Chief Commissioner or Commissioner] shall communicate in writing to the trustees of the fund the grant of approval with the date on which the approval is to take effect, and where the approval is granted subject to conditions, those conditions.

(3) The 3 [Chief Commissioner or Commissioner] shall communicate in writing to the trustees of the fund any withdrawal of approval with the reasons for such withdrawal and the date on which the withdrawal is to take effect.

(4) The 4 [Chief Commissioner or Commissioner] shall neither refuse nor withdraw approval to any gratuity fund unless he has given the trustees of that fund a reasonable opportunity of being heard in the matter. 3. Conditions for approval.-In order that a gratuity fund may receive and retain approval, it shall satisfy the conditions set out below and any other conditions which the Board may, by rules, prescribe- (a) the fund shall be a fund established under an irrevocable trust in connection with a trade or undertaking carried on in India, and not less than ninety per cent of the employees shall be employed in India; (b) the fund shall have for its sole purpose the provision of a gratuity to employees in the trade or undertaking on their retirement at or after a specified age or on their becoming incapacitated prior to such retirement or on termination of their employment after the minimum period of service specified in the rules of the fund or to the widows, children or dependents of such employees on their death; (c) the employer in the trade or undertaking shall be a contributor to the fund; and (d) all benefits granted by the fund shall be payable only in India.

4. Application for approval.-(1) An application for approval of a gratuity fund shall be made in writing by the trustees of the fund to the 5[Assessing] Officer by whom the employer is assessable and shall be accompanied by a copy of the instrument under which the fund is established and by two copies of the rules 6[and, where the fund has been in existence during any year or years prior to the financial year in which the application for approval is made, also two copies of the accounts of ---------------------------------------------------------------------- 1 Substituted for 'Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Substituted for 'Income-tax', ibid. 6 Substituted for 'and of the accounts of the fund for the last three years" by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

1.861 the fund relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made)] for which such accounts have been made up, but the 1[Chief Commissioner or Commissioner] may require such further information to be supplied as he thinks proper.

(2)If any alteration in the rules, constitution, objects or conditions of the fund is made at any time after the date of the application for approval, the trustees of the fund shall forthwith communicate such alterations to the 2[Assessing] Officer mentioned in

sub-rule (1), and in default of such communication, any approval given shall, unless the 3[Chief Commissioner or Commissioner] otherwise orders, be deemed to have been withdrawn from the date on which the alteration took effect. 5. Gratuity deemed to be salary.-Where any gratuity is paid to an employee during his lifetime, the gratuity shall be treated as salary paid to the employee for the purposes of this Act. 6. Liability of trustees on cessation of approval.-If a gratuity fund for any reason ceases to be an approved gratuity fund, the trustees of the fund shall nevertheless remain liable to tax on any gratuity paid to any employee. 7. Contributions by employer, when deemed to be income of employer.-Where any contributions by an employer (including the interest thereon, if any) are repaid to the employer, the amount so repaid shall be deemed for the purposes of income-tax 4[* * *] to be the income of the employer of the previous year in which they are so repaid.

8. Appeals.-(1) An employer objecting to an order of the 5[Chief Commissioner or Commissioner] refusing to accord approval to a gratuity fund or an order withdrawing such approval may appeal, within sixty days of such order, to the Board.

6(2) The appeal shall be in such form and shall be verified in such manner and shall be subject to the payment of such fee as may be prescribed. 7 [8A. Particulars to be furnished in respect of gratuity funds.-The trustees of an approved gratuity fund and any employer who contributes to an approved gratuity fund shall, when required by notice from the 8[Assessing] Officer, furnish within such period, not being less than twenty-one days from the date of the notice, as may be specified in the notice, such return, statement, particulars or information, as the 9[Assessing] Officer may require.] --------------------------------------------------------------------- 1 Substituted for 'Commissioner' by the Direct Tax laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for 'Income-tax', ibid. 3 Substituted for 'Commissioner", ibid. 4 The words 'and super-tax' omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 5 Substituted for 'Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

8 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 9 Ibid. ------------------------------------------------------------------------- 1.862

9. Provisions relating to rules.-(1) In addition to any power conferred in this Part, the Board may make rules- (a) prescribing the statements and other information to be submitted along with an application for approval; (b) limiting the ordinary annual and other contributions of an employer to the fund; 1[(bb) regulating the investment or deposit of the moneys of an approved gratuity fund: Provided that no rule made under this clause shall require the investment of more than fifty per cent of the moneys of such fund in Government securities as defined in section 2 of the Public Debt Act, 19442 (18 of 1944);] (c) providing for the assessment by way of penalty of any consideration received by an employee for an assignment of, or the creation of a charge upon, his beneficial interest In an approved gratuity fund; (d) providing for the withdrawal of the approval "in the case of a fund which ceases to satisfy the requirements of this Part or the rules made thereunder; and (e) generally, to carry out the purposes of this Part and to secure such further control over the approval of gratuity funds and the administration of gratuity funds as it may deem requisite.

(2) All rules made under this Part shall be subject to the provisions of section296. ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

----------------------------------------------------------------------- 1.863 SCHE

2[[See section 33(1)(b)(B)(i)]] 1[THE FIFTH SCHEDULE

2[[See section 33(1)(b)(B)(i)]] LIST OF ARTICLES AND THINGS

(1) Iron and steel (metal), ferro-alloys and special steels.

(2) Aluminium, copper, lead and zinc (metals).

(3) 3[Coal, lignite, iron ore], bauxite, manganese ore, dolomite, limestone, magnesite and mineral oil.

(4) Industrial, machinery specified under the heading "8. Industrial machinery", sub-heading "A. Major items of specialised equipment used in specific industries", of the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951).

(5) Boilers and steam generating plants, steam engines and turbines and internal combustion engines.

(6) Flame and drip proof motors.

(7) Equipment for the generation and transmission of electricity, including transformers, cables and transmission towers.

(8) Machine tools and precision tools (including their attachments and accessories, cutting tools and small tools), dies and jigs.

(9) Tractors, earth-moving machinery and agricultural implements. (1 0) Motor trucks and buses.

(11) Steel castings and forgings and malleable iron and steel castings.

(12) Cement and refractories.

(13) Fertilisers, namely, ammonium sulphate, ammonium sulphate nitrate (double salt), ammonium nitrate, calcium ammonium nitrate (nitrolime stone), ammonium chloride, superphosphate, urea and complex fertilisers of synthetic origin containing both nitrogen and phosphorus, such as ammonium phosphates, ammonium sulphate phosphate and ammonium nitrophosphate.

(14) Soda ash.

(15) Pesticides.

(16) Paper and pulp 4 [including newsprint].

(17) Electronic equipment, namely, radar equipment, computers, electronic accounting and business machines, electronic communication equipment, electronic control instruments and --------------------------------------------------------------------- 1 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. The original Fifth Schedule was repealed by the Finance Act, 1964, w.e.f. 1-4-1964.

2 Substituted for "[See sections 33(1)(b)(B)(i) and 80B(7)]" by the Finance Act, 1968, w.e.f. 1-4-1969. Earlier, it was amended by the Finance Act, 1966, w.e.f. 1-4-1966 and the Finance (No. 2) Act, 1967, w.e.f. 14-1968. 3 Substituted for 'Iron ore' by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965. 4 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. For the

purposes of section 33(1), the amendment shall have effect in respect of machinery or plant installed after 31-3-1966. ----------------------------------------------------------------------- 1.864 basic components, such as valves, transistors, resistors, condensers, coils, magnetic materials and microwave components.

(18) Petrochemicals including corresponding products manufactured from other basic raw materials like calcium carbide, ethyl alcohol or hydrocarbons from other sources.

(19) Ships.

(20) Automobile ancillaries.

(21) Seamless tubes.

(22) Gears.

(23) Ball, roller and tapered bearings.

(24) Component parts of the articles mentioned in item Nos. (4), (5),

(7) and (9), that is to say, such parts as are essential for the working of the machinery referred to in the items aforesaid and have been given for that purpose some special shape or quality which would not be essential for their use for any other purpose and are in complete finished form and ready for fitment.

(25) Cotton seed oil.

1[(26) Tea.

(27) Printing machinery.]

2[(28) Processed seeds.

(29) Processed concentrates for cattle and poultry feed.

(30) Processed (including frozen) fish and fish products.

(31) Vegetable oils and oil-cakes manufactured by the solvent extraction process from seeds other than cotton seed.]

3[ (32) Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yam, hosiery and rope.

(33) Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of jute, including jute twine and jute rope.]] SCHE Omitted by the Finance Act, 1972, w.e.f. 1-4-1973. It was inserted by the Finance Act, 1968, w.e.f. 1-4-1969 and was amended by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972.] [THE SIXTH SCHEDULE Omitted by the Finance Act, 1972, w.e.f. 1-4-1973. It was inserted by the Finance Act, 1968, w.e.f. 1-4-1969 and was amended by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972.] ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. For the

purposes of section 33(1), the amendment shall have effect in respect of machinery or plant installed after 31-3-1966. 2 Inserted by the Finance Act, 1968, w.e.f. 1-4-1969. 3 Inserted by the Finance Act, 1969, w.e.f. 1-4-1970. ---------------------------------------------------------------------- 1.865 SCHE

[See section 35E]

[See section 35E]

1.866 3. Lead, Zinc, Copper, Cadmium, Arsenic, Antimony, Bismuth, Cobalt, Nickel, Molybdenum, and Uranium minerals, and Gold and Silver, Arsinopyrite, Chalcopyrite, Pyrite, Pyphrotite and Pentalandite. 4. Chromium, Osmiridium, Platinum and Nickel minerals. 5. Kyanite, Sillimanite, Corrundum, Dumortierite and Topaz. 6. Gold, Silver, Tellurium, Selenium and Pyrite. 7. Barytes, Fluorite, Chalcocite, Selenium, and minerals of Zinc, Lead and Silver. 8. Tin and Tungsten minerals. 9. Limestone, Dolomite and dewagnesite. 10. Ilmenite, Monazite, Zircon, Rutile, Garnet and Sillimanite. 11. Sulphides of Copper and Iron. 12. Coal, Fireclay and Shale. 13. Magnetite and Apatite. 14. Magnesite and Chromite. 15. Talc (Soapstone and Steatite) and Dolomite. 16. Bauxite, Laterite, Aluminous Clays, Lithomorge, Titanium, Vanadium, Gallium and Columbium minerals.] ------------------------------------------------------------------------- 1.867 SCHE

[See section 80-IA(2)(iv)(b)]

[See section 80-IA(2)(iv)(b)]

(1) Arunachal Pradesh

(2) Assam

(3) Goa

(4) Himachal Pradesh

(5) Jammu and Kashmir

(6) Manipur

(7) Meghalaya

(8) Mizoram

(9) Nagaland

(10) Sikkim

(11) Tripura

(12) Andaman and Nicobar Islands

(13) Dadra and Nagar Haveli

(14) Daman and Diu

(15) Lakshadweep

(16) Pondicherry.] ------------------------------------------------------------------------ 1 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. Earlier, the following Eighth Schedule, as inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f 1-4-1974 and amended by the Finance Act, 1976, w.e.f. 1-4-1976, was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.r.e.f. 1-4-1984: "Eighth Schedule (See section 80HH] List of backward areas' --------------------------------------------------------------------- Name of State or Union territory Backward areas ---------------------------------------------------------------------

(1) (2) --------------------------------------------------------------------- Andhra Pradesh The districts of Anantpur,Chittoor,Cuddapah, Karimnagar,Khammam,Kurnool,Mahbubnagar, Nizamabad, Ongole,Srikakulam and Warrangal. Assam The districts of Cachar, Goalpara, Kamrup, Lakhimpur, Mikir Hills, North Cachar Hills and Nowgong. Bihar The districts of Aurangabad, Begusarai,Bhagalpur, Bhojpur, Darbhanga, East Champaran, Gaya, Madhubani Monghyr, Muzzaffarpur,Nalanda, Nawadah, Palamau; Purnea, Saharsa, Samastipur, Santhal Parganas, Saran,Sitamarhi, Siwan, Vaishali and West Champaran. Gujarat The districts of Amreli, Banaskantha, Bharuch,Bhavangar, Junagadh, Kutch, Mahasana, Panch Mahals,Sabar Kantha and Surendranagar. -> -> 1.868 Haryana The districts of Bhiwani, Hissar, Jind and Mahendragarh. Himachal Pradesh The districts of Chamba, Hamirpur, Kangra, Kinnaur, Kulu, Lahaul and Spiti, Sirmour, Solan and Una. Jammu and Kashmir The districts of Anantnag, Baramula, Doda, Jammu, Kathua, Ladakh, Punch, Rajauri, Srinagar and Udhampur. Karnataka The districts of Belgaum, Bidar, Bijapur, Dharwar, Gulbarga, Hassan, Mysore, North Kanara, Raichur. Sourth Kanara and Tumkur. Kerala The districts of Alleppey, Cannanore, Malappuram, Trichur and Trivandrum. Madhya Pradesh The districts of Balaghat, Bastar, Betul, Bilaspur, Bhind, Chhatarpur, Chindwara, Damoh, Datia, Dewas, Dhar, Guna, Hoshangabad, Jhabua, Khargone, Mandla, Mandsaur, Morena, Narshimhapur, Panna, Raigarh, Raipur, Raisen, Rajgarh, Rajnandgaon, Ratlam, Rewa, Sagar, Sehore, Seoni, Shajapur, Shivpuri, Sidhi, Surguja, Tikkamgarh and Vidisha. Maharashtra The districts of Aurangabad, Bhandara, Bihar, Buldhana, Chandrapur, Dhulia, and Jalgaon; the district of Kolaba excluding such portion thereof as is comprised in the area designated as the site for the proposed new town of New Bombay by Notification No. RPB 1171-18124-IW, dated the 20th March, 1971,

issued under sub-section (1) of section 113 of the Maharashtra Regional and Town Planning Act, 1966 (Maharashtra Act 37 of 1966), by the Government of Maharashtra (Urban) Development, Public Health and Housing Department) as amended by Notification No. RPB 1173-I-RPC, dated the 16th August, 1973, issued by that Government; the districts of Nanded, Osmanabad, Parbhani, Ratnagiri and Yeotmal. Manipur The whole of the State. Meghalaya The districts of Garo Hills, Jaintia Hills and Khasi Hills. Nagaland The whole of the State. Orissa The districts of Balasore, Bolangir, Dhenkanal, Kalahandi, Keonjhar, Koraput, Mayurbhanj and Phulbani. Punjab The district of Bhatinda; so much of the district of Faridkot as formed part of the district of Bhatinda on the 31st day of July, 1972, the districts of Ferozepur, Gurdaspur, Hoshiarpur and Sangrur. Rajasthan The districts of Alwar, Banswara, Barmer, Bhilwara, Churu, Dongarpur, Jaisalmer, Jalor, Jhalawar, Jhunjhunu, Jodhpur, Nagaur, Sikar, Sirohi, Tonk and Udaipur. Sikkim The whole of the State. Tamil Nadu The districts of Dharmapuri, Kanyakumari, Madurai, North Arcot, Ramanathapuram, South Arcot, Thanjavur and Tiruchirapalli. Tripura The whole of the State. Uttar Pradesh The districts of Almora, Azamgarh, Baharaich, Ballia, Banda, Barabanki, Basti, Budaun, Bulandshar, Chamoli, Deorial Etah, Etawah, Faizabad, Farnikhabad, Fatehpur, Garhwal, Gazipur, Gonda, Hamirpur, Hardoi, Jalaun, Jaunpur,Jhansi, Mainpuri, Mathura, Moradabad, Pillibhit, Pithoragarh, Pratapgarh, Rai Bareli, Rampur, Shahjahanpur, Sitapur, Sultanpur, Tehri Garhwal, -> -> 1.869 ---------------------------------------------------------------------- -> -> Unnao and Uttarkashi. West Bengal The districts of Bankura, Birbhum, Burdwan, Cooch Behar, Darjeeling, Hooghly, Jalpaiguri, malda,Midnapore, Murshidabad, Nadia, Purulia and West Dinajpur. Andaman and Nicobar Islands The whole of the Union territory. Arunachal Pradesh The whole of theUnion territory. Dadra and Nagar Haveli The whole of the Union territory. Goa, Daman and Diu The whole of theUnion territory. Lakshadweep The whole of theUnion territory. Mizoram The whole of theUnion territory. Pondicherry The whole of theUnion territory. Explanation.-Save as otherwise expressly provided, reference to any district in this Schedule shall be construed,- (i) in the case of the districts of Aurangabad, Begusarai, Bhojpur, Gaya, Monghyr, Nalanda and Nawadah in the State of Bihar; the district of Ferozepur in the State of Punjab; and the district of Rampur in the State of Uttar Pradesh, as a reference to the areas comprised in the district concerned on the 15th day of March, 1976 being the date of introduction of the Finance Bill, 1976, in the House of the People; and (ii) in the case of any other district, as a reference to the areas comprised in that district on the 3rd day of September, 1973, being, the date of introduction of the Direct Taxes (Amendment) Bill, 1973, in the House of People." ---------------------------------------------------------------------- SCHE Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions),Act, 1986, w.e.f. 1-4-1988.] 1[THE NINTH SCHEDULE Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions), Act, 1986, w.e.f. 1-4-1988.] ----------------------------------------------------------------------- 1 Prior to the omission, the Ninth Schedule, as inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1975 and amended by the Finance Act, 1975, W.e.f. 1-4-1976; Finance Act, 1976, w.e.f. 1-4- 1976; Finance (No. 2) Act, 1977, w.e.f. 1-4-1978; Finance Act, 1981, w.e.f. 1-4-1982 and the Finance Act, 1984, w.e.f. 1-4-1985 read as under:

"[See section 32(1)(iv)] List of articles or things 1. Iron and steel (metal). 2. Non-ferrous metals. 3. Ferro-alloys and special steels. 4. Steel castings and forgings and alloy, malleable and SG iron castings. 5. Thermal and hydro-power generation equipment. 6. Transformers and switch gears. 7. Electric motors. 8. Industrial and agricultural machinery. 9. Earth-moving machinery. 10. Machine tools. 11. Fertilisers, namely, ammonium sulphate, ammonium sulphate nitrate (double salt), ammonium nitrate, calcium ammonium nitrate (nitrolime stone), ammonium chloride, superphosphate, urea and complex fertilisers of synthetic origin containing both nitrogen and phosphorus, such as ammonium phosphates, ammonium sulphate phosphate and ammonium nitmphosphate. 12. Soda ash. 13. Caustic soda. 14, Commercial vehicles. 15. Ships. 16. Aircraft. 17. Tyres and tubes. 18. Paper, pulp and newsprint. 19. Sugar. 20. Vegetable oils. 21. Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yam, hosiery and rope. 22. Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of jute, including jute twine and jute rope. 23. Cement and refractories. 24. Pesticides. 25. Carbon and graphite products. 26. Inorganic heavy chemicals (other than soda ash and caustic soda mentioned in items 12 and 13, respectively). 27. Organic heavy chemicals. 28. Synthetic rubber and rubber chemicals (including carbon black). 29. Industrial explosives. 30. Basic drugs. 31. Industrial sewing machines. 32. Finished leather and leather goods (including footwear made wholly or mainly of leather). 33. Electronic components and raw materials; computers and peripherals; communication equipment, process control, instrumentation, industrial and professional grade electronic equipment. Explanation.-The article specified in item 24 does not include any formulation of pesticides unless the formulation is prepared by the manufacturer, or producer of the basic pesticidal chemicals from which such formulation has been prepared." ----------------------------------------------------------------------- SCHE

[See section 3(5)]

[See section 3(5)]

YEAR COMMENCING ON THE 1ST APRIL, 1989, REFERRED TO IN SECTION 3(2), EXCEEDS TWELVE MONTHS 1. Definition.-In this Schedule, "transitional previous year" means the period reckoned as the previous year for the assessment year commencing on the 1st day of April, 1989, in the manner specified in

subsection (2) of section 3 and, in a case where 2[the first proviso or the third proviso] to that sub-section applies, the longer or, as the case may be, the longest of the periods reckoned in the manner laid down in 3[the said first proviso or, as the case may be, the said third proviso]. 2. Special provisions in a case where the transitional previous year is longer than twelve months.-In a case where the transitional previous year is longer than twelve months, the provisions of this Act and ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, the Tenth Schedule was inserted by the Finance Act, 1975, w.e.f. 1-4-1976 and omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Prior to the omission, the Tenth Schedule read as under-.

"[See section 40A(8)] List of institutions and bodies 1. The Industrial Finance Corporation of India, established under the Industrial Finance Corporation Act, 1948 (15 of 1948). 2. Financial Corporations or Joint Financial Corporations, established under the State Financial Corporations Act, 1951 (63 of 1951), and any institution deemed under section 46 of that Act to be a Financial Corporation established by the State Government for the State within the meaning of that Act. 3. The Shipping Development Fund Committee, constituted under section 15 of the Merchant Shipping Act, 1958 (44 of 1958). 4. The Unit Trust of India, established under the Unit Trust of India Act, 1963 (52 of 1963). 5. The Industrial Development Bank of India, established under the Industrial Development Bank of India Act, 1964 (18 of 1964). 6. State Electricity Boards, constituted under the Electricity (Supply) Act, 1948 (54 of 1948). 7. The Life Insurance Corporation of India, established under the Life Insurance Corporation Act, 1956 (31 of 1956). 8. The Rehabilitation Industries Corporation of India Limited. 9. The State Trading Corporation of India Limited. 10. The Minerals and Metals Trading Corporation of India Limited. 11. The Rural Electrification Corporation Limited. 12. The Agricultural Finance Corporation Limited. 13. The Industrial Reconstruction Corporation of India Limited. 14. The Industrial Credit and Investment Corporation of India Limited. 15. The National Industrial Development Corporation of India Limited. 16. The State Industrial and Investment Corporation of Maharashtra Limited". 2 Substituted for "the proviso' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 3 Substituted for 'the said proviso", ibid. ----------------------------------------------------------------------- 1.872 the Finance Act of the relevant year shall apply subject to the modifications specified in rules 3, 4, 5 and 6 of this Schedule. 3. Modifications pertaining to monetary limits, etc.-The

provisions of this Act, specified in column (1) of the Table below shall be subject to the modification that the reference therein to the

amount or amounts specified in the corresponding entry in column (2) of the said Table, shall be construed as a reference to the said amount or amounts as increased by multiplying each such amount by a fraction of which the numerator is the number of months in the transitional previous year and the denominator is twelve: Provided that for the purposes of this rule and rules 5 and 6, where the transitional previous year includes a part of a month, then, if such part is fifteen days or more, it shall be increased to one complete month and if such part is less than fifteen days, it shall be ignored: 1[Provided further that the amount of ten thousand rupees,

specified in column (2) of the said Table against sub-section (2) of section 48, shall be increased during the transitional previous year only where the long-term capital gain arises as a result of two or more transfers of long-term capital assets and at least one of the said transfers is made during the initial period of twelve months comprised within the transitional previous year and the remaining transfer or transfers is or are made during the period beyond the said period of twelve months comprised within the transitional previous year: Provided also that where more than one period in respect of different sources of income are included in the transitional previous

year under the first proviso or the third proviso to sub-section (2)

of section 3, then the amount or amounts specified in column (2) of the said Table shall be increased to such extent and in such manner as the Board may, having regard to,- (a) length of the period or periods included in the transitional previous year in respect of different sources of income; (b) length of the transitional previous year; and (c) other relevant factors; prescribe in this behalf.] 2[TABLE ----------------------------------------------------------------------- Provision of the Act Amount -----------------------------------------------------------------------

(1) (2) ----------------------------------------------------------------------- Rs.

Section 10(3) 5,000 Section 12A(b) 25,000

Section 13(2)(g) 1,000 Section 16(i) 12,000 ----------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted, ibid. ----------------------------------------------------------------------- 1.873 -----------------------------------------------------------------------

(1) (2) ----------------------------------------------------------------------- Section 16(i), proviso 1,000 Section 16(ii) 5,000 and 7,500

Section 23(1)(d)(ii) 3,600

Section 24(2), proviso 5,000

Section 33A(7), proviso 40,000, 35,000 and 30,000 Section 35A 1/14th of the amount of capital expenditure Section 35AB 1/6th or 1/3rd of the amount paid as lump sum consideration. Section 35D 1/10th of the amount of certain preliminary expenses. Section 37(2A) 5,000 and 50,000

Section 40A(12) 10,000

Section 44AA(2)(i) and (ii)25,000 and 2,50,000 Section 44AB 40,00,000 and 10,00,000

Section 48(2) 10,000

Section 80C(1) 6,000, 9,000 and 12,000

Section 80C(3) 1/10th of the actual capital sum assured

Section 80C(4) 60,000 and 40,000

Section 80C(7)(c) 10,000

Section 80CC(2) 20,000

Section 80CCA(1) 30,000

Section 80D(1) 3,000

Section 80L(1) 7,000 (occurring in two places)

Section 80L(1),1st proviso 3,000

Section 80L(1), 2nd proviso 3,000

Section 80P(2)(c) 40,000 and 20,000

Section 80P(2)(f) 20,000 Section 80U 15,000

Section 139A(2) 50,000] ----------------------------------------------------------------------- 1[4. Modification in section 6.-Where the transitional previous year comprises a period of eighteen months or more, then sub-section

(1) of section 6 shall be subject to the modification that references therein to the periods of one hundred and eighty-two days, ninety days and sixty days shall be construed as references, respectively, to the periods of two hundred and seventy-three days, one hundred and thirty- five days and ninety days. 5. Modification in respect of depreciation allowance.-Where the assessee's income under the head "Profits and gains of business or profession" or under the head "Income from other sources" for a period of thirteen months or more is included in his total income for the transitional previous year, the allowance under clause (ii) of sub-

section (1) of section 32 or, as the case may be, under clause (ii) of section 57 in respect of depreciation on block of assets calculated in

the manner stated in clause (ii) of sub-section (1) of section 32, shall be increased by multiplying it by a fraction of which the numerator is the number of months in the transitional previous year and the denominator is twelve: ---------------------------------------------------------------------- 1 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ---------------------------------------------------------------------- 1.874 Provided that where more than one period in respect of income under the head "Profits and gains of business or profession" or under the head "Income from, other sources" are included in the transitional previous year under the first proviso or the third proviso to sub-

section (2) of section 3, the allowance in respect of depreciation on block of assets shall be calculated separately for each such period included in the transitional previous year in the manner stated in

clause (ii) of sub-section (1) of section 32 and increased, where necessary, by multiplying it by a fraction of which the numerator is the number of months in such period (after excluding the number of months relatable to the period in relation to 'which depreciation on block of assets has been allowed or is allowable in the previous year relevant to the assessment year commencing on the 1st day of April, 1988) and the denominator is twelve.] 6. Modification in respect of rate of tax.-The tax chargeable on the total income of the transitional previous year shall be calculated at the average rate of tax on the amount obtained by multiplying such total income by a fraction of which the numerator is twelve and the denominator is the number of months in the transitional previous year, as if the resultant amount were the total income: 1[ Provided that where more than one period in respect of different sources of income are included in the transitional previous

year under the first proviso or the third proviso to sub-section (2) of section 3, then the tax shall be chargeable at the average rate of tax, calculated in accordance with the provisions of this rule, on the total income of the transitional previous year after excluding from such total income the income relatable to any such period or periods which has already been included or is includible in the total income of the previous year or previous years relevant to the assessment year commencing on the 1st day of April, 1988.] 7. Power of Board to grant relief in case of hardship.-The Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship, by general or special order, grant appropriate relief in any case or class of cases where the transitional previous year is longer than twelve months.] ---------------------------------------------------------------------- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-

SCHE

2[See section 32A , 3 [section 32AB,] section 80CC(3)(a)(i), section

80-I(2)] 4[, section 80J(4) and section 88A(3)(a)(i)] 1[THE ELEVENTH SCHEDULE

2[See section 32A , 3 [section 32AB,] section 80CC(3)(a)(i), section

80-I(2)] 4[, section 80J(4) and section 88A(3)(a)(i)] LIST OF ARTICLES OR THINGS 1. Beer, wine and other alcoholic spirits. 2. Tobacco and tobacco preparations, such as, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff. 3. Cosmetics and toilet preparations. 4. Tooth paste, dental cream, tooth powder and soap. 5. Aerated waters in the manufacture of which blended flavouring concentrates in any form are used. 6[Explanation.-"Blended flavouring concentrates" shall include, and shall be deemed always to have included, synthetic essences in any form.] 6. Confectionery and chocolates. 7. Gramophones, including record-players and gramophone records. 6 [8. * * *] 7[9. Projectors] 10. Photographic apparatus and goods. 8[ 11 -21 . * * *] 22. Office machines and apparatus such as type writers,calculating machines, cash registering machines, cheque writing machines, intercom machines and teleprinters. Explanation.-The expression "office machines and apparatus" includes all machines and apparatus used in offices, shops, factories, workshops, educational institutions, railway stations, hotels and restaurants for doing office work 9[and for data processing (not being computers within the meaning of section 32AB)]. 23. Steel furniture, whether made partly or wholly of steel. ----------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

2 Substituted for "[See section 32A and section 80J(4)]" by the Finance Act, 1981, w.e.f. 1-4-1981. 3 Inserted by the Finance Act, 1986, w.e.f. 1-4-1987.

4 Substituted for 'and section 80J(4)" by the Finance Act, 1990, w.e.f. 1-4-1990. Earlier, these words were inserted by the Finance Act, 1979, w.e.f. 1-4-1979. 5 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 6 Omitted by the Finance Act, 1981, w.e.f. 1-4-1982. 7 Substituted for "9. Cinematograph films and projectors' by the Finance Act, 1988, w.e.f. 1-4-1989. 8 Omitted by the Finance Act, 1981, w.e.f. 1-4-1982. 9 Substituted for ", for data processing and for transmission and reception of messages' by the Finance Act, 1987, w.e.f. 1-4-1988. ----------------------------------------------------------------------- 1.876 24. Safes, strong boxes, cash and deed boxes and strong room doors. 25. Latex foam sponge and polyurethane foam. 1[26. * * *] 27. Crown corks, or other fittings of cork rubber, polyethylene or any other material. 28. Pilfer-proof caps for packaging or other fittings of cork, rubber, polyethylene or any other material. 2 [29. * * *]] ---------------------------------------------------------------------- 1 Omitted by the Finance Act', 1981, w.e.f. 1-4-1982. 2 Ibid. ---------------------------------------------------------------------- SCHE

[See section 80HHC(2)(b)(ii)]

[See section 80HHC(2)(b)(ii)]

(1) Pulverized or micronised barytes, calcite, steatite, pyrophylite, wollastonite, zircon, bentonite, red or yellow oxide, red or yellow ochre, talc, quartz, felspar, silica powder, garnet, silliminite, fireclay, ballclay, manganese dioxide ore. (ii). Processed or activated bentonite, diatomious earth, fuller's earth. (iii) Processed kaolin (china, clay), whiting, calcium carbonate. (iv) Beneficated chromite, fluorspar, graphite, vermiculite, ilminite, brown ilminite (lencoxene) rutile, monazite and other mineral concentrates. (v) Mica blocks, mica splittings, mica condenser films, mica powdermica, note, silvered mica, punched mica, mica paper, mica tapes, mica flakes. --------------------------------------------------------------------- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. Earlier, the Twelfth Schedule, as inserted by the Finance Act, 1982, w.e.f. 1-4-1983 and omitted by the Finance Act, 1986, w.e.f. 1-4-1987, read as under: "[See section 80T(b)] The deduction in respect of the long-term capital gains referred to in section 80T shall be allowed on the basis indicated hereunder, namely:- ---------------------------------------------------------------------- Rate as percentage of the amount with reference to which the deduction is to be calculated under section 80T ----------------------------------------------------------------------

(1) (2) (3) ---------------------------------------------------------------------- Where the capitalWhere the capital gains relate togains relate to any buildings or landsother capital or any rights thereinassets --------------------------------------------------------------------- Where the capital asset has been held by the assessee for- more than three years but not more than five years 25 40 ; more than five years but not more than ten years 28 45 ; more than ten years but not more than fifteen years 33 50 ; more than fifteen years but not more than twenty years 37 55 ; more than twenty years 40 60 ." --------------------------------------------------------------------- 1.878 (vi) Exfoliated vermiculite, calcined kyanite, magnesite, calcined magnesite, calcined alumina. (vii) Sized iron ore processed by mechanical screening or crushing and screening through dry process or mechanical crushing, screening, washing and classification through wet process. (viii) Iron ore concentrates processed through crushing, grinding or magnetic separation. (ix) Agglomerated iron ore. (x) Cut and polished minerals and rocks including cut and polished granite. Explanation.-For the, purposes of this Schedule, "processed",in relation to any mineral or ore, means- (a) dressing through mechanical means to obtain concentrates after removal of gangue and unwanted deleterious substances or through other means without altering the mineralogical identity; (b) pulverisation, calcination or micronisation; (c) agglomeration from fines; (d) cutting and polishing; (e) washing and levigation; benefication by mechanical crushing and screening through dry process; (g) sizing by crushing, screening, washing and classification through wet process; (h) other upgrading techniques such as removal of impurities through chemical treatment, refining by gravity separation, bleaching, floatation or filtration.]