THE INCOME-TAX ACT, 1995 ACT NO. 43 OF 1961 [date 13-9-1961] (Received the assent of the President on 13-9-1961) An Act to consolidate and amend the law relating to income-tax 1[andsuper-tax] BE it enacted by Parliament in the Twelfth Year of the Republic of India as follows:- CHAP PRELIMINARY. CHAPTER I PRELIMINARY 1. 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. 2. 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- 1988. 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- 1962. 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- 1988. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4- 1976. 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- 1962. 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.] 3. "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 4. 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. 5. 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.] 6. 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- 1979. 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. 7. 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. 8. 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.] 9. 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 10. 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- 1971. 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- 1982. 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- 1975. 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- 1971. 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- 1973. 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- 1988. 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] months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement 6[whether] on superannuation or otherwise, 7[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 such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this sub-clause 9[shall not exceed the limit so specified]: ---------------------------------------------------------------------- 1 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989. Prior to the omission, the proviso read as under: "Provided that the maximum limit of payment specified in sub- clause (ii)(a) or subclause (ii)(b) shall not apply in respect of any such payment made before the 19th day of August, 1965;" 2 Inserted by the Finance Act, 1982, w.r.e.f. 1-4-1978. 3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 4 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 5 Substituted for 'six' by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. 6 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 7 Substituted for 'or thirty thousand rupees, whichever is less' by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. 9 Substituted for shall not exceed thirty thousand rupees' by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. ----------------------------------------------------------------------- 1.87 Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this sub-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.-For the purposes of sub-clause (ii),- 3[* * *] the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired; 4[* * *] 5[(10B) any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise , 6 [at the time of his retrenchment: Provided that the amount exempt under this clause shall not exceed- (i) an amount calculated in accordance with the provisions of clause (b)of section 25F of the Industrial Disputes Act, 19477 (14 of 1947); or --------------------------------------------------------------------- 1 Substituted for 'shall not exceed thirty thousand rupees' by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. 2 Omitted, ibid. Prior to the omission, the third and fourth provisos, as amended by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978, 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 thousand rupees, for all the three purposes for which it has been mentioned in the foregoing provisions of this sub-clause, up to such maximum amount: Provided also that in relation to an employee retiring whether on superannuation or otherwise before the 1st day of January, 1982, the proviso immediately preceding this proviso shall not apply and the remaining provisions of this sub-clause shall have effect as if for the words "thirty thousand rupees", at the three places where they occur, the words "twenty-five thousand five hundred rupees" had been substituted.' 3 "(i)" omitted by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. 4 Omitted, ibid. Prior to the omission, clause (ii) read as under: "(ii) 'salary' shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;" 5 Inserted by the Finance Act, 1975, w.e.f. 1-4-1976. 6 Substituted for the following by the Finance Act, 1985, w.e.f. 1- 4-1986: "at the time of his retrenchment, to the extent such compensation does not exceed- (i) an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947); or (ii) twenty thousand rupees, whichever is less." ----------------------------------------------------------------------- 1.88 1[(ii) such amount, not being less than fifty thousand rupees, as the Central Government may, by notification in the Official Gazette, specify in this behalf,] whichever is less: Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such scheme applies and other relevant circumstances, approve in this behalf.) Explanation.-For the purposes of this clause- (a) compensation received by a workman at the time of the closing down of the undertaking in which he is employed shall be deemed to be compensation received at the time of his retrenchment; (b) compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, shall be deemed to be compensation received at the time of his retrenchment if- (i)the service of the workman has been interrupted by such transfer; or (ii)the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer; or (iii)the new employer, is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer; (c) the expressions "employer" and "workman" shall have the same meanings as in the Industrial Disputes Act, 1947 2 (14 of 1947);] 3[(10BB) any payments made under the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 (21 of 1985) and any scheme framed thereunder except payment made to any assessee in connection with the Bhopal gas leak disaster to the extent such assessee has been allowed a deduction under this Act on account of any loss or damage caused to him by such disaster;] ---------------------------------------------------------------------- 1. 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) fifty thousand rupees," 3 Inserted by the Finance Act, 1992, w.e.f. 14-1992. --------------------------------------------------------------------- 1.89 1[(10C) any amount received by an employee of- (i)a public sector company; or (ii)any other company; or (iii)an authority established under a Central, State or Provincial Act; or (iv)a local authority; 2[or] 3[(v) a co-operative society,- or (vi) a 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 4 (3 of 1956); or (vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 5 (59 of 1961); or (viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify6 in this behalf,] at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement, to the extent such amount does not exceed five lakh rupees: Provided that the schemes of the said companies or authorities 7 [or societies or Universities or the Institutes referred to in sub- clauses (vii) and (viii)], as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of ---------------------------------------------------------------------- 1 Substituted by the Finance Act, 1993, w.e.f. 1-4-1993. Prior to the substitution, clause (10C), as inserted by the Finance Act, 1987, w.e.f. 1-4-1987, read as under: "(10C) any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant circumstances, approve in this behalf;" The following clause (10C) was substituted by the Finance Act, 1992, w.e.f. 1-4-1993 but it has been substituted again, as above, without coming into operation: "(10C) any amount received by an employee of a public sector company or of any other company at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement: Provided that the schemes of the said companies governing the payment of such amount are framed in accordance with such guidelines as may be prescribed for the public sector companies or for other companies and such guidelines may, inter alia, include criteria of economic viability and such schemes in relation to companies (other than public sector companies) are approved by the Chief Commissioner or, as the case may be, Director-General in this behalf;" 2 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 3 Ibid. 6 The Indian Institutes of Management at Ahmedabad, Bangalore, Calcutta and Lucknow have been notified. 7 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ----------------------------------------------------------------------- 1.90 economic viability) as may be prescribed' and such schemes in relation to companies, referred to in sub-clause (ii) 2 [or co-operative societies referred to in sub-clause (v)] are approved by the Chief Commissioner or, as the case may be, Director-General in this behalf: Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year;] 3[(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy 4 [other than any sum 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- 1964. ---------------------------------------------------------------------- 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- 1973. 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- 1973. 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- 1983. 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- 1989. 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- 1986. 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- 1976. 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- 1962. 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- 1962. ---------------------------------------------------------------------- 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, 1962. 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 11. 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- 1976. 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- 1976. 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. 12. 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 13. 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- 1977. 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 288. ---------------------------------------------------------------------- 1 Inserted by the Taxation Laws (Amendment) Act, 1978, w.e.f. 1-4- 1979. 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 14. 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 15. 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 16. 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- 1994. 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) * * *] (ii) Where any motor car, motor cycle, scooter or other moped is provided to the assessee by his employer for use by the assessee, otherwise than wholly and exclusively in the performance of his duties; or (iii)where one or more motor cars are owned or hired by the employer of the assessee and the assessee is allowed the use of such motor car or all or any of such motor cars, otherwise than wholly and exclusively in the performance of his duties, ---------------------------------------------------------------------- 1.141 whose total income before making any deduction under this clause does not exceed seventy-five thousand rupees, the provisions of this clause shall have effect as if for the words "1[fifteen] thousand rupees", the words "2[eighteen] thousand rupees" had been substituted.] 3[Explanation 4[* * *].-For the removal of doubts, it is hereby declared that where, in the case of an assessee, salary is due from, or paid or allowed by, more than one employer, the deduction under this clause shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and shall in no case exceed the amount specified under this clause;] 5[* * *] (ii) 6[a deduction] in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer- (a) in the case of an assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less; and (b) in the case of any other assessee who is in receipt of such entertainment allowance and has been continuously in receipt of such entertainment allowance regularly from his present employer from a date before the 1st day of April, 1955, the amount of such entertainment allowance regularly received by the assessee from his present employer in any previous year ending before the 1st day of April, 1955, or a sum equal to one fifth of his salary (exclusive of any allowance, benefit or other perquisite) or seven thousand five hundred rupees, whichever is the least; 7[(iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (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- 1982. 1 Substituted for "twelve" by the Finance Act, 1993, w.e.f. 1-4- 1994. 2 Substituted for 'fifteen' by the Finance Act, 1993, w.e.f. 1-4- 1994. 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) * * *] 17. "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 18. 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. 19. 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. 20. 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. 21. 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 22. 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". 23. 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- 1976. 3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4- 1985. 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.] 24. 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- 1995. ---------------------------------------------------------------------- 1.155 25. 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.] 26. 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- 1976. ---------------------------------------------------------------------- 1.156 27. "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 28. 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 29. 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]. 30. 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. 31. 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. 32. 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- 1991. 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- 1989. ------------------------------------------------------------------------ 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- 1976. 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 as proposed to be computed by him and the total income as returned by the assessee arises out of the application of the proviso to sub- 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- 1991. 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- 1987. ----------------------------------------------------------------------- 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- 1991. 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.] 33. 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- 1966. 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.] 34. 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.] 35. 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- 1974. ----------------------------------------------------------------------- 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- 1989. ----------------------------------------------------------------------- 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- 1974. 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) * * *] (ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed. Explanation 1.-In this section, "domestic company" shall have the 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- 1971. ------------------------------------------------------------------------ 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- 1971. ----------------------------------------------------------------------- 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 36. 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- 1987. 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- 1975. 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] 9. Expenditure on training of apprentices.-In view of the statutory obligation cast on the employers under the provisions of the Apprentices Act recurring expenses incurred in imparting of the basic training to the apprentices will be allowable as a deduction. 10. Rebate on purchases.-Rebate or bonus which is in the nature of deferred discount passed on by the consumer co-operative stores to their members on the value of the purchases made by them during an year should be allowed as a deduction in computing the business income of such societies. 11. Provision for gratuity.-Provision made by an assessee in its accounts on account of the estimated service gratuity payable to the 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). 38. 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. 39. 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 40. 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 income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- 5[(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B: Provided that where in respect of any such sum, tax has been paid or deducted under Chapter XVII-B in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid or deducted. Explanation.-For the purposes of this sub-clause,- (A) "royalty" shall have the same meaning as in 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] of each employee entitled to the payment of such gratuity for each year of his service in respect of which such provision is made. Explanation 2.-For the removal of doubts, it is hereby declared that where 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 been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid.] 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.] 41. 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- 1989. ----------------------------------------------------------------------- 1.252 42. 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.] _ 43. 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.] 44. 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- 1976. 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]." 45. 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- 1993. 5 The figure "54C" omitted by the Finance Act, 1976, w.e.f. 1-4- 1976. 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. 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. 47. 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.] 48. 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- 1985. 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." 49. 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- 1976. 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- 1976. 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.] 50. 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- 1985. 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.] 51. 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. 52. 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.] 53. 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 54. 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. 55. 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- 1973. 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 56. 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] 2. Interest on cumulative deposit schemes of private sector undertakings should be taxed on accrual basis only. [Circular No. 409, dated 12th February, 1985] 3. Interest on cumulative deposit schemes of government undertakings should be taxed only on accrual basis. [Circular No. 371, dated 21st November, 1983] 57. 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] 58. 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.] 59. 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 60. 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. 61. 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. 62. 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. 63. "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 64. 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- 1971. 4 Prior to the omission, clause (i), as substituted by the Taxation 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- 1985. 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- 1971. ---------------------------------------------------------------------- 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.] 65. 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 levied on the assessee which is attributable to the income so included, and the provisions of Chapter XVII-D shall, so far as may be, apply accordingly: Provided that where any such asset is held jointly by more than one person, they shall be jointly and severally liable to pay the tax which is attributable to the income from the assets so included. ---------------------------------------------------------------------- 1 Inserted by the Finance Act, 1979, 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. ----------------------------------------------------------------------- CHAP AGGREGATION OF INCOME AND SET OFF OR CARRYFORWARD OF LOSS CHAPTER VI AGGREGATION OF INCOME AND SET OFF OR CARRY FORWARD OF LOSS Aggregation of income 66. 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[* * *]. 67. 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- 1964. 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.] 68. 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. 69. 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 70. 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- 1976. 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- 1977. 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.] 71. 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.] 72. 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. 73. 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.] 74. 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- 1977. 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.] 75. 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. 79. 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.] 80. 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- 1985. 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- 1976. 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- 1976. 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- 1978. 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- 1991. 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- 1993. 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) * * *] ----------------------------------------------------------------------- 1.357 there shall be deducted, in accordance with and subject to the provisions of' this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of repayment of' loan, taken by him from any financial institution or any approved charitable institution for the purpose of' pursuing his higher education, or interest on such loan: Provided that the amount which may be so deducted shall not exceed twenty-five thousand rupees. (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- 1989. 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- 1975. 10 Inserted by the Income-tax (Amendment) Act, 1989, w.e.f. 24-1- 1989. ------------------------------------------------------------------------ 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 pur