[AS AMENDED BY FINANCE ACT, 2003] An Act to consolidate and amend the law relating to income-tax and super-tax BE it enacted by Parliament in the Twelfth Year of the Republic of India as follows :

 

CHAPTER 1 PRELIMINARY

 

Section 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.

 

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

 

Section 2 Definitions

 

1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[(1) "advance tax" means the advance tax payable in accordance with the provisions of Chapter XVII-C;]

 

2 Renumbered as clause (1A) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[(1A)] 3 For manner of computation of income which is partially agricultural and partially frombusiness, see rules 7, 7A, 7B and 8. For analysis, see Mashbra’s Income-tax Rules."agricultural income" means -

 

4 Substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962.[(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 land10 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

(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:

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 notification in the Official Gazette.]

5 Inserted by the Finance Act, 1989, w.r.e.f. 1-4-1970.[6 Explanation renumbered as Explanation 1 by the Finance Act, 2000, w.e.f. 1-4-2001.[Explanation 1.]-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;]

7 Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.[Explanation 2.-For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income;]

8 Inserted by the Finance Act 2008 w.e.f. 1st day of April, 2009.[Explanation 3.--For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income;]

  

9 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.[10 Renumbered as clause (1B) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[(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 11 Substituted for "nine-tenths" by the Finance Act, 1999, w.e.f. 1-4-2000.[three-fourths] 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;]

 

12 Inserted by the Finance Act, 2007, w.r.e.f. 01.06.1994.[(1C) "Additional Commissioner" means a person appointed to be an Additional Commissioner of Income-tax under sub-section (1) of section 117;

 

(1D) "Additional Director" means a person appointed to be an Additional Director of Income-tax under sub-section (1) of section 117;]

 

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

(3)13 Clause (3) omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[* * *]

(4) "Appellate Tribunal" means the Appellate Tribunal constituted under section 252;

(5) "approved gratuity fund" means a gratuity fund which has been and continues to be approved by the 11[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 14 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[Chief Commissioner or Commissioner] in accordance with the rules contained in Part B of the Fourth Schedule;

(7) "assessee" means a person by whom 15 Substituted for "income-tax or super-tax" by the Finance Act, 1965, w.e.f. 1-4-1965.[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 16 Substituted for "assessment of his income" the Finance Act, 2005, w.e.f. 1-4-2006.[assessment of his income or assessment of fringe benefits] 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;

 

17 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[(7A) "Assessing Officer" means the Assistant Commissioner 18 Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.[or Deputy Commissioner] 19 Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.[or Assistant Director] 20 Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.[or Deputy Director] 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 21 Inserted by the Finance Act, 2007, w.r.e.f. 01.06.1994.[Additional Commissioner or] 22 Inserted by the Finance Act, 2007, w.r.e.f. 01.10.1996.[Additional Director or] 23 Substituted for "Deputy Commissioner or Deputy Director" by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998. Earlier "or Deputy Director" was inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.[Joint Commissioner or Joint Director] 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;

24 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[(9A) "Assistant Commissioner" means a person appointed to be an Assistant Commissioner of Income-tax [or a Deputy Commissioner of Income-tax] under sub-section (1) of section 117;]

25 Inserted by the Finance Act, 2007, w.r.e.f. 01.04.1988[(9B) "Assistant Director" means a person appointed to be an Assistant Director 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;

26 Substituted by the Finance (No. 2) Act, 1998 w.e.f. 1-4-1999. Prior to its substitution, clause (11), as inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988, read as under : '(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 ;' Original clause was earlier omitted by the Finance Act, 1965, w.e.f. 1-4-1965.[(11)"block of assets" means a group of assets falling within a class of assets comprising-

(a) tangible assets, being buildings, machinery, plant or furniture;

(b) intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed;]

 

(12) "Board" means the 27 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.[Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963)];

28 Inserted by the Finance Act, 2001, w.e.f. 1-6-2001.[(12A) "books or books of account" includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device;]

(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;

29 The following shall be substituted by the Finance Act, 2007, w.e.f. 01.04.2008. "(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes- (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. 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 semi-precious 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;"[30 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973.[(ii) 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 semi-precious 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;]]

 

31 Substituted for "(iii) agricultural land in India" by the Finance Act, 1970, w.e.f. 1-4-1970.[(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

(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;]

 

32 Inserted by the Taxation Laws (Amendment) Act, 1962, w.e.f. 13-12-1962.[(iv) 61/2 per cent Gold Bonds, 1977,33 Inserted by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965.[or 7 per cent Gold Bonds, 1980,] 34 Inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965.[or National Defence Gold Bonds, 1980,] issued by the Central Government;]

35 Inserted by the Special Bearer Bonds (Immunities and Exemptions) Act, 1981, w.e.f. 12-1-1981.[(v) Special Bearer Bonds, 1991, issued by the Central Government;]

36 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government;]

 

37 Substituted by the Finance Act 2008 w.e.f. 1st day of April, 2009 for the following :-"(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility "[(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;]

 

38 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[(15A) "Chief Commissioner" means a person appointed to be a Chief Commissioner of Income-tax under sub-section (1) of section 117;]

39 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.[40 Renumbered by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[(15B)] "child", in relation to an individual, includes a step-child and an adopted child of that individual;]

41 Substituted by the Finance Act, 1970, w.e.f. 1-4-1970.[(16)"Commissioner" means a person appointed to be a Commissioner of Income-tax under sub-section (1) of section 117 42 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.[* * *];]

43 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978.[(16A)"Commissioner (Appeals)" means a person appointed to be a Commissioner of Income-tax (Appeals) under sub-section (1) of section 117;]

44 Substituted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.[(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;]

 

 (18) "company in which the public are substantially interested"-a company is said to be a company in which the public are substantially interested-

45 Substituted by the Finance Act, 1964, w.e.f. 1-4-1964.[(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]

46 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.[(aa) if it is a company which is registered under section 25 of the Companies Act, 1956 (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]

 

47 Inserted by the Finance Act, 1985, w.r.e.f. 1-4-1984.[(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, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society; or]

48 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.[(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;]

49 Substituted by the Finance Act, 1969, w.e.f. 1-4-1970. Earlier, clause (b) was amended first by the Finance Act, 1965, w.e.f. 1-4-1965 and then by the Finance Act, 1966, w.e.f. 1-4-1966.[(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (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 accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made there under;

50 Substituted by the Finance Act, 1983, w.e.f. 2-4-1983.[(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 51 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.[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 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies;

52 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[(19A) "Deputy Commissioner" means a person appointed to be a Deputy Commissioner of Income-tax 53 Words "or an Additional Commissioner of Income-tax" omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998. Earlier the quoted words were inserted by the Finance Act, 1994, w.e.f. 1-6-1994.[* * *] under sub-section (1) of section 117;

54 Clauses (19AA) and (19AAA) inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[(19AA) "demerger", in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that-

(i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger;

(ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger;

(iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger;

(iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis;

(v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, 55 Should appear before Explanation 1.[otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company;]

(vi) the transfer of the undertaking is on a going concern basis;

(vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf.

Explanation 1.-For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity.

Explanation 2.-For the purposes of this clause, the liabilities referred to in sub-clause (ii), shall include-

(a) the liabilities which arise out of the activities or operations of the undertaking;

 

(b) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or operations of the undertaking; and

 

(c) in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of general or multipurpose borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger.

 

 Explanation 3.-For determining the value of the property referred to in sub-clause (iii), any change in the value of assets consequent to their revaluation shall be ignored.

Explanation 4.-For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils 56 Substituted for "the conditions specified in sub-clauses (i) to (vii) of this clause, to the extent applicable" by the Finance Act, 2000, w.e.f. 1-4-2000.[such conditions as may be notified in the Official Gazette, by the Central Government];

 

 (19AAA) "demerged company" means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company;]

(19B) "Deputy Commissioner (Appeals)" means a person appointed to be a Deputy Commissioner of Income-tax (Appeals) 48[or an Additional Commissioner of Income-tax (Appeals)] under sub-section (1) of section 117;]

57 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.[(19C) "Deputy Director" means a person appointed to be a Deputy Director of Income-tax 58 Words "or an Additional Director of Income-tax" omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.[* * *] under sub-section (1) of section 117;]

(20) "director", "manager" and "managing agent", in relation to a company, have the meanings respectively assigned to them in the Companies Act, 1956 (1 of 1956);

59 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[(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 60 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.[an Additional Director of Income-tax or] a 61 Substituted for "Deputy" by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.[Joint] Director of Income-tax or an Assistant Director 62 Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.[or Deputy Director] of Income-tax;]

(22) "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 profits87 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) 63 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.[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 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;

64 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.[(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, 65 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.[and before the 1st day of April, 1965];]

(ii) any advance or loan made to a shareholder 66 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.[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;

67 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956);

(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).]

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 sub-clause (c) shall include all profits of the company up to the date of liquidation, 68 Inserted by the Direct Taxes (Amendment) Act, 1964, w.r.e.f. 1-4-1962.[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].

69 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.[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;]

 

 70 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[(22A) "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;]

71 Inserted by the Finance Act, 2001, w.e.f. 1-6-2001.[(22AA) "document" includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);]

72 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.[73 Renumbered as clause (22B) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[(22B)] "fair market value", in relation to a capital asset, means-

(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date; and

(ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act;]

 

(23) "firm", "partner" and "partnership" have the meanings respectively assigned to them in the Indian Partnership Act74 Definitions of "firm", "partner" and "partnership" defined in section 4 of the Partnership Act, 1932, which stood as under : "partnership" is the relation between persons who have agreed to share the profits of abusiness carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually "partners"and collectively "a firm", and the name under which their business is carred on is called in"firm name".’, 1932 (9 of 1932); but the expression "partner" shall also include any person who, being a minor, has been admitted to the benefits of partnership;

75 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[(23A)"foreign company" means a company which is not a domestic company;]

76 Clause (23B) inserted after clause (23A) of section 2 by the Finance Act, 2005, w.e.f. 1-4-2006[(23B) "fringe benefits" means any fringe benefits referred to in section 115WB;

(24) "income" includes-

(i) profits and gains;

 

(ii) dividend;

77 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.[(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 78 See Legal Summary on clause (42A).[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 sub-clause (iv) or sub-clause (v) 79 Substituted by the Finance Act, 2006, w.e.f. 01.04.2007. After substitution, it shall read as under: "or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via)" [80 Inserted by the Finance Act, 2006, w.r.e.f. 01.04.1999.[or by any university or other educational institution referred to in sub-clause (vi) or by any hospital or other institution referred to in sub-clause (via)]]of clause (23C) of section 10].

Explanation-For the purposes of this sub-clause, "trust" includes any other legal obligation;]

 

(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17;

81 Now State of Goa.[(iiia) any special allowance 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;

82 Shall be inserted by Finance Act, 2007, w.e.f. 01.04.2008.[(iva) the value of any benefit or perquisite10, 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;

83 For guidelines for notification of zero coupon bond, se rule 8B. Application is to be made in Form No. 5B.[(va) any sum chargeable to income-tax under clause (iiia) of section 28;]

84 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1967.[(vb) any sum chargeable to income-tax under clause (iiib) of section 28;]

85 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972.[(vc) any sum chargeable to income-tax under clause (iiic) of section 28;]

86 Relettered by the Finance Act, 1990, w.r.e.f. 1-4-1962. Earlier the original sub-clause (va) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964.[(vd)] the value of any benefit or perquisite taxable under clause (iv) of section 28;

87 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.[(ve) any sum chargeable to income-tax under clause (v) of section 28;]

(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;

88 Inserted by the Finance Act, 2006, w.e.f. 01.04.2007. [(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;]

(viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub-clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;]

 

89 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.[(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.]

90 Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.[Explanation.-For the purposes of this sub-clause,-

(i) "lottery" includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;

 

(ii) "card game and other game of any sort" includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game;]

 

 91 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.[(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;]

92 Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996. [(xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation.-For the purposes of this clause*, the expression "Keyman insurance policy" shall have the meaning assigned to it in the Explanation to clause (10D) of section 10;]

93 Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.[(xii) any sum referred to in 94 Substituted for "clause (vii)" by the Finance Act, 2003, w.e.f. 1-4-2003.[clause (va)] of section 28;]

95 Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005.[(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;]

96 Inserted by the Finance Act, 2007, w.e.f. 01.04.2007.[(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;]

 

(25) "Income-tax Officer" means a person appointed to be an Income-tax Officer under 97 Words "sub-section (1) of" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. Earlier, that expression was inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.[* * *] section 117;

98 Substituted by the Finance Act, 2007, w.r.e.f. 25.08.1976. Prior to substitution, it read as under:- "83(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;"[(25A) "India" means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976(80 of 1976), and the air space above its territory and territorial waters;]

 

(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 [and the Union territories specified in sub-clause (iii) of this clause]);

99 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.[(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;

100 Inserted by the Taxation Laws (Extension to Union Territories) Regulation, 1963, w.e.f. 1-4-1963.[(iii) in the case of any of the Union territories of Dadra and Nagar 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 101 Substituted for "registered office of the company" by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.[registered or, as the case may be, principal office of the company, corporation, institution, association or body] in all cases is in India;

 

102 Inserted by the Finance Act, 2006, w.e.f. 01.04.2006.[(26A) "infrastructure capital company" means such company which makes investments by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in subsection (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one-hundred beds for patients;

(26B) infrastructure 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 investment by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three-star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients;]

(27) 103 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[* * *]

(28) "Inspector of Income-tax" means a person appointed to be an Inspector of Income-tax under sub-section 104 Substituted for "(2)" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[(1)] of section 117;

105 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.[(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;]

106 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.[(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;]

107 Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.[(28BB) "insurer" means an insurer, being an Indian insurance company, as defined under clause (7A) of section 2 of the Insurance Act, 1938 (4 of 1938), which has been granted a certificate of registration under section 3 of that Act;]

108 Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998.[(28C) "Joint Commissioner" means a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax under sub-section (1) of section 117;

(28D) "Joint Director" means a person appointed to be a Joint Director of Income-tax or an Additional Director of Income-tax under sub-section (1) of section 117;]

(29) "legal representative" has the meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908);

109 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.[(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;]

110 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[(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 111 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.[association of persons or, as the case may be, body of individuals] as specified in the Finance Act of the relevant year;]

112 Inserted by the National Tax Tribunal Act, 2005, with effect from a date yet to be notified.[(29D) National Tax Tribunal means the National Tax Tribunal established under section 3 of the National Tax Tribunal Act, 2005;]

(30) "non-resident" means a person who is not a "resident" 113 Inserted by the Finance Act, 1999, w.e.f. 1-4-1999. Earlier these words were omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.[and for the purposes of sections 92, 93 114 ", 113" omitted by the Finance Act, 1965, w.e.f. 1-4-1965.[* * *] and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6];

(31)"person" includes-

(i) an individua,

(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.

115 Inserted by the Finance Act, 2002, w.e.f. 1-4-2002.[Explanation.-For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;]

 

(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 116 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[Assessing] Officer has served a notice of his intention of treating him as the principal officer thereof;

 

(36) "profession" includes vocation;

117 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.[(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, 1956 (1 of 1956);]

(37) "public servant" has the same meaning as in section 21 of the Indian Penal Code (45 of 1860);

118 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.[(37A) "rate or rates in force" or "rates in force", in relation to an assessment year or financial year, means-

(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 charge-able under the head "Salaries" 119 "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. Originally, the said expression was inserted by the Finance Act, 1968, w.e.f. 1-4-1968.[* * *] or [computation of the "advance tax" payable under Chapter XVII-C in a case not falling under 120 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.[section 115A or section 115B 121 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[or section 115BB 122 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[or section 115BBB] or section 115E] or] section 164 123 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. [or section 164A 124 "or section 167A" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.Earlier this expression was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[* * *]] 125 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[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 126 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.[in a case falling under section 115A or section 115B 127 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[or section 115BB 128 Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.[or section 115BBB] or section 115E] or section 164 129 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[or section 164A 130 "or section 167A" omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier this expression was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[* * *]] 131 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[or section 167B], the rate or rates specified in section 115A or 132 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.[section 115B or section 115BB 133 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[or section 115BBB] or section 115E or section 164 or section 164A 134 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[* * *] [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;]

 

135 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.[, 194B] 136 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.[, 194BB] 137 Substituted for ", 194D and 195" by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.[and 194D], the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year;] 138 Substituted by the Finance Act, 1992, w.e.f. 1-6-1992. Prior to its substitution, sub-clause (iii) was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.[(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 139 Substituted by the Finance Act, 2006, w.e.f. 01.06.2006 for the following: "an agreement entered into by the Central Government under section 90, whichever is applicable by virtue of the provisions of section 90;" [an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be];]

 

(38)"recognised provident fund" means a provident fund which has been and continues to be recognised by the 140 Substituted for "Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[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 (19 of 1952);

(39)141 Prior to omission, clause (39) was substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier clause (39) was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and was later reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993;]

(40) "regular assessment" means the assessment made under 142 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989.[sub- section (3) of] section 143 or section 144;

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

143 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[(41A) "resulting company" means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger;]

(42) "resident" means a person who is resident in India within the meaning of section 6;

144 Inserted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962.[(42A) 145 Substituted for the portion beginning with "short-term capital asset" and ending with "preceding the date of its transfer ;" by the Finance Act, 1973, w.e.f. 1-4-1974. Earlier clause (42A) was first amended by the Finance Act, 1966, w.e.f. 1-4-1966 and later by the Finance Act, 1968, w.e.f. 1-4-1969.["short-term capital asset" means a capital asset held by an assessee for not more than 146 Substituted for "sixty" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.[thirty-six] months immediately preceding the date of its transfer:]

147 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.[Provided that in the case of a share held in a company 148 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.[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] 149 Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.[or a zero coupon bond], the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted.]

150 Existing Explanation renumbered as Explanation 1 by the Finance Act, 1994, w.e.f. 1-4-1995.[Explanation 1].-

(i) 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 151 Substituted for "clauses (i) to (iii)" by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.[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;

 

152 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.[(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;]

 

153 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.[(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;

 

(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;]

 

154 Inserted by the Finance Act, 1995, w.e.f. 1-4-1996. (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;]

 

155 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[(g) 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 demerger, there shall be included the period for which the share or shares held in the demerged company were held by the assessee;]

 

156 Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.[(h)in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;

 

(ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or corporatisation of a recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation.]

 

[(hb) in the case of a capital asset, being any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees), the period shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares;]

  

(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.]

 

157 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.[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 (42 of 1956);]

158 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[Explanation 3.-For the purposes of this clause, the expressions ''specified security" and "sweat equity shares" shall have the meanings respectively assigned to them in the Explanation to clause (d) of sub-section (1) of section 115WB;]

 

159 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.[(42B) "short-term capital gain" means capital gain arising from the transfer of a short-term capital asset;]

160 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000. Earlier clause (42C) was inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990 and later on omitted by the Finance Act, 1990, w.e.f. 1-4-1990.[(42C) "slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

Explanation 1.-For the purposes of this clause, "undertaking" shall have the meaning assigned to it in Explanation 1 to clause (19AA).

Explanation 2.-For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities;]

161 Substituted by the Finance Act, 1965, w.e.f. 1-4-1965.[(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 162 Inserted by the Finance Act, 2005, w.e.f. 1-4-2006.[and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA];]

163 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.[(43A)"tax credit certificate" means a tax credit certificate granted to any person in accordance with the provisions of Chapter XXII-B164 Chapter XXII-B was omitted by the Finance Act, 1990, w.e.f. 1-4-1990. and any scheme made there under;]

(43B) 165 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original clause (43B) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972.[* * *]

166 Substituted by the Direct Tax Laws (Amendment) Act, 1987 [as amended by the Direct Tax Laws (Amendment) Act, 1989], w.r.e.f. 1-4-1988. Prior to its substitution, clause (44), was substituted by the Finance Act, 1963, w.r.e.f. 1-4-1962.[(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]167 Inserted by The Taxation Laws (Amendment) Act, 2006, w.e.f. 13.07.2006[and also to exercise or perform such powers and functions which are conferred on, or assigned to, an Assessing Officer under this Act and which may be prescribed;]

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

(46) 168 Omitted by the Finance Act, 1965, w.e.f. 1-4-1965.[* * *]

(47)169 Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.["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;] 170 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.[or]

171 Inserted by the Finance Act, 2005, w.e.f. 1-4-2006:[(iva) the maturity or redemption of a zero coupon bond; or]

172 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (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.]

 

173 Inserted by Finance Act, 2005, w.e.f.1-4-2006 Prior to its omission clause (48) was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Later it was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.[(48) "zero coupon bond" means a bond]-

(a) issued by any infrastructure capital company or infrastructure capital fund or public sector company on or after the 1st day of June, 2005;

(b) in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or public sector company; and

(c) which the Central Government may, by notification in the Official Gazette, specify in this behalf.174 Omitted by the Finance Act, 2006, w.e.f. 01.04.2006. Prior to omission, it read as under: "Explanation.--For the purposes of this clause, the expressions "infrastructure capital company" and "infrastructure capital fund" shall have the same meanings respectively assigned to them in clauses (a) and (b) of Explanation 1 to clause (23G) of section 10.]" [***]

 

Section 3 "Previous year" defined

 

9797. Substituted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its substitution, section 3, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, read as under : '3. "Previous year" defined. (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: 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 : 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 : 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 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 : 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 (he Tenth Schedule.' For the purposes of this Act, "previous year" means the financial year immediately preceding the assessment year :

 

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.

 

CHAPTER 2 BASIS OF CHARGE

 

Section 4 Charge of income-tax

 

(1) Where any Central Act enacts that income-tax11. For the meaning of the term "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 22. Substituted for "subject to the provisions of this Act" by the Direct Tax Laws (Amendment) Act, 1987,w.e.f. 1-4-1989. [subject to the provisions (including provisions for the levy of additional income-tax) of, this Act]33. For the meaning of the expressions "in accordance with, and subject to the provisions of, this Act" and "total income" in respect of the total income33. For the meaning of the expressions "in accordance with, and subject to the provisions of, this Act" and "total income" of the previous year 44. "or previous years, as the case may be," omitted, ibid. [****] 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.

 

Section 5 Scope of total income

 

(1) Subject to77. For the meaning of the terms/expressions "subject to", "is received" "deemed to be received", "accrues or arises" and "deemed to accrue" 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 received77. For the meaning of the terms/expressions "subject to", "is received" "deemed to be received", "accrues or arises" and "deemed to accrue" or is deemed to be received77. For the meaning of the terms/expressions "subject to", "is received" "deemed to be received", "accrues or arises" and "deemed to accrue" in India in such year by or on behalf of such person ; or

(b) accrues77. For the meaning of the terms/expressions "subject to", "is received" "deemed to be received", "accrues or arises" and "deemed to accrue" or arises77. For the meaning of the terms/expressions "subject to", "is received" "deemed to be received", "accrues or arises" and "deemed to accrue" or is deemed77. For the meaning of the terms/expressions "subject to", "is received" "deemed to be received", "accrues or arises" and "deemed to accrue" to accrue or arise to him in India during such year; or

(c) accrues77. For the meaning of the terms/expressions "subject to", "is received" "deemed to be received", "accrues or arises" and "deemed to accrue" or arises77. For the meaning of the terms/expressions "subject to", "is received" "deemed to be received", "accrues or arises" and "deemed to accrue" 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 derived from a business controlled in or a profession set up in India.

 

 

(2) Subject to the88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" provisions of this Act, the total income88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" of any previous year of a person who is a non-resident includes all income from whatever source derived which

 

(a) is received88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" or is deemed to be received88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" in India in such year by or on behalf of such person ; or

(b) accrues88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" or arises88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" 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 received88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" 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 accrued88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" or arisen88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "deemed to have accrued" or is deemed to have accrued88. For the meaning of the terms/expressions "subject to", "total income", "is received", "deemed to be received", "accrues or arises", "accrued or arisen" and "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.

 

Section 5A Apportionment of income between spouses governed by Portuguese Civil Code

 

99. Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963. .-

(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 "Salaries", such income shall be included in the total income of the spouse who has actually earned it.]

 

Section 6 Residence in India

 

1010. For relevant case laws .- For the purposes of this Act,

(1) Anindividual 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

(b) 1111. Omitted by the Finance Act, 1982, w.e.f. 1-4-1983. [*****]

(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.

1212. Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. Original Explanation, as inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and later amended by the Finance Act, 1982, w.e.f. 1-4-1983, read as under : '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.' [Explanation. In the case of an individual,

(a) being a citizen of India, who leaves India in any previous year 1313. Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. [as a member of the crew of an 1414. Clause (18) of section 3 of the Merchant Shipping Act, 1958, defines "Indian ship" as follows: '(18) "Indian ship" means a ship registered as such under this Act and includes any ship registered at any port in India at the commencement of this Act which is recognised as an Indian ship under the proviso to sub-section (2) of section 22;' 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 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) 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 "one hundred and 1515. Substituted for "fifty" by the Finance Act, 1994, w.e.f. 1-4-1995. [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 affairs1616. For the meaning of the terms/expressions "control and management", "affairs" and "wholly" is situated wholly1616. For the meaning of the terms/expressions "control and management", "affairs" and "wholly" outside India.

 

(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.

 

A3A3. In section 6 in clause 6 following clauses shall be substituted by Finance Act, 2003(Act 32 of 2003),Published in the Gazette of India, Extra, Part II, Section 1, dated 14th May,2003,pp.1-112,No.35, with effect from 1st June,2003 (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 been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less; or

(b) a Hindu undivided family whose manager has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty nine days or less'

 

Section 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.

 

Section 8 Dividend income

 

1717. 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. [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 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 ;

 

1818. Inserted, ibid. [(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.]

 

Section 9 Income deemed to accrue or arise in India

 

(1) The following incomes shall be deemed2121. For the meaning of the term "deemed" to accrue or arise in India:

 

(i) all income accruing or arising, whether directly or indirectly, through or from any business connection2323. For the meaning of the terms/expressions "business connection" and "property" see Taxmann's Direct Taxes Manual, Vol. 3. in India, or through or from any property2323. For the meaning of the terms/expressions "business connection" and "property" see Taxmann's Direct Taxes Manual, Vol. 3. in India, or through or from any asset or source of income in India, 2424. 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. [***] or through the transfer of a capital asset situate in India.

A4A4. In section 9 of the income tax Act, in sub-section (1), in clause (i), the existing Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanations shall be inserted by "FINANCE ACT, 2003" with effect from the 1st day of April, 2004 Explanation 1. For the purposes of this clause

(a) in the case of a business of which all the operations2525. For the meaning of the term "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 operations2525. For the meaning of the term "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 operations which are confined to the purchase of goods in India for the purpose of export;

2626. Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964. [***]

2727. Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1962. [(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;]

2828. Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1982. [(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, 2929. Fur the meaning of the terms "operations" and "earned" which are confined to the shooting of any cinematograph film in India ;]

 

A5A5. In section 9 of the income tax Act, in sub-section (1), in clause (i), the existing Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanations shall be inserted by "Finance Act, 2003" with effect from the 1st day of April, 2004 Explanation 2.-For the removal of doubts, it is hereby declared that business connection" shall include any business activity carried out through a person who, acting on behalf of the non-resident,-

(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or

(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(c) habitually secures orders in India, mainly or wholly for the non- resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non- resident:

Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business :

Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafterin this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principle non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.

 

Explanation 3.- Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India.'

(ii) income which falls under the head "Salaries", if it is earned2929. Fur the meaning of the terms "operations" and "earned" in India.

3030. Substituted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its substitution, Explanation, as inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979, read as under : "Explanation. For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable tor service rendered in India shall be regarded as income earned in India ;" [Explanation. For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for

(a) service rendered in India; and

(b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, 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 ;

3131. Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w.e.f. 1-6-1976. [(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 royalty3232. For the meaning of the term "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

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, design, 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:

3333. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. [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 non-resident 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 3434. Substituted for "foregoing" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. [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 3535. Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. [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;

(iva) the use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;

(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 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 35a35a. The italicised words shall be inserted by the Finance Act, 2001, w.e.f. 1-4-2002. [(iv), (iva) and] (v).

3636. Substituted by the Finance Act, 2000, w.e.f. 1-4-2001. Prior to its substitution, Explanation 3, as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991, read as under : "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." [Explanations. For the purposes of this clause, "computer software" means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customised electronic data;]

(vii) income by way of fees for technical services payable3737. For the meaning of the expression "fees for technical services payable", sec Taxmann's Direct Taxes Manual, Vol. 3. 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 :

3838. Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977. [Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in

 

3939. Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977. [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 [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 construction4141. For the meaning of the term "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 Art.314 of the Constitution of india 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.

 

CHAPTER 3 INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

 

Section 10 Incomes not included in total income

 

ovided also that nothing contained in sub-clause (iv) or sub-clause (v) 9595. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. [or sub-clause (vi) or sub-clause (via)] shall apply in relation to any income of the fund or trust or institution 9595. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. [or any university or other educational institution or any hospital or other medical institution], being profits and 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 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:]

95a95a. Inserted by the Taxation Laws (Amendment) Act, 2001, w.e.f. 3-2-2001. [Provided also that any amount of donation received by the fund or institution M25M25. In Section 10, clause (23C) in the ninth proviso the words "in terms of clause (d) of section (2) of section 80G" shall be substituted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23.With Effect from 3rd February , 2001. ["in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or"] which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister's National Relief Fund on M26M26. In Section 10, clause (23C) in the ninth proviso the words "or before the 31st day of March, 2002" shall be substituted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23.With Effect from 3rd February , 2001. ["or before the 31st day of March, A12A12. in clause (23C), in the ninth proviso, for the figures "2003", the figures "2004" shall be substituted and shall be deemed to have been substituted by "Finance Act, 2003" with effect from the 3rd day of February, 2001 2004"] shall be deemed to be the income of the previous year and shall accordingly be. charged to tax;]

M27M27. In Section 10, clause (23C) tenth proviso shall be omitted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23.With Effect from 3rd February , 2001. Provided also that where the total receipts of the fund or institution referred to in sub-clause (iv) or of any trust or institution referred to in sub-clause (v) or of any University or other educational institution referred to in sub-clause (vi) or of any hospital or other institution referred to in sub-clause (via) exceed one crore rupees in any preceding year, the fund or trust or institution or University or other educational institution or hospital or other institution, as the case may be, shall (i) publish its accounts in a local newspaper; and (ii) furnish along with the application prescribed in the first proviso to this clause, the copy of the local newspaper in which such accounts have been published; [* * * * * ]

 

M28M28. In Section 10, clause (23C) after tenth proviso proviso 11 and 12 shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23.With Effect from 1st April, 2003. "Provided also that where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (vi-a) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under Section 12-AA or to any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (vi-a) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established :

M28M28. In Section 10, clause (23C) after tenth proviso proviso 11 and 12 shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23.With Effect from 1st April, 2003. Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the Central Government or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (vi-a), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that

(i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not

(A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or

 

(B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or

 

 

(ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution

(A) are not genuine; or

 

(B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved,

 

9696. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. [(23D) 9797. Substituted for the portion beginning with the words "any income of such Mutual Fund" and ending with the words "specify in this behalf" by the Finance Act, 1995, w.e.f. 1-7-1995. Prior to substitution, the said portion, as amended by the Finance Act, 1988, w.e.f. 1-4-1988, the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988 and the Finance Act, 1992, w.e.f. 1-4-1993, read as under : "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." [9898. Substituted for "any income of " by the Finance Act, 1999, w.e.f. 1-4-2000. M29M29. In Section 10, clause (23D) in the opening portion the word ["subject to the provisions of Chapter XII-E, any income of"] shall be omitted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23.With Effect from 1st April, 2003. [* * * * *]

(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 (5 of 1970), or under S.3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980);

(b) the expression "public financial institution" shall have the meaning assigned to it in S.4A of the Companies Act, 1956 (1 of 1956)11. For text of section 4A of the Companies Act, 1956, and notified institutions thereunder, see Appendix One. ;]

22. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. [(c) the expression 33. Clause (a) of section 2(1) of the Securities and Exchange Board of India Act, 1992, defines "Board" as follows: '(a) "Board" means the Securities and Exchange Board of India established under section 3;'. "Securities and Exchange Board of India" shall have the meaning assigned to it in clause (a) of sub-section (1) of S.2 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);]

 

M30M30. In Section 10, clause (23E) shall be omitted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23.With Effect from 1st April, 2003. Clause (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 (1 of 1956); (23E)[ * * * * * ]

77. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001. [(23EA) any income of such Investor Protection Fund set up by recognised stock exchanges in India, 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 recognised stock exchange, 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;]

 

M31M31. In Section 10, clause (23EB) shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. "(23EB) any income of the A13A13. in clause (23EB), for the words "Credit Guarantee Fund Trust for Small Scale Industries", the words "Credit Guarantee Fund Trust for Small Industries" shall be substituted and shall be deemed to have been substituted by "Finance Act, 2003" with effect from the 1st day of April, 2002 Credit Guarantee Fund Trust for Small Industries, being a trust created by the Government of India and the Small Industries Development Bank of India established under sub-section (1) of Section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989), for five previous years relevant to the assessment years beginning on the 1st day of April, 2002 and ending on the 31st day of March, 2007;";

88. Inserted by the Finance Act, 1995, w.e.f. 1-4-1996. [(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 :

Provided that such venture capital fund or venture capital company is approved for the purposes of this clause by the prescribed authority99. Prescribed authority is Director of Income-tax (Exemptions). 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:

1111. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000. [Provided also that nothing contained in this clause shall apply in respect of any investment made after the 31st day of March, 1999.]

 

1212. Third and fourth provisos omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. Prior to their omission, the third and fourth provisos, as inserted by the Finance Act, 1995, w.e.f. 1-4-1996, read as under : "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 the 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." [***]

 

1212. Third and fourth provisos omitted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. Prior to their omission, the third and fourth provisos, as inserted by the Finance Act, 1995, w.e.f. 1-4-1996, read as under : "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 the 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

1313. Clauses (c) and (d) substituted for clause (c) by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. Prior to substitution, clause (c), as amended by the Finance Act, 1997, w.e.f. 1-4-1998, read asunder: '(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 business of generation or generation and distribution of electricity or any other form of power or business of providing telecommunication services or in the manufacture or production of such articles or things (including computer software) as may be notified by the Central Government in this behalf;' [(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 business of generation or generation and distribution of electricity or any other form of power or engaged in the business of providing telecommunication 1414. For notified articles or things. by the Central Government in this behalf;

(d) "infrastructure facility" means a road, highway, bridge, airport, port, rail system, a water supply project, irrigation project, sanitation and sewerage system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions specified in sub-section (4A) of section 80-IA;]

 

1515. Inserted by the Finance Act, 1999, w.e.f. 1-4-2000. [(23FA) any income by way of A14A14. in clause (23FA), for the word "dividends", the words, figures and letter "dividends, other than dividends referred to in section 115O" shall be substituted by "Finance Act, 2003" with effect from the 1st day of April, 2004; dividends, other than dividends referred to in section 115O, M32M32. In Section 10, clause (23FA) and clause (23G) the words ["other than dividends referred to in Section 115-0,"] shall be omitted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003 [* * * * * ], 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 :

Provided that such venture capital fund or venture capital company is approved, for the purposes of this clause, by the Central Government on an application made to it in accordance with the rules made in this behalf and which satisfies the prescribed conditions :

Provided further that any approval by the Central Government 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:

1717. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001. [Provided also that nothing contained in this clause shall apply in respect of any investment made after the 31st day of March, 2000.]

 

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

(i) business of

(A) software;

 

(B) information technology;

 

(C) production of basic drugs in the pharmaceutical sector;

 

(D) bio-technology;

 

(E) agriculture and allied sectors; or

 

(F) such other sectors as may be notified by the Central Government in this behalf; or

 

(ii) production or manufacture of any article or substance for which patent has been granted to the National Research Laboratory or any other scientific research institution approved by the Department of Science and Technology;]

 

 

1818. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001. [(23FB) any income of a venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking.

Explanation 18a18a. Explanation numbered as Explanation 1 by the Finance Act, 2001, w.e.f. 1-4-2001. [1]. For the purposes of this clause,

(a) "venture capital company" means such company

(i) which has been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and regulations made thereunder;

 

(ii) which fulfils the conditions as may be specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf;

 

 

(b) "venture capital fund" means such fund

18b18b. Substituted, ibid. Prior to its substitution, sub-clause (i) read as under : "(i) operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908);" [(i) operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) or operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);]

 

(ii) which has been granteda certificate of registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992). and regulations made thereunder;

 

(iii) which fulfils the conditions as may be specified, with the approval of the Central Government, by the Securities andExchange Board of India, by notification in the Official Gazette, in this behalf; and

 

 

(c) "venture capital undertaking" means a domestic company

(i) whose shares are not listed in a recognised stock exchange in India;

 

(ii) which is engaged in the business for providing services, production or manufacture of an article or thing but does not include such activities or sectors which are specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf;]

 

18d18d. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001. [Explanation 2. For the removal of doubts, it is hereby declared that the income of a venture capital company or venture capital fund shall continue to be exempt if the shares of the venture capital undertaking, in which the venture capital company or venture capital fund has made the initial investment, are subsequently listed in a recognised stock exchange in India;]

 

1919. Substituted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. Prior to itssubstitution clause (23G), as inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997 and later on amended by the Finance Act, 1997, w.e.f. 1-4-1998, read as under : '(23G) any income by way of dividends, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made by way of shares or long-term finance in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Explanation. For the purposes of this clause, (a) "infrastructure capital company" means such company as has made investments by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastructure facility; (b) "infrastructure 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 investment by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastructure facility; (c) "infrastructure facility" means (i) a road, highway, bridge, airport, port, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette which fulfils the conditions specified in sub-section (4A) of section 80-IA; (ii) a water supply project, irrigation project, sanitation and sewerage system which fulfils the conditions specified in sub-section (4A) of section 80-IA; (iii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1st day of April, 1993; (iv) a project for providing telecommunication services on or after the 1st day of April, 1995; (d) "long-term finance" shall have the meaning assigned to it in clause (viii) of sub-section (1) of section 36;' [(23G) any income by way of A15A15. for the word "dividends", the words, figures and letter "dividends, other than dividends referred to in section 115-O" shall be substituted by "Finance Act, 2003" with effect from the 1 st day of April, 2004; dividends, other than dividends referred to in section 115-O, M32M32. In Section 10, clause (23FA) and clause (23G) the words ["other than dividends referred to in Section 115-0,"] shall be omitted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003 [* * * * *] interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company 20a20a. The italicised words shall be inserted by the Finance Act, 2001, w.e.f. 1-4-2002. [or a co-operative 20b20b. Words "any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or a housing project referred to in sub-section (10) of section 80-IB" shall be substituted for "any enterprise wholly engaged in the business of (i) developing, (11) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility" by the Finance Act, 2001, w.e.f. 1-4-2002. [any enterprise wholly engaged in 2121. Substituted for "the business of developing, maintaining and operating" by the Finance Act, 1999, w.e.f. 1-4-2000. [the business of (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating] any infrastructure facility] and which has been approved2222. For notified infrastructure capital fund/enterprise. by the Central Government on an application made by it in accordance with the rules made in this behalf and which satisfies the prescribed conditions.

 

2424. Explanation numbered as Explanation 1 by the Income-tax (Second Amendment) Act, 1998, w.e.f. 1-4-1999. [Explanation 1.] For the purposes of this clause,

(a) "infrastructure capital company" means such company as has made investments by way of acquiring shares or providing long term finance to an enterprise wholly engaged 2525. Substituted for "in the business of developing, maintaining and operating infrastructure facility;" by the Finance Act, 2000, w.e.f. 1-4-2000. A16A16. In Explanation 1,- in clause (a), for the portion beginning with the words "in the business of" and ending with the words "any infrastructure facility", the words "in the business referred to in this clause" shall be substituted and shall be deemed to have been substituted by "Finance Act, 2003" with effect from the 1st day of April, 2002; [in the business referred to in this clause

(b) "infrastructure 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 investment by way of acquiring shares or providing long-term finance to an enterprise wholly engaged 2525. Substituted for "in the business of developing, maintaining and operating infrastructure facility;" by the Finance Act, 2000, w.e.f. 1-4-2000. A17A17. In Explanation 1,-in clause (i), for the portion beginning with the words "in the business of" and ending with the words "any infrastructure facility", the words "in the business referred to in this clause" shall be substituted and shall be deemed to have been substituted by "Finance Act, 2003" with effect from the 1st day of April, 2002; [in the business referred to in this clause

 

25a25a. Clause (c) shall be omitted by the Finance Act, 2001, w.e.f. 1-4-2002. [(c) "infrastructure facility" means

(i) a road, highway, bridge, airport, port25b25b. For definition of 'port', sec Circular No. 793, dated 23-6-2000. , rail system, a water supply project, irrigation project, 2626. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001. [water treatment system, solid waste management system,] sanitation and sewerage system or any other public facility of a similar nature as may 2727. For notified infrastructure facility by the Board in this behalf in the Official Gazette and which fulfils the conditions specified in 2828. Substituted for "sub-section (4A)" by the Finance Act, 1999, w.e.f. 1-4-2000. [clause (i) of sub-section (4)] of section 80-IA;

2929. Substituted, ibid. Prior to its substitution, sub-clause (ii), read as under : "(ii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after the 1st day of April, 1993;" [(ii) an industrial undertaking which

(a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2003;

 

(b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and endingon the 31st day of March, 2003;]

 

(iii) a project for providing telecommunication services on or after the 1st day of April, 1995;

3030. Sub-clauses (iv) and (v) substituted for sub-clause (iv) by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its substitution, sub-clause (iv), as substituted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999, read as under : '(iv) a project for housing which fulfils the conditions specified in sub-section (4F) of section 80-IA ;" [(iv) a project for housing which fulfils the conditions specified in sub-section (10) of section 80-IB;

(v) an undertaking for developing, developing and operating or maintaining and operating an industrial park notified by the Central Government under clause (iii) of sub-section (4) of section 80-IA;]]

 

(d) "long-term finance" shall have the meaning assigned to it in clause (viii) of sub-section (1) of section 36.]

(e) "co-operative bank" shall have the meaning assigned to it in clause (dd) of section 2 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (47 of 1961);

(f) "interest" includes any fee or commission received by a financial institution for giving any guarantee to, or enhancing credit in respect of, an enterprise which has been approved by the Central Government for the purposes of this clause;

 

A18A18. After clause (f), the following clauses shall be inserted by "Finance Act, 2003" with effect from the 1st day of April, 2004 (g) "hotel project' means a project for constructing a hotel of not less than three-star category as classified by the Central Government;

(h) "hospital project" means a project for constructing a hospital with at least one hundred beds for patients.';

3131. Inserted by the Income-tax (Second Amendment) Act, 1998, w.e.f. 1-4-1999. [Explanation 2. For the removal of doubts, it is hereby declared that any income by way of dividends, interest or long-term capital

 

3232. Substituted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997. Prior to its substitution, clause (24), as amended by the Finance Act, 1988, w.e.f. 1-4-1989, read as under : '(24) any income chargeable under the heads "Income from house properly" 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;' [3333. For relevant case laws (24) any income chargeable under the heads "Income from house property" and "Income from other sources" of

 

(a) a registered union within the meaning of the 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;

(b) an association of registered unions referred to in sub-clause (a);]

 

(25)

 

(i) interest on securities which are held by, or are the property of, any provident fund to which the Provident Funds Act, 1925 (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;

(iii) any income received by the trustees on behalf of an approved superannuation fund;

3434. Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. [(iv) any income received by the trustees on behalf of an approved gratuity fund;]

3535. Inserted by the Labour Provident Fund Laws (Amendment) Act, 1976, w.e.f. 1-8-1976. [(v) any income received

(a) by the Board of Trustees constituted under the Coal Mines Provident Funds and Miscellaneous Provisions Act, 1948 (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 (19 of 1952), on behalf of the Deposit-linked Insurance Fund established under section 6C of that Act;]

 

 

3636. Inserted by the Finance Act, 1995, w.r.e.f. 1-4-1962. [(25A) any income of the Employees' State Insurance Fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948);)

 

3737. Substituted by the North-Eastern Areas (Reorganisation) (Adaptation of Laws on Union Subjects) Order, 1974, with retrospective effect from 21-1-1972. Earlier, clause (26) was amended first by the State of Nagaland (Adaptation of Laws on Union Subjects) Order, 1965, with retrospective effect from 1-12-1963 and then by the Taxation Laws (Amendment) Act, 1970, with retrospective effect from 1-4-1962. [(26) 3838. For relevant case laws. in the case of a member of a 3939. Clause (25) of article 366 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;' Scheduled Tribe as defined in clause (25) of Art.366 of the Constitution of india, residing in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Constitution of india or in the 4040. 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. [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 (81 of 1971)] 4141. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999. [or in the Ladakh region of the State of Jammu and Kashmir], any income which accrues or arises to him,

 

(a) from any source in the areas 4242. Substituted for ", States or Union territories aforesaid" by the Finance Act, 1994, w.e.f. 1-4-1995. [or States aforesaid], or

(b) by way of dividend or interest on securities;]

 

4343. Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962. [(26A) any income accruing or arising to any person 4444. "(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. [* * *] from any source in the district of Ladakh or outside India in any previous year relevant to any assessment year commencing before the 1st day of April, 4545. 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" was substituted for "1980" by the Finance Act, 1980, w.e.f. 1-4-1980, "1980" was substituted for "1975" by the Finance (No. 2) Act, 1977, with retrospective effect from 1-4-1975 and "1975" was substituted for "1970" by the Finance (No. 2) Act, 1971, w.r.e.f. 1-4-1970. [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.

 

46* Should be read as clause (1), etc. [Explanation 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.]

 

4747. Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1980. [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;]

 

(26AA) 4848. Omitted by the Finance Act, 1997, w.e.f. 1-4-1998. Prior to its omission, clause (26AA), as inserted by the Finance Act, 1989, w.e.f. 1-4-1990, read as under : "(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;" [****]

 

4949. Inserted by the Finance Act, 1980, w.r.e.f. 1-4-1972. [(26B) any income of a corporation established by a Central, State or Provincial Act or of any other body, institution or association (being a 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 5050. Substituted for "members of either the Scheduled Castes or the Scheduled Tribes or of both" by the Finance Act, 1994, w.r.e.f. 1-4-1993. [members of the Scheduled Castes or the Scheduled Tribes or backward classes or of any two or all of them].

 

5151. Substituted, ibid. Earlier Explanation, as inserted by the Finance Act, 1980, w.r.e.f. 1-4-1972, 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;' [Explanation. For the purposes of this clause,

 

(a) 5252. Clause (24) of article 366 of the Constitution defines "Scheduled Castes" as under: '(24) "Scheduled Castes" means such castes, races or tribes or parts of or groups within such castes, races or tribes as are deemed under article 341 to be Scheduled Castes for the purposes of this Constitution;' "Scheduled Castes" and "Scheduled Tribes" shall have the meanings respectively assigned to them in clauses (24) and (25) of Art.366 of the Constitution of india;

(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;]

 

 

5454. Inserted by the Finance Act, 1995, w.e.f. 1-4-1995. [(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 notified5555. For notified minority communities. as such by the Central Government in the Official Gazette in this behalf;]

 

A19A19. after clause (26BB), the following shall be inserted by "Finance Act, 2003" with effect from the 1st day of April, 2004, namely

 

(26BBB) any income of a corporation established by a Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen being the citizens of India.

Explanation.-For the purposes of this clause, "ex-servicemen" means a person who has served in any rank, whether as combatant or non-combatant, in the armed forces of the Union or armed forces of the Indian States before the commencement of the Constitution (but excluding the Assam Rifles, Defence Security Corps, General Reserve Engineering Force, Lok Sahayak Sena, Jammu and Kashmir Militia and Territorial Army) for a continuous period of not less than six months after attestation and has been released, otherwise than by way of dismissal or discharge on account of misconduct or inefficiency, and in the case of a deceased or incapacitated ex-serviceman includes his wife, children, father, mother, minor brother, widowed daughter and widowed sister, wholly dependant upon such ex-serviceman immediately before his death or incapacitation;';

 

5656. Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1989. Earlier clause (27) was omitted by the Finance Act, 1975, w.e.f. 1-4-1976 and re-enacted in section 80JJ with modification. Originally, clause (27) was inserted by the Finance Act, 1964, w.e.f, 1-4-1964 and later on amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. [(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;]

 

(28) 5757. Omitted by the Finance Act, 1997, w.e.f. 1-4-1998. Prior to its omission, clause (28) as inserted by the Finance Act, 1965, w.e.f. 1-4-1965 and substituted by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965, read as under : "(28) any amount adjusted or paid in respect of a tax credit certificate under the provisions of Chapter XXIIB and any scheme made thereunder;" [***]

 

(29)M33M33. In Section 10, clause (29) shall be omitted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003. [Clause (29)in the case of an authority constituted under any law for the time being in force for the marketing of commodities, any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities;] [* * * * *]

 

 

6161. Inserted by the Finance Act, 1999, w.e.f. 11-5-1999. [(29A) any income accruing or arising to

 

(a) the Coffee Board constituted under section 4 of the Coffee Act, 1942 (7 of 1942) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(b) the Rubber Board constituted under sub-section (1) of S.4 of the Rubber Board Act, 1947 (24 of 1947) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(c) the Tea Board established under S.4 of the Tea Act, 1953 (29 of 1953) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1962 or the previous year in which such Board was constituted, whichever is later;

(d) the Tobacco Board constituted under the Tobacco Board Act, 1975 (4 of 1975) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1975 or the previous year in which such Board was constituted, whichever is later;

(e) the Marine Products Export Development Authority established under S.4 of the Marine Products Export Development Authority Act, 1972 (13 of 1972) in any previous year relevant to any assessment year commencing on or after the 1 st day of April, 1972 or the previous year in which such Authority was constituted, whichever is later;

(f) the Agricultural and Processed Food Products Export Development Authority established under S.4 of the Agricultural and Processed Food Products Export Development Act, 1985 (2 of 1986) in any previous year relevant to any assessment year commencing on or after the 1 st day of April, 1985 or the previous year in which such Authority was constituted, whichever is later;

(g) the Spices Board constituted under sub-section (1) of S.3 of the Spices Board Act, 1986 (10 of 1986) in any previous year relevant to any assessment year commencing on or after the 1st day of April, 1986 or the previous year in which such Board was constituted, whichever is later;]

 

6262. Inserted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1969. [(30) 6363. Sec rule 8(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 scheme6464. For specified schemes. for replantation or replacement of tea bushes 6565. Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. [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 6666. Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. [Assessing] Officer, along with his return of income for the assessment year concerned or within such further time as the 6666. Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. [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);]

 

6767. Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. [(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;]

 

 

6868. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. [(32) in the case of an assessee referred to in sub-section (1A) of section 64, any income includible 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 includible;]

 

M34M34. In Section 10, clause (33) shall be omitted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003. [Clause (33)any income by way of (i) dividends referred to in section 115-O; or (ii) income received in respect of units from the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); or (iii) income received in respect of the units of a mutual fund specified under clause (23D): Provided that this clause shall not apply to any income arising from transfer of units of the Unit Trust of India or of a mutual fund, as the case may be.] A20A20. In Section 10, after clause (32), the following clause shall be inserted by "Finance Act, 2003" (33) any income arising from the transfer of a capital asset, being a unit of the Unit Scheme, 1964 referred to in Schedule 1 to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) and where the transfer of such asset takes place on or after the 1st day of April, 2002;";

 

A21A21. after clause (33) as so inserted, the following clauses shall be inserted by "finance Act, 2003" with effect from the 1st day of April, 2004, namely (34) any income by way of dividends referred to in section 115-O;

 

(35) any income by way of,-

 

(a) income received in respect of the units of a Mutual Fund specified under clause (23D); or

(b) income received in respect of units from the Administrator of the specified undertaking; or

(c)' income received in respect of units from the specified company: Provided that this clause shall not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case may be.

Explanation.-For the purposes of this clause,-

(a) "Administrator" means the Administrator as referred to in clause (a) of S.2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(b) "specified company" means a company as referred to in clause (h) of S.2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

 

 

(36) any income arising from the transfer of a long-term capital asset, being an eligible equity share in a company purchased on or after the 1st day of March, 2003 and before the 1st day of March, 2004 and held for a period of twelve months or more.

 

Explanation.-For the purposes of this clause, "eligible equity share" means,-

 

(i) any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on the 1st day of March, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India;

(ii) any equity share in a company allotted through a public issue on or after the 1st day of March, 2003 and listed in a recognised stock exchange in India before the 1st day of March, 2004 and the transaction of sale of such share is entered into on a recognised stock exchange in India.'.

 

Section 10A Special provision in respect of newly established undertakings in free trade zone, etc.

 

7070. Substituted by the Finance Act, 2000, w.e.f. 1-4-2001. Prior to its substitution, section 10A, as inserted by the Finance Act, 1981, w.e.f. 1-4-1981, and later on amended by the Taxation Laws (Amendments Miscellaneous Provisions Act, 1986, w.e.f. 1-4-1987, Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988/1-4-1989, Finance Act, 1987, w.r.e.f. 1-4-1981/ w.e.f. 1-4-1988, Finance Act, 1988, w.e.f. 1-4-1989, Finance Act, 1993, w.e.f. 1-4-1994/w.r.e.f. 1-4-1991, Finance Act, 1995, w.e.f. 1-4-1996, Income-tax (Second Amendment) Act, 1998, w.e.f. 1-4-1999 and Finance Act, 1999, w.e.f. 1-4-2000, read as under : "10A. Special provision in respect of newly established industrial undertakings in free trade zones. (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: (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; (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 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 ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. (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) 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 or section 80-IA or section 80-IB 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 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 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, but before the 1st day of April, 1981, the assessee may, at his option, 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, 1981, furnish to the 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 80-I 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, before the due date for furnishing the return of 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. (8) References 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 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; (ii) "relevant assessment years" means the ten consecutive assessment years referred to in sub-section (3); (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; (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 notified 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." -

(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee:

 

Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years:

Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the 70a[undertaking began to manufacture or produce such articles or things or computer software] in such free trade zone or export processing zone:

70b70b. Third proviso shall be omitted, ibid., w.e.f. 1-4-2002. [Provided also that the profits and gains derived from such domestic sales of articles or things or computer software as do not exceed twenty-five per cent of total sales shall be deemed to be the profits and gains derived, from the export ofarticles or things or computer software:]

M35M35. In Section 10A, sub-section (1) after third proviso, proviso shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003. "Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software:";

Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years.

 

M36M36. In Section 10A, sub-section (1A) shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003. A22A22. In section 10A of the income tax Act,for sub-section (1A), the following sub-sections shall be substituted by "Finance Act, 2003" with effect from the 1st day of April, 2004

"(1A) Notwithstanding anything contained in sub-section (1), the deduction, in computing the total income of an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be,-

 

(i) hundred per cent of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the under- taking begins to manufacture or produce such articles or things or computer software, as the case may be, and thereafter, fifty per cent of such profits and gains for further two consecutive assessment years, and thereafter;

 

(ii) for the next three consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit 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 called the "Special Economic Zone Re-investment Allowance Reserve Account") to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (IB).

"Provided that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of Section 139."

(1B) The deduction under clause (it) of sub-section (1A) shall be allowed only if the following conditions are fulfilled, namely:-

 

(a) the amount credited to the Special Economic Zone Re-investment Allowance Reserve Account is to be utilised-

(i) for the purposes of acquiring new machinery or plant which is first put to use before the expiry of a period of three years next following the previous year in which the reserve was created; and

(ii) until the acquisition of 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;

 

(b) the particulars, as may be prescribed in this behalf, have been furnished by the assessee in respect of new machinery or plant along with the return of income for the assessment year relevant to the previous year in which such plant or machinery was first put to use.

 

(1C) Where any amount credited to the Special Economic Zone Reinvestment Allowance Reserve Account under clause (it) of subsection (1 A),-

 

(a) has been utilised for any purpose other than those referred to in sub-section (IB), the amount so utilised; or

(b) has not been utilised before the expiry of the period specified in sub-clause (i) of clause (a) of sub-section (IB), the amount not so utilised,

(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 three years specified in sub-clause (i) of clause (a) of sub-section (IB), and shall be charged to tax accordingly.";

 

70c70c. Substituted by the Finance Act, 2001, w.e.f. 1-4-2001. Prior to its substitution, sub-section (4) read as under : "(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the assessee." [(4) For the purposes of A23A23. In sub-section (4), for the word, brackets and figure "sub-section (1)", the words, brackets, figures and letter "sub-sections (1) and (1 A)" shall be substituted by "Finance Act, 2003" sub-sections (1) and (1A), the prof its derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.]

(5) The deduction under A24A24. In sub-section (5), for the word, brackets and figure "sub-section (1)", the words "this section" shall be substituted by "Finance Act, 2003" this section shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed form, alongwith the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

 

(6) 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 ofthe 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 A25A25. In sub-section (6),- in clause (i), after the words "relevant assessment years", the words, figures and letters "ending before the 1st day of April, 2001" shall be inserted and shall be deemed to have been inserted by "Finance Act, 2003" with effect from the 1st day of April, 2001; ending before the 1st day of April, 2001, 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 itselfand 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) 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 A26A26. In sub-section (6),- in clause (ii) after the words "relevant assessment years", the words, figures and letters "ending before the 1st day of April, 2001", shall be inserted and shall be deemed to have been inserted by "Finance Act, 2003" with effect from the 1st day of April, 2001; ending before the 1st day of April, 2001,

(iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the 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 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 year.

 

(7) The provisions of sub-section (8) and sub-section (10) of section 80-IA 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 undertaking referred to in section 80-IA.

 

A27A27. after sub-section (7), the following sub-section shall be inserted by "Finance Act, 2003" with effect from the 1st day of April, 2004 (7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger,-

 

(a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and

(b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place."

 

(8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of 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.

 

A28A28. sub-sections (9) and (9A) shall be omitted by "finance Act, 2003" with effect from the 1 st day of April, 2004 [* * * * * * * * * *]

 

M37M37. In Section 10A, after sub-section (9)and before Explanation 1, sub-section (9A) shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003.

A29A29. sub-sections (9) and (9A) shall be omitted by "finance Act, 2003" with effect from the 1 st day of April, 2004 [* * * * * * * * * * * * * * *]

 

A30A30. Explanation 1 shall be omitted by "Finance Act, 2003" with effect from the 1st day of April, 2004 *************

 

Explanation 2. For the purposes of this section,-

 

(i) "computer software" means,

(a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or

(b) any customized electronic data or any product or service of similar nature, as may be notified70f70f. For notified Information Technology enabled products or services by the Board, which is transmitted or exported from India to any place outside India by any means;

 

(ii) "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 or any other corresponding law for the time being in force;

(iii) "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 and Industry;

(iv) "export turnover" means the consideration in respect of export 70e[by the undertaking] of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India.

(v) "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 Gazette70g70g. For notified Free Trade Zones. specify for the purposes of this section;

(vi) "relevant assessment year" means any assessment year falling within a period of ten consecutive assessment years referred to in this section;

(vii) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry;

(viii) 'special economic zone" means a zone which the Central Government may, by notification in the Official Gazette, specify as a special economic zone for the purposes of this section.]

 

70h70h. Inserted by the Finance Act, 2001, w.e.f. 1-4-2001. [Explanation 3. For the removal of doubts, it is hereby declared that the prof its and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.]

A31A31. after Explanation 3, the following Explanation shall be inserted by "Finance Act, 2003" at the end with effect from the 1st day of April, 2004 Explanation 4.-For the purposes of this section, "manufacture or produce" shall include the cutting and polishing of precious and semi- precious stones.

 

Section 10B Special provisions in respect of newly established hundred per cent export-oriented undertakings

733 Substituted by the Finance Act, 2000, w.e.f. 1-4-2001. Prior to its substitution, section 10B, as inserted by the Finance Act, 1988, w.e.f. 1-4-1989 and later on amended by the Finance Act, 1993. w.r.e.f. 1-4-1991, Finance Act, 1994, w.e.f. 1-4-1994/1-4-1995, Income-tax (Second Amendment) Act, 1998, w.e.f. 1-4-1999 and Finance Act, 1999, w.e.f. 1-4-2000 read as under : "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; (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: 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 ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. (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 or section 80-IA or section 80-IB in relation to the profits and gains of the 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 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 80-I 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 80-I. (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 undertaking 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 ten consecutive assessment years referred to in sub-section (3); (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; (iv) "produce", in relation to any article or thing referred to in clause (i) of sub-section (2) includes production of computer programmes.".-

(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :

 

Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years:

734 Second proviso shall be omitted by the Finance Act, 2001, w.e.f. 1-4-2002.[Provided further that the profits and gains derived from such domestic sales of articles or things or computer software as do not exceed twenty-five per cent of the total sales shall be deemed to be the prof its and gains derived from the export of articles or things or computer software:]

Provided 735 In the Income-tax Act,in section 10B,sub-section (1),in the second proviso, for the word "also", the word "further" shall be substituted, by the Finance Act, 2006."further" that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years.

736 In Section 10B, after the second proviso, proviso shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003."Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software:";

 

737 In the Income-tax Act,in section 10B, sub-section (1),after the third proviso, the following proviso shall be inserted, namely:- "Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139 "; by the Finance Act, 2006."Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139."

 

(2) This section applies to any undertaking which fulfils all the following conditions, namely :

 

(i) it manufactures or produces any articles or things or computer software;

(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 undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such 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) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.

 

Explanation 1. For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

 

Explanation 2. The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.

 

738 Substituted by the Finance Act, 2001, w.e.f. 1-4-2001. Prior to its substitution, sub-section (4)read as under: "(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the assessee.";[(4) For the purposes of sub-section (1), the prof'its derivedfrom export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.]

 

(5) The deduction under sub-section (1) shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed form, alongwith the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

 

(6) 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 yearimmediately succeeding the last ofthe 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 739 In section 10B of the income tax Act,- in sub-section (6) with effect from the 1st day of April, 2001,- in clause (i), after the words "relevant assessment years", the words, figures and letters "ending before the 1st day of April, 2001" shall be inserted and shall be deemed to have been inserted by "Finance Act, 2003"ending before the 1st day of April, 2001 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, 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 allowances 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 740 In section 10B of the income tax Act,- in sub-section (6) with effect from the 1st day of April, 2001,- in clause (ii), after the words "relevant assessment years", the words, figures and letters "ending before the 1st day of April, 2001" shall be inserted and shall be deemed to have been inserted by "Finance Act, 2003"ending before the 1st day of April, 2001;

(iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the 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 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 year.

 

(7) The provisions of sub-section (8) and sub-section (10) of section 80-IA 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 undertaking referred to in section 80-IA.

 

741 In section 10B of the income tax Act after sub-section (7), the following sub-section shall be inserted by "Finance Act, 2003" with effect from the 1st day of April, 2004(7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger-

 

(a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and

(b) the provisions of this section shall, as far as may be, apply to the amalgamated or resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or the demerger had not taken place.";

 

(8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of 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.

 

(9) 742 In section 10B of the income tax Act sub-sections (9) shall be omitted by "Finance Act, 2003" with effect from the 1st day of April, 2004[* * * * * * * * * * * *]

 

743 In Section 10B, after the sub-section (9) and before Explanation 1, sub-section (9A) shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 1st April, 2003.

"(9A) 744 In section 10B of the income tax Act sub-sections (9A) shall be omitted by "Finance Act, 2003" with effect from the 1st day of April, 2004[* * * * * * * * * * * * *]

 

745 In section 10B of the income tax Act sub-sections (9A) Explanation 1 shall be omitted by "Finance Act, 2003" with effect from the 1st day of April, 2004[* * * * * * * * * *]

 

746 Inserted by the Finance Act, 2001, w.e.f. 1-4-2001.[Provided that nothing contained in this Explanation shall apply to any change in the shareholding of the company as a result of

 

(a) its becoming a company in which the public are substantially interested; or

(b) disinvestment of its equity shares by any venture capital company or venture capital fund.]

 

Explanation 2. For the purposes of this section,

 

(i) "computer software" means

(a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or

(b) any customized electronic data or any product or service of similar nature as may be notified747 For notified Information Technology enabled products or services. by the Board, which is transmitted or exported from India to anyplace outside India by any means',

 

(ii) "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 or any other corresponding law for the time being in force;

(iii) "export turnover" means the consideration in respect of export 748 Inserted by the Finance Act, 2001, w.e.f. 1-4-2001.[by the undertaking] of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;

(iv) "hundred per cent export-oriented undertaking" means an undertaking 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 14749 For the meaning of the terms/expressions "other educational institution", "existing" and "solely" of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;

(v) "relevant assessment years" means any assessment years falling within a period of ten consecutive assessment years, referred to in this section.]

 

750 The italicised words shall be inserted by the Finance Act, 2001, w.e.f. 1-4-2002.[Explanation 3. For the removal of doubts, it is hereby declared that the prof its and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.]

 

751 after Explanation 3, the following Explanation shall be inserted by "Finance Act, 2003" at the end, with effect from the 1st day of April, 2004Explanation 4.-For the purposes of this section, "manufacture or produce" shall include the cutting and polishing of precious and semiprecious stones.' Amendment of section 10C.

 

752 In Sec. (10) after clause (38) new clause shall be inserted by the Amendments to the the Income -Tax Act,2006.(39) any specified income arising, from any international sporting event held in India , to the person or persons notified by the Central Government in the Official Gazette, if such international sporting event- (a) is appproved by the international body regulating the international sport relating to such event. (b) has parricipation by more than two countries. (c) is notified by the Central Government in the Official Gazette of the purpose of this clause. Explanation : For the purpose of this clause " the specified income " meand the income , of the nature and to the extent ,arising from the international sporting event which the Central Government may notify in this belalf. (40) any income of the subsidiary company by way of grant or otherwise received from an Indian Company, being its holding company engaged in the business of generation, transmission or distribution of power if such receipt is for settlement of dues in connection with reconstruction or revival of an existing business of power generation. Provided that the provisions of this clause shall apply if reconstruction or revival of any existing business of power genereation is by the way of transfer of such business to the Indian company notified under sub-clause (a) of clause(v) of sub-section (4) of section -80IA. (41) any income arising from the transfer of a capital asset, being an asset of an undertaking engaged in the business of generation , transmission of distribution of power where such transfer is effect on or before the 31 st day of March , 2006 to the Indian Company notified under sub-clause (a)of clause (v) of sub-section 80-IA"

 

Section 10BA Special provisions in respect of export of certain articles or things

 

(1) Subject to the provisions of this section, a deduction of such profits and gains as an derived by an undertaking from the export out of India of eligible articles or things, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, deduction under Section 10-A or Section 10-B has been claimed, the undertaking shall not be entitled to the deduction under this section : Provided further that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years.

 

(2) This section applies to any undertaking which fulfils the following conditions, namely:-

 

(a) it manufactures or produces the eligible articles or things without the use of imported raw materials;

(b) 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 undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in Section 33-B, in the circumstances and within the period specified in that section;

 

(c) 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 80-1 shall apply for the purposes of this clause as they apply for the purposes of clause (ii) of sub-section (2) of that section;

 

(d) ninety per cent or more of its sales during the previous year relevant to the assessment year are by way of exports of the eligible articles or things;

(e) it employs twenty or more workers during the previous year in the process of manufacture or production.

 

(3) This section applies to the undertaking, if the sale proceeds of the eligible articles or things exported out of India are received in or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.

 

Explanation.-For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.

 

(4) For the purposes of sub-section (1), the profits derived from export out of India of the eligible articles or things shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things bears to the total turnover of the business carried on by the undertaking.

 

(5) The deduction under sub-section (1) shall not be admissible, unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of Section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.

 

(6) Notwithstanding anything contained in any other provision of this Act, where a deduction is allowed under this section in computing the total income of the assessee, no deduction shall be allowed under any other section in respect of its export profits.

 

(7) The provisions of sub-section (8) and sub-section (10) of Section 80-IA 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 undertaking referred to in Section 80-IA.

 

Explanation.-For the purposes of this section,-

(a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder or any other corresponding law for the time being in force;

(b) "eligible articles or things" means all hand-made articles or things, which are of artistic value and which requires the use of wood as the main raw material;

(c) "export turnover" means the consideration in respect of export by the undertaking of eligible articles or things received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub- section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India;

(d) "export out of India" shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance of any customs station as defined in the Customs Act, 1962 (52 of 1962).

 

Section 10BB Meaning of computer programmes in certain cases

 

The profits and gains derived by an undertaking from the production of computer programmes under section 10B, as it stood prior to its substitution by S.7 of the Finance Act, 2000 (10 of 2000), shall be construed as if for the words "computer programmes", the words "computer programmes or processing or management of electronic data" had been substituted in that section.]

 

Section 10C Special provision in respect of certain industrial undertakings in North-Eastern Region

 

(1) Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking, which has begun or begins to manufacture or produce any article or thing on or after the 1st day of April, 1998 in any Integrated Infrastructure Development Centre or Industrial Growth Centre located in the North-Eastern Region (hereafter in this section referred to as the industrial undertaking) 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 :

 

(i) 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 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 ;

 

(ii) 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 (3) of section 80-IA shall apply for the purposes of clause (ii) 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 ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things.

 

(4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of any previous year relevant to any subsequent assessment year,

(i) section 32, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if 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, 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 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 industrial 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 or section 80-IA or section 80-IB or section 80JJA in relation to the profits and gains of the industrial undertakings; 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 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) The provisions of sub-section (8) and sub-section (10) of section 80-IA 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-IA or section 80-IB, as the case may be.

 

(6) 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 in any of the relevant assessment years.

 

"Provided that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2004 and subsequent years.".

 

Explanation. For the purposes of this section,

 

(i) "Integrated Infrastructure Development Centre" means such centres located in the States of the North-Eastern Region, which the Central Government, may, by notification in the Official Gazette, specify for the purposes of this section;

(ii) "Industrial Growth Centre" means such centres located in the States of the North-Eastern Region, which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section;

(iii) "North-Eastern Region" means the region comprising the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura;

(iv) "relevant assessment years" means the ten consecutive years beginning with the year in which the industrial undertaking begins to manufacture or produce articles or things.]

 

Section 11 Income from property held for charitable or religious purposes

 

(1) Subject to the provisions of section 60 to section 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income

 

[(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 ["fifteen 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 ["fifteen per cent"] of the income from such property;]

(c) income [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

(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;

 

 

[(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.]

 

[Explanation. For the purposes of clauses (a) and (b),

 

(1) in computing the ["fifteen 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 ["eighty-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) [****] of section 139[* * *] 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 the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.]

 

 

 

[(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

(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.]

 

[(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) [Where ["eighty-five per cent"] of the income referred 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: ]

 

(a) such person specifies, by notice in writing given to the [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;

[(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5)]:]

[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.]

section 11 by the Finance Act, 2001, w.e.f. 1-4-2002 : Provided further that in respect ofany income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words "ten-years "at both the places where they occur, the words "five years" had been substituted.

"Explanation. Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under Section 12-AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (vi-a) of clause (23-C) of Section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.";

 

[(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

[(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or]

(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 credited or paid or"], as the case may be, of the previous year immediately following the expiry of the period aforesaid.]

"(d) is credited or paid to any trust or institution registered under Section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (vi-a) of clause (23-C) of Section 10,";

 

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

 

"Provided that the Assessing Officer shall not allow application of such income by way of payment or credit made for the purposes referred to in clause (d) of sub-section (3) of Section 11."

 

"Provided further that in case the trust or institution, which has invested or deposited its income in accordance with the provisions of clause (b) of sub- section 2, is dissolved, the Assessing Officer may allow application of such income for the purposes referred to in clause (d) of sub-section (3) in the year in which such trust or institution was dissolved.".

 

(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 [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 [* * *].

 

[(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and

 

[(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) investment in savings certificates as defined in clause (c) of s.2 of the Government Savings Certificates Act, 1959 (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, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (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 principal 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 [public sector company]:

[Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company,

(A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company;

(B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such 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 eligible for deduction under 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 eligible for deduction under clause (viii) of sub-section (1) of section 36J;

[(ixa) 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 urban infrastructure in India.

Explanation. For the purposes of this clause,

(a) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;

(b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);

(c) "urban infrastructure" means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers for urban transport;]

 

(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;]

[(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);]

[(xii) any other form or mode of investment or deposit as may be prescribed.]

 

Section 12 Income of trusts or institutions from contributions

 

[(1)] 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.]

 

[(2) The value of any services, being medical or educational services, made available by any charitable or religious trust running a hospital or medical institution or an educational institution, to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13, shall be deemed to be income of such trust or institution derived from property held under trust wholly for charitable or religious purposes during the previous year in which such services are so provided and shall be chargeable to income-tax notwithstanding the provisions of sub-section (1) of section 11.

 

Explanation. For the purposes of this sub-section, the expression "value "shall be the value of any benefit or facility granted or provided free of cost or at concessional rate to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13.]

 

[(3) Notwithstanding anything contained in section 11, any amount of donation received by the trust or institution in terms of clause (d) of sub-section (2) of section 80G ["in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5-C) of that section, in the manner specified in that clause, or"] which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister's National Relief Fund on ["or before the 31st day of March, 2004"] shall be deemed to be the income of the previous year and shall accordingly be charged to tax.]

 

Section 12A Conditions as to registration of trusts, etc.

 

[* * * * *]

 

Section 12AA Procedure for registration

 

(1) The [***] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) of section 12A, shall

 

(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant:

 

Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.

 

[(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the

 

(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) of section 12A.]

 

Section 13 Section 11 not to apply in certain cases

 

829 Re-introduced 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. Original section 13 was substituted by the Finance Act, 1970,w.e.f. 1-4-1971 and prior to its substitution, it was amended by the Finance Act, 1966, w.e.f. 1-4-1966 and the Finance Act, 1963,w.r.e.f. 1-4-1962.830 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973..-

(1) Nothing contained in section 11831 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.[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 832 For the meaning of the term "income", see Taxmann's Direct Taxes Manual, Vol. 3.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;

(bb) 833 Omitted by the Finance Act, 1983, w.e.f. 1-4-1984. Original 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;"[*****]

(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 pro visions 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

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 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;

 

834 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. Original clause was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977. It was later on amended by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978 and by the Finance Act, 1982, w.e.f. 1-4-1982.[(d) 835 Clause (25) of article 366 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;'in 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 funds836 For the meaning of the terms "funds", "investments", and "deposits" see Taxmann's Direct Taxes Manual, Vol. 3. of the trust or institution are invested837 For the meaning of the terms "funds", "investments", and "deposits" see Taxmann's Direct Taxes Manual, Vol. 3. or deposited838 For the meaning of the terms "funds", "investments", and "deposits" see Taxmann's Direct Taxes Manual, Vol. 3. 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 funds839 For the meaning of the terms "funds", "investments", and "deposits" see Taxmann's Direct Taxes Manual, Vol. 3. of the trust or institution invested840 For the meaning of the terms "funds", "investments", and "deposits" see Taxmann's Direct Taxes Manual, Vol. 3. or deposited841 For the meaning of the terms "funds", "investments", and "deposits" see Taxmann's Direct Taxes Manual, Vol. 3. 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 a842 For definition of "Government company", see footnote 46 on page 1.20 ante. Government company as defined in S.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 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 843 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.[****];

844 Inserted, ibid.[(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;

845 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1983.[(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, 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, 846 Substituted for "1992" by the Finance Act, 1992, w.e.f. 1-4-1992.[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.]

 

847 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.[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) 848 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.[and clause (d)] of sub-section (1), the income or the property849 For the meaning of the terms "property" and "lent", see Taxmann's Direct Taxes Manual, Vol. 3. 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 property850 For the meaning of the terms "property" and "lent", see Taxmann's Direct Taxes Manual, Vol. 3. of the trust or institution is, or continues to be, lent851 For the meaning of the terms "property" and "lent", see Taxmann's Direct Taxes Manual, Vol. 3. 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 property852 For the meaning of the terms "property" and "lent", see Taxmann's Direct Taxes Manual, Vol. 3. 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 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 referred to in sub-section (3) during the previous year for consideration which is less than adequate;

853 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973.[(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 funds854 For the meaning of the terms/expressions "funds", "invest" and "any concern", see Taxmann's Direct Taxes Manual, Vol. 3. of the trust or institution are, or continue to remain, invested855 For the meaning of the terms/expressions "funds", "invest" and "any concern", see Taxmann's Direct Taxes Manual, Vol. 3. for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern856 For the meaning of the terms/expressions "funds", "invest" and "any concern", see Taxmann's Direct Taxes Manual, Vol. 3. 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, 857 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977.[that is to say, any person whose total contribution up to the end of the relevant previous year exceeds 858 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.[fifty] thousand rupees];

(c) where such author, founder or person is a Hindu undivided family, a member of the family;

859 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.[(cc) any trustee of the trust or manager (by whatever name called) of the institution;]

(d) any relative of any such author, founder, person, 860 Substituted for "or member", ibid.[member, trustee or manager] as aforesaid;

(e) any concern in which any of the persons referred to in clauses (a), (b), (c) 861 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.[, (cc)] and (d) has a substantial interest.

 

(4) Notwithstanding anything contained in clause (c) of sub-section (1) 862 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.[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 capital863 For the meaning of the term "capital", see Taxmann's Direct Taxes Manual, Vol. 3. of that concern, the exemption under section 11 864 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973.[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 865 Substituted for "moneys" by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.[funds] of the trust or the institution have been invested in a concern in which such person has a substantial interest.

 

866 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1983. Original sub-section 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.[(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.]

 

867 Inserted by the Finance Act, 2000, w.e.f. 1-4-2001. Earlier sub-section (6) was omitted by the Finance Act, 1983, w.e.f. 1-4-1983. Original sub-section (6) was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977.[(6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but without prejudice to the provisions contained in sub-section (2) of section 12, in the case of a charitable or religious trust running an educational institution or a medical institution or a hospital, the exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-section (2) of section 12, by reason only that such trust has provided educational or medical facilities to persons referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3).]

 

868 In the Income-tax Act,In section 13, after sub-section (6) and before Explanation 1, the following sub-section shall be inserted with effect from the 1st day of April, 2007, namely:- "(7) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof, any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of that section.". by the Finance Act, 2006."(7) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof, any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of that section."

 

869 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973.[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 righ t to participate in profits) carrying not less than twenty per cent of the voting power are, 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);

(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.]

 

Section 13A Special provision relating to incomes of political parties

 

Any income of a political party which is chargeable under the head [***] "Income from house property" or "Income from other sources Capital gains or" 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 [Assessing] Officer to properly deduce its income therefrom;

(b) in respect of each such voluntary contribution in excess of [twenty 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.

 

Provided further that if the treasurer of such political party or any other person authorised by that political party in this behalf fails to submit a report under sub-sec. (3) of Sec. 29-C of the Representation of People Act, 1951 (43 of 1951), for a financial year, no exemption under this section shall be available for that political party for such financial year."; (iii) for the Explanation, the following Explanation shall be substituted, namely :

 

Explanation. For the purposes of this section, "political party" means a political party registered under Sec. 29-A of the Representation of the People Act, 1951 (43 of 1951);.

 

CHAPTER 4 COMPUTATION OF TOTAL INCOME

 

Section 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.

 

[***]

 

C. Income from house property.

 

D. Profits and gains of business or profession.

 

E. Capital gains.

 

F. Income from other sources.

 

Section 14A Expenditure incurred in relation to income not includible in total income

 

878 Inserted by the Finance Act, 2001, w.r.e.f. 1-4-1962.879 In the Income-tax Act,Section 14A shall be numbered as sub-section (1) w.e.f.the 1st day of April, 2007, by the Finance Act, 2006.(1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.] 880 In Section 14A, proviso shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effec from 11th May, 2001.

"Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the 1st day of April, 2001."

 

881 In the Income-tax Act, Section 14A of the Income-tax Act after sub-section (1) the following sub-sections shall be inserted, w.e.f.the 1st day of April, 2007, "(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act". by the Finance Act, 2006."(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

 

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act".

 

Section 15 Salaries

 

The 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.

 

[Explanation 1]. For the removal of doubts, it is hereby declared that where any salary paid in advance is 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.

 

[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.]

 

Section 16 Deductions from salaries

 

The income chargeable under the head "Salaries" shall be computed after making the following deductions, namely :

[***]

 

Explanation. For the purposes of this clause, where 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;]

 

(ii) [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; The following clauses (i) and (ii) shall be substituted for existing clauses (i) and (ii) of section 16 by the Finance Act, 2001, w.e.f. 1-4-2002 :

(i) in the case of an assessee whose income from salary, before allowing a deduction under this clause,

(A) does not exceed one lakh fifty thousand rupees, a deduction of a sum equal to thirty-three and one-third per cent of the salary or thirty thousand rupees, whichever is less;

(B) exceeds one lakh fifty thousand rupees but does not exceed three lakh rupees, a deduction of a sum of twenty-five thousand rupees;

(C) exceeds three lakh rupees but does not exceed five lakh rupees, a deduction of a sum of twenty thousand rupees;

 

(ii) a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the 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;

 

[(iii) a deduction of any sum paid by the assessee on account of a tax on Art.276 of the Constitution of India, leviable by or under any law.]

 

(iv) [***]

 

Section 17 "Salary", "perquisite" and "profits in lieu of salary" defined

 

For 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;

[(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;

 

(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;

(c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and 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, exceeds [twenty-four] thousand rupees:]

[Provided that nothing contained in this sub-clause shall apply to the value of any benefit provided by a company free of cost or at a concessional rate to its employees by way of allotment of shares, debentures or warrants directly or indirectly under [any Employees'Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued in this behalf by the Central Government.]]

 

'Provided further that for the assessment year beginning on the 1st day of April, 2002, nothing contained in this clause shall apply to any employee whose income under the head "Salaries" (whether due from, or paid or allowed by, one or more employers) exclusive of the value of all perquisites not provided for by way of monetary payment, does not exceed one lakh rupees.'.

[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,

 

(iiia) [****]

 

(vi) the value of any other fringe benefit or amenity (excluding the fringe benefit chargeable to tax under Chapter XII-H) as may be prescribed:"

 

(v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund [or a Deposit-linked Insurance Fund established under S.3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952)], to effect an assurance on the life of the assessee or to effect a contract for an annuity:

 

The following sub-clause (vi) shall be inserted after sub-clause (v) in clause (2) of section 17 by the Finance Act, 2001, w.e.f. 1-4-2002 :

(vi) the value of any other fringe benefit or amenity as may be prescribed.

 

[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;

[(ii) 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

(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 ailment 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 [fifteen] 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 [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, [subject to the condition that

(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 [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;]

[*****]

 

 

(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) [, clause (10A)] [, clause (10B)], clause (11) [clause (12) [, 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 [****], to the extent to which it does not consist of contributions by the assessee or [interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

 

Explanation. For the purposes of this sub-clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10.]

 

The following sub-clause (iii) after sub-clause (ii) shall be inserted in clause (3) of section 17 by the Finance Act, 2001, w.e.f. 1-4-2002 :

(iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person

 

(A) before his joining any employment with that person; or

(B) after cessation of his employment with that person.

 

Section 18 .

 

10*. The following section 23 shall be substituted for existing section 23 by the Finance Act, 2001, w.e.f. 1-4-2002 : "23. Annual value how determined.- (1) 14[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 :] [Provided that where the property is in the occupation of a tenant, the taxes levied16 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:] [Provided further that the annual value as determined under this sub-section 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 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, 1961, and completed after the 31st day of March, 1970, 18[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; (c) in the case of a building comprising one or more residential units, the erection of which is 20[completed after the 31st day of March, 1978, 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;] 21[(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 22[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. [****] Explanation 1]. 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.] [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.] [(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 annual value of such house or part of the house shall be taken to be nil; "(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 VIA), 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." Earlier, sub-section (2) was first amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967 and later substituted by the Taxation Laws (Amendment)'Act, 1970, w.e.f. 1-4-1971 and also by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. Words in square brackets in clause (i) were substituted for "one thousand and eight hundred" by the Finance Act, 1982, w.e.f. 1-4-1983. (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.] 28[****] 29[(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 __________________________________________________________________________ 28. Sub-section (2A) omitted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to its omission, sub-section (2A), as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, stood 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." 29. Substituted for the following sub-section (3) by the Finance Act, 1986, w.e.f. 1-4-1987 : "(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 (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. ___________________________________________________________ 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

 

Section 19 .

Section 20 .

Section 21 .

 

Section 22 Income from house property

 

The 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".

 

Section 23 Annual value how determined

 

(1) 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 or any part of the property is let and the actual 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; or

(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :

Provided that the tuxes levied by any local authority in respect ofthe property shall 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.

 

Explanation. For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise.

 

(2) Where the property consists of a house or part of a house which

 

(a) is in the occupation of the owner for the purposes of his own residence; or

(b) 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 or part of the house shall be taken to be nil.

 

(3) The provisions of sub-section (2) shall not apply if

 

(a) the house or part of the house is actually let during the whole or any part of the previous year; or

(b) any other benefit therefrom is derived by the owner.

 

(4) Where the property referred to in sub-section (2) consists of more than one house

 

(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;

(b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let.

 

Section 24 Deductions from income from house property

 

Income chargeable under the head "Income from house property" shall be computed after making the following deductions, namely:

(a) a sum equal to thirty per cent of the annual value;

 

(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

 

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed ["within three years from the end of the financial year in which capital was borrowed"], the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees.

'Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation. For the purposes of this proviso, the expression "new loan" means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.'.

 

Explanation. Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed 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 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.

 

Section 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".

 

Section 25A Special provision for cases where unrealised rent allowed as deduction is realized subsequently

 

Where a deduction has been made under clause (x) of sub-section (1) of section 24[as it stood immediately before its substitution by the Finance Act, 2001] 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 it stood immediately before its substitution by the Finance Act, 2001]) as the income of that previous year, whether the assessee is the owner of that property in that year or not.]

 

Section 25AA Unrealised rent received subsequently to be charged to income-tax

 

Where the assessee cannot realise rent from a property let to a tenant and subsequently 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 as the income of that previous year in which such rent is realised whether or not the assessee is the owner of that property in that previous year.

 

Section 25B Special provision for arrears of rent received

 

Where the assessee

(a) is the owner of any properly consisting of any buildings or lands appurtenant thereto which has been let to a tenant; and

 

(b) has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year, the amount so received, after deducting 50a[a sum equal to one-fourth of such amount for repairs of, and collection of rent from, the property], shall be deemed to be the income chargeable under the head "Income from house property" and accordingly charged to income-tax as the income of that previous year in which such rent is received, whether the assessee is the owner of that property in that year or not.]

 

Section 26 Property owned by co-owners

 

[.- 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 section 22, section 23, section 24 and section 25 shall be included in his total income. [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.]

 

Section 27 "Owner of house property", "annual charge", etc., defined

 

For the purposes of section 22, section 23, section 24, section 25 and section 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 impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate ;

 

[(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

 

(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 S.53A of the Transfer of Property Act, 1882 (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.

 

 Section 28 Profits and gains of business or profession

 

943 For the meaning of the term "capital", see Taxmann's Direct Taxes Manual, Vol. 3..- 944 Substituted for "moneys" by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",

(i) the profits and gains945 For the meaning of the terms/expressions 'profits and gains', "profession", "due to" and "received by", see Taxmann's Direct Taxes Manual, Vol. 3. of any business or profession946 For the meaning of the terms/expressions 'profits and gains', "profession", "due to" and "received by", see Taxmann's Direct Taxes Manual, Vol. 3. which was carried on by the assessee at any time during the previous year ;

 

(ii) any compensation or other payment due to947 For the meaning of the terms/expressions 'profits and gains', "profession", "due to" and "received by", see Taxmann's Direct Taxes Manual, Vol. 3. or received by948 For the meaning of the terms/expressions 'profits and gains', "profession", "due to" and "received by", see Taxmann's Direct Taxes Manual, Vol. 3.,

 

(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

(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 ;

949 Inserted by the. Finance Act, 1973, w.r.e.f. 1-4-1972.[(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 similar950 Inserted by the Finance Act, 1999, w.e.f. 11-5-1999. association from specific services951 Inserted by the Finance Act, 1999, w.e.f. 11-5-1999. performed for its members ;

 

952 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962.[(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);]

 

953 Inserted by the Taxation Laws (Amendment) Act, 1978, w.e.f. 1-4-1979.[(iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ;]

 

954 "Interest on securities," omitted by the Finance Act, 1988, w.e.f. 1-4-1989.[(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 ;]

 

955 In section 28 of the Income-tax Act, 1961 (hereinafter in this Chapter referred to as the Income-tax Act), w.e.f. dt.1/4/2006, after clause (iiic), the following clause shall be inserted and shall be deemed to have been inserted w.e.f. dt.1/4/ 1998, namely:- "(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);"; by the Income-tax Act, 1961. (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);

 

956 In section 28 of the Income-tax Act, 1961 (hereinafter in this Chapter referred to as the Income-tax Act), w.e.f. dt.1/4/2006, after clause (iiid), the following clause shall be inserted and shall be deemed to have been inserted w.e.f.dt.1/4/ 1998, namely:- "(iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992)." by the Income-tax Act, 1961. (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992)..

 

957 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.[(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ;]

 

958 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier clause (v) was inserted by the Direct Tax Laws (Amdt.) Act, 1987, w.e.f. 1-4-1989 and was omitted by the Direct Tax Laws (Amdt.) Act, 1989, with effect from the same date.[(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 ;]

 

959 In Section 28, after clause (v), clause (va) shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effect from 1st April, 2003.

(va) any sum, whether received or receivable, in cash or kind, under an agreement for

 

(a) not carrying out any activity in relation to any business; or

(b) not sharing any know-how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services :

Provided that sub-clause (a) shall not apply to

(i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head "Capital gains";

(ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone Layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India.

 

Explanation. For the purposes of this clause,

(i) "agreement" includes any arrangement or understanding or action in concert,

(A) whether or not such arrangement, understanding or action is formal or in writing; or

(B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings;

 

(ii) "service" means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging.'

 

 

960 Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.[(vi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

 

Explanation. For the purposes of this clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10.]

 

Explanation 1. 961 Prior to its omission, Explanation 1 read as under: 'Explanation 1. The profits and gains of a business shall include the profits and gains of managing agency."[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.

 

Section 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 section 30 to [section 43D].

 

Section 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.

 

"Explanation.-For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure.".

 

Section 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.

 

"Explanation.-For the removal of doubts, it is hereby declared that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure.".

 

Section 32 Depreciation

 

(1) [In respect of depreciation of

 

(i) buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed ]

[(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;]

(ii) [in the case of any block of assets, such percentage on the written down value thereof as may be prescribed]:

[****]

[Provided [***] 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 [but before the 1st day of April, 2001], unless it is used

(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 further that where an asset referred to in clause (i) M55M55. In Section 32, clause (ii), in second proviso the words ["or clause (ii)"] shall be substituted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effect from 1st April, 2003. ["or clause (ii) or clause (ii-a)"], as the case may be, 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 sub-section in respect of ["or clause (ii) or clause (ii-a)"] as the case may be : ]

[Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed.

Explanation. For the purposes of this proviso,

 

(a) the expression "commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller";

(b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab, "tractor" and "road roller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988):]

 

[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:]

[Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.]

[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 sub-section"] "written down value of the block of assets" shall have the same meaning as in clause (c) of sub-section (6) of section 43.]

[Explanation 3. For the purposes of this sub-section, the expressions "assets" and "block of assets" shall mean

(a) tangible assets, being buildings, machinery, plant or furniture;

(b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature.

 

Explanation 4. For the purposes of this sub-section, the expression "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 searching for discovery or testing of deposits for the winning of access thereto);]

Explanation 5. For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assesses has claimed the deduction in respect of depreciation in computing this total income.

 

(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that no deduction shall be allowed in respect of

(A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any othe person; or

(B) any machinery or plant installed in any office premises or an; residential accommodation, including accommodation in the nature of a guest-house; or

(C) any office appliances or road transport vehicles; or

(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

 

Explanation. For the purposes of this clause,

(1) "new industrial undertaking" means an undertaking which is not formed,

(a) by the splitting up, or the reconstruction, of a business already in existence; or

(b) by the transfer to a new business of machinery or plant previously used for any purpose;

 

(2) "installed capacity" means the capacity of production as existing on the 31st day of March, 2002.'.

 

 

[(iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and 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 "an Indian company or in scheme of amalgamation of a banking company, as referred to in clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to in sub-section (15) of Section 45 of the said Act sanctioned and brought into force by the Central Government under sub section (7) of Section 45 of that Act, of any asset by the banking company to the banking institution."]

 

 

(iv) [****]

 

(v) [****]

 

(vi) [***]

 

(1A) [*****]

 

[(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under 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 the 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.]

 

Section 32A Investment allowance

 

(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 : [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 per cent", the words "twenty per cent" had been substituted :] Provided [further] that no deduction shall be allowed under this section 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 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 "Profits and gains of business or profession" of any one previous year.

[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 newship 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

[(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 :]

[Provided that nothing contained in clauses (a) and (b) shall apply in relation to,

(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 ;]

 

 

[(c) any new machinery or plant installed after the 31st day of March, 1983, but before the [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.]

Explanation for the purposes of this sub-section and [sub-sections (2B) [,(2C)] and (4)]-

[(1)

(a) "new ship" or "new aircraft" includes a ship or aircraft which before the date of acquisition by the assesses 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 undertaking [does not exceed,

[(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,

(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.

 

[(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.]

 

[(2B) Where any new machinery or plant is installed after the 30th day of June, 1977, but before the 1st day of April, [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, 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 Societies Registration Act, 1860 (21 of 1860)] and financed wholly or mainly by the Government;

(b) [****]

(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, 1956 (3 of 1956), to be a University for the purposes of that Act.]

 

 

 

[(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 notified in this behalf by the Central Government in the Official Gazette, is installed after the 31st day of May, 1983 [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 forward 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 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 [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 [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:

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 sub-section 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 [Assessing] Officer under section 143, the [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 [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

Provided that such opportunity shall not be allowed by the [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 [second] proviso to 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 S.617 of the Companies Act, 1956(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 on by it as a result of which the firm sells or otherwise transfers to the 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.

 

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 [***] as may be specified therein.

 

[(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.]

 

[(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 12thdayofJune, 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:

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.]

 

(9) [Omitted by the Finance Act. 1990, w.r.e.f. 1-4-1976.]

 

Section 32AB Investment deposit account

 

(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 the due date of furnishing the return of his income, whichever is earlier; or

(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 or coffee or rubber in India, to be approved in this behalf by the Tea Board the assessee shall be allowed a deduction [(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 [***] business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), 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 case may be, any member of such firm, association of persons or body of individuals:]

[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,

 

[***]

[(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 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 S.4 of the Tea Act, 1953 (29 of 1953).]

 

(3) [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 [Schedule VI] to the Companies Act, 1956 (1 of 1956), [as increased by the aggregate of

 

(i) the amount of depreciation;

(ii) the amount of income-tax paid or payable, and provision therefor;

(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) 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;

[(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 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 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.

 

[(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 [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.]

 

[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.]

 

[(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.]

[(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 [***] 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 [[in circumstances other than the circumstances specified in clauses (b), (c) and (e) of sub-section (5A)]], is not utilised in accordance with [, and within the time specified in,] the scheme, either wholly or in part, [****] 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 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 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

 

(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 64Government company as defined in S.617 of the Companies Act, 1956 (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.

 

[(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 S.3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);

(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.]

 

Section 33 Development rebate

 

[(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 referred 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 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 31 st day of March, 1970.]

 

 

 

 

 

[(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

(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 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 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) [or sub-section (1A)] [of this section or sub-section (1) of section 33A] [or any deduction under Chapter VI-A [****]]) is nil or is less than the full amount of the development rebate [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) [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) [or sub-section (1A)] [of this section or sub-section (1) of section 33A] [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 :

(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.

 

 

[(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 transferred 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 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 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.

 

 

[(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

 

[(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:] [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.]

 

Section 33A Development allowance

 

(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, [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, [thirty] per cent of the actual cost of planting, shall, subject to the provisions of this section, be allowed as a deduction [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

(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 (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:]

[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 [the previous year in respect of which the deduction is required to be allowed under sub-section (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 [****])] is nil or is less than the full amount of the development allowance calculated at the rates [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

Explanation. Where for any assessment year development allowance is to be allowed in accordance with the provisions of sub-section (2) in respect of 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 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 [***])] 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) 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 a 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 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 defined in S.617 of the Companies Act, 1956 (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).

 

 

[(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 otherwise 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:

[Provided that where such cost exceeds

(i) forty thousand rupees per hectare in respect of land situate in a hilly area comprised in the district of Darjeeling; or

(ii) thirty-five thousand rupees per hectare in respect of land situate in a hilly area comprised in an area other than the district of Darjeeling; or

(iii) thirty thousand rupees per hectare 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.

 

[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.]

 

Section 33AB Tea development account, coffee development account and rubber development account

 

(1) Where an assessee carrying on business of growing and manufacturing tea in India has, before the expiry of six months from the end of [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 approved in this behalf by the Tea Board or the Coffee Board or the Rubber Board

(b) deposited any amount in an account (hereafter in this section referred to as the Deposit Account) opened by the assessee in accordance with, and for the purposes specified in, a scheme framed by the Tea Board or the Coffee Board or the Rubber Board, as the case may be (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 forward 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 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 [, or in the 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) 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) where any amount standing to the credit of the assessee in the special account or in the Deposit Account is released during any previous year by the National Bank or withdrawn by the assessee from the Deposit Account and such amount is 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,

 

(5) Where any amount, standing to the credit of the assessee in the special account [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 [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 [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 [or in the Tea Deposit Account], which is released during any previous year by the National Bank [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 [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 [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 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 S.617 of the Companies Act, 1956 (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 [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) "Coffee Board" means the Coffee Board constituted under S.4 of the Coffee Act, 1942 (7 of 1942);

(aa) "National Bank" means the National Bank for Agriculture and Rural Development established under S.3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);

(ab) "Rubber Board" means the Rubber Board constituted under sub-section (1) of S.4 of the Rubber Board Act, 1947 (24of 1947)

(b) "Tea Board" means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953).]

 

Section 33ABA Site Restoration Fund

 

(1) Where an assessee is carrying on business consisting of the prospecting for, or extraction or production of, petroleum or natural gas or both in India and in relation to which the Central Government has entered into an agreement with such assessee for such business, has before the end of the previous year

 

(a) deposited with the State Bank of India 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 Government of India in the Ministry of Petroleum and Natural Gas; or

(b) deposited any amount in an account (hereafter in this section referred to as the Site Restoration Account) opened by the assessee in accordance with, and for the purposes specified in, a scheme framed by the Ministry referred to in clause (a) (hereafter in this section referred to as the deposit scheme), section 72) of

(i) a sum equal to the amount or the aggregate of the amounts so deposited; or

(ii) 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 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, or in the Site Restoration 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 :

Provided also that any amount credited in the special account or the Site Restoration Account by way of interest shall be deemed to be a deposit.

 

(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 Site Restoration 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.

 

(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

 

(5) Where any amount standing to the credit of the assessee in the special account or in the Site Restoration Account is withdrawn on closure of the account during any previous year by the assessee, the amount so withdrawn from the account, as reduced by the amount, if any, payable to the Central Government by way of profit or production share as provided in the agreement referred to in section 42, 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.

 

Explanation. Where any amount is withdrawn on closure of the account in a previous year in which the business carried on by the assessee is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year.

 

(6) Where any amount standing to the credit of the assessee in the special account or in the Site Restoration Account is utilised by the assessee for the purposes of any expenditure in connection with such business in accordance with the scheme 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 or in the Site Restoration Account, which is released during any previous year by the State Bank of India or which is withdrawn by the assessee from the Site Restoration Account for being utilised by the assessee for the purposes of such business in accordance with the scheme 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.

 

[****]

 

 

(8) Where any asset acquired in accordance with the scheme 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 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 S.617 of the Companies Act, 1956 (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 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 may, if it considers necessary or expedient so to do, 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. For the purposes of this section,

 

(a) "State Bank of India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955);

(b) the expression "amount standing to the credit of the assessee in the special account or the Site Restoration Account" includes interest accrued to such accounts.]

 

Section 33AC Reserves for shipping business

 

(1) [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

 

"Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the aggregate of the amounts of the paid-up share capital, the general reserves and amount credited to the share premium account of the assessee, no allowance under this sub-section shall be made in respect of such excess.".

[Provided further that for five assessment years commencing on or after the 1st day of April, 2001 and ending before the 1st day of April, 2006, the provisions of this sub-section shall have effect as if for the words "an amount not exceeding fifty per cent of profits", the words "an amount not exceeding the profits" had been substituted.]

 

(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 [, other than in any scheme of demerger] by the assessee to any person at any time before the expiry of three 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.

 

 

"(4) Where the ship is sold or otherwise transferred (other than in any scheme of demerger) after the expiry of the period specified in clause (c) of sub-section (3) and the sale proceeds are not utilised for the purpose of acquiring a new ship within a period of one year from the end of the previous year in which such sale or transfer took place, "so much of such sale proceeds which represent the amount credited to the reserve account and utilised for the purposes mentioned in clause (c) of sub-section (3)" shall be deemed to be the profits of the assessment year immediately following the previous year in which the ship is sold or transferred.".

 

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 of 1956) ;

[(ad) "Government company" shall have the meaning assigned to it in section 617 of the Companies Act, 1956 (1 of 1956) ;]

(b) "new ship" shall have the same meaning as in clause (ii) of sub-section (2) of section 32AB.]

 

Section 33B Rehabilitation allowance

 

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 reestablished, 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 :

 

[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.]

 

Section 34 Conditions for depreciation allowance and development rebate

 

(1) [***]

 

(2) [***]

 

(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 [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

(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 :

[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.]

Explanation [Omitted by the Finance Act, 1990, w.r.e-f. 1-4-1962. Earlier, it was inserted by the Finance Act, 1966, 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 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 sub-section (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 S.617 of the Companies Act, 1956 (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.

 

Section 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-third 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 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 section 234B and section 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.]

 

Section 35 Expenditure on scientific research

 

1183 Reintroduced with modification by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier section 35 was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.1184 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978..-

(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.

1185 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974.[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 21186 Section 40A(5) has now been omitted. For text of omitted Explanation 2 to section 40A(5), see. footnote 63 on p. 1.238 post. 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 authority1187 Prior to 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." 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 ;]

1188 Inserted by the Finance Act, 1986, w.e.f. 1-4-1987.(ii) 1189 Substituted for "any sum paid" by the Finance Act, 1999, w.e.f. 1-4-2000.[an amount equal to one and one-fourth times of 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 :

1190 In section 35 sub-section (1) clause (ii), for the proviso, the following proviso shall be substituted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 1st day of April, 2006."Provided that such association, university, college or other institution for the purposes of this clause-

(A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and

(B) such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government;'';

 

1191 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to substitution, clause (iii), as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 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 ;"[1192 Omitted by the Finance Act, 1989,w.e.f. 1-4-1991. Prior to 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;'(iii) 1193 Substituted for "any sum paid" by the Finance Act, 1999, w.e.f. 1-4-2000.[an amount equal to one and one-fourth times of any sum paid] to a university, college or other institution to be used for research in social science or statistical research :

1194 In section 35 sub-section (1) clause (iii), for the proviso, the following proviso shall be substituted by the Taxation Laws (Amendment) Act, 2006, w.e.f. 1st day of April, 2006."Provided that such university, college or other institution for the purposes of this clause-

(A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and

(B) such university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government;'';

 

1195 In section 35 sub-section (1) clause (iii), the following Explanation shall be inserted by the Taxation Laws (Amendment) Act, 2006."Explanation -The deduction, to which the assessee is entitled in respect of any sum paid to a scientific research association, university, college or other institution to which clause (ii) or clause (iii) applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn;";

 

(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):

1196 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.[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 1197 Substituted for "prescribed authority" by the Finance Act, 1999, w.e.f. 1-4-2000.[Central Government] 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 1198 Substituted for "prescribed authority" by the Finance Act, 1999, w.e.f. 1-4-2000.[Central Government] 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 1199 In section 35 sub-section (1) clause (iv), in the second proviso, for the word "authority", the word "Government" shall be substituted; by the Taxation Laws (Amendment) Act, 2006."Government" may also make such inquiries as it may deem necessary in this behalf :

Provided also that any 1200 In section 35 sub-section (1) clause (iv), for the words "notification issued by the Central Government under clause (ii) or clause (iii) shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years", the word "notification issued, by the Central Government under clause (ii) or clause (iii), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years" shall be substituted; by the Taxation Laws (Amendment) Act, 2006."notification issued, by the Central Government under clause (ii) or clause (iii), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, 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.]

1201 In section 35 sub-section (1) clause (iv), after the proviso, proviso shall be inserted by the Taxation Laws (Amendment) Act, 2006.''Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under clause (ii) or clause (iii) shall be issued or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received by the Central Government.'';

 

(2) For the purposes of clause (iv) of sub-section (1),

 

1202 Substituted for clause (i) by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.[(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 ;

(id) 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 year1203 Omitted, ibid. Prior to 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." shall be deducted for that previous year :]

1204 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.[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.]

 

1205 Existing Explanation renumbered as Explanation 1, ibid.[Explanation 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.

1206 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.[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 (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 53A1207 Substituted for "and" by the Finance Act, 1989, w.r.e.f. 1-4-1987. of the Transfer of Property Act, 1882 (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 1208 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.[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 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 1209 Substituted for "clauses (i), (ii), (iia), (iii) and (iv) of sub-section (1) or under sub-section (1A)" by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.[clause (ii) of sub-section (1)] of section 32 for the same 1210 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1962.[or any other] previous year in respect of that asset;

(v) where the asset 1211 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.[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 1212 Substituted for "clauses (i), (ii) and (iii) of sub-section (1)" by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.[clause (ii) of sub-section (1)] of section 32.

 

1213 Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974.[(2A) 1214 For guidelines for approval of scientific research programmes and list of approved programmes, refer Taxmann's Direct Taxes Circulars, 1999 edn., Vol. 1, pp. 1.725-1.727.Where 1215 Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.[, before the 1st day of March, 1984,] the assessee pays any sum 1216 Inserted by the Finance (No. 2) Act, 1983, w.e.f. 1-4-1984.[(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) 1217 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980.[or to a public sector company] to be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority1218 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 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 one-third 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.]

1219 In Section 35 Sub Section (2AA) the following Explanation 1 shall be inserted by the Taxation Laws (Amendment) Act, 2006."Explanation 1 - The deduction, to which the assessee is entitled in respect of any sum paid to a National Laboratory, University, Indian Institute of Technology or a specified person for the approved programme referred to in this sub-section, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to,- (a) such Laboratory, or specified person has been withdrawn; or (b) the programme, undertaken by the National Laboratory, University, Indian Institute of Technology or specified person, has been withdrawn.".

1220 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980.[Explanation 2 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.]

 

1221 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994.[(2AA) 1222 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.Where the assessee pays any sum to a National Laboratory 1223 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995.[or a 1224 Words "University or an Indian Institute of Technology or a specified person" shall be substituted for "University or an Indian Institute of Technology" by the Finance Act, 2001, w.e.f. 1-4-2002.[University or an Indian Institute of Technology] with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority1225 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968., then

 

(a) there shall be allowed a deduction of a sum equal to one and one- fourth times the sum so paid ; and

(b) no deduction in respect of such sum shall be allowed under any other provision of this Act:

1226 Substituted for the following provisos by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996. Prior to their substitution, the said provisos, as amended by the Finance Act, 1994, w.e.f. 1-4-1995, read as under : "Provided that every National Laboratory or University or Indian Institute of Technology desirous of obtaining approval under this sub-section 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 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 or University or Institute, as the case may be."[Provided that the prescribed authority shall, before granting approval, satisfy itself about the feasibility of carrying out the scientific research and shall submit its report to the Director General in such form as may be prescribed.1227 Substituted for "that sub-section" by the Finance Act, 1964, w.e.f. 1-4-1964.]

 

1228 In the Income-tax Act, in section 35, w.e.f. the 1st day of April, 2006, in sub-section (2AA), before the Explanation 2 as so following Explanation shall be inserted, namely:- "Explanation 1 -The deduction, to which the assessee is entitled in respect of any sum paid to a National Laboratory, University, Indian Institute of Technology or a specified person for the approved programme referred to in this sub-section, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to,- (a) such Laboratory, or specified person has been withdrawn; or (b) the programme, undertaken by the National Laboratory, University, Indian Institute of Technology or specified person, has been withdrawn.". by the Taxation Laws (Amendment) Act, 2006.[Explanation 1 -The deduction, to which the assessee is entitled in respect of any sum paid to a National Laboratory, University, Indian Institute of Technology or a specified person for the approved programme referred to in this sub-section, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to,-

(a) such Laboratory, or specified person has been withdrawn; or

(b) the programme, undertaken by the National Laboratory, University, Indian Institute of Technology or specified person, has been withdrawn.]

 

1229 Substituted by the Finance Act, 1994, w.e.f. 1-4-1995. Prior to substitution, the Explanation, as inserted by the Finance Act, 1993, w.e.f. 1-4-1994, read as under : '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.'1230 In the Income-tax Act, in section 35, w.e.f. the 1st day of April, 2006, in sub-section (2AA), the Explanation 1 shall be numbered as Explanation 2 thereof and before the Explanation 2 as so numbered, by the Taxation Laws (Amendment) Act, 2006.[Explanation 2. 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

(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 S.376 of the Institutes of Technology Act, 1961 (59 of 1961)].

(d) "specif ied person" means such person as is approved by the prescribed authority.

 

1231 Inserted by the Finance Act, 1997, w.e.f. 1-4.1998.See rule 6(1B), (4), (5A) and (7A) and Form Nos. 3CK to 3CM.[(2AB)

(1) Where a company engaged in the business of 1232 The italicised words shall be inserted by the Finance Act, 2001, w.e.f. 1-4-2002.[bio-technology or in the business of] manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified1233 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. by the Board incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority1234 Prescribed authority is Secretary, Department of Scientific and Industrial Research, Government of India., then, there shall be allowed a deduction of 1235 Substituted for "a sum equal to one and one-fourth times of the expenditure" by the Finance Act, 2000, w.e.f. 1-4-2001.[a sum equal to one and one-half times of the expenditure} so incurred.

Explanation. For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).

(2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act.

(3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and for audit of the accounts maintained for that facility.

(4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Director General in such form and within such time as may be prescribed.]

1236 Inserted by the Finance (No. 2) Act, 1998, w.r.e.f. 1-4-1998.[(5) No deduction shall be allowed in respect of the expenditure referred to in clause (1) which is incurred after the "31st day of March,2007" 1237 In Section 35 in subsection (2-AB), in clause (5), the figures, letters and words "31st day of March, 2007" shall be substituted w.e.f dt.1/4/2006, by the Finance Act, 20051238 Substituted for "2000" by the Finance Act, 1999, w.e.f. 1-4-2000.]

 

1239 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. For guidelines for approval of scientific research programmes under this sub-section, refer Taxmann's Direct Taxes Circulars, 1999 edn., Vol. 1, pp. 1.729-1.733.[(2B)

(a) Where 1240 Inserted by the Finance Act, 1984, w.e.f, 1-4-1984.[, 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 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 sub-section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under 1241 Substituted for "clauses (i), (ii), (iia) and (iii) of sub-section (1) or under sub-section (1A)" by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.[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.]

 

1242 Substituted by the Finance Act, 1999, w.e.f. I -4-2000. Prior to its substitution, sub-section (3) read as under ; "(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, whose decision shall be final."[(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

(a) the Central Government, when such question relates to any activity under clauses (ii) and (iii) of sub-section (1), and its decision shall be final;

(b) the prescribed authority1243 Substituted for "forty" by the Finance Act, 1966, w.e.f. 1-4-1966., when such question relates to any activity other than the activity specified in clause (a), 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.

1244 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.[(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 amalga- mating company if the latter had not so sold or otherwise transferred the asset.]]

 

Section 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 [but before the 1st day of April, 1998], 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.

 

(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.]

 

[(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.]

[(7) Where in a scheme of demerger, the demerged company sells or otherwise transfers the rights to the resulting company (being an Indian company),

 

(i) the provisions of sub-sections (3) and (4) shall not apply in the case of the demerged company; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company as they would have applied to the demerged company, if the latter had not sold or otherwise transferred the rights.]

 

Section 35AB Expenditure on know-how

 

(1) Subject to the provisions of sub-section (2), where the assessee has paid in any previous year [relevant to the assessment year commencing on or before the 1st day of April, 1998] 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.

 

[(3) Where there is a transfer of an undertaking under a scheme of amalgamation or demerger and the amalgamating or the demerged company is entitled to a deduction under this section, then, the amalgamated company or the resulting company, as the case may be, shall be entitled to claim deduction under this section in respect of such undertaking to the same extent and in respect of the residual period as it would have been allowable to the amalgamating company or the demerged company, as the case may be, had such amalgamation or demerger not taken place.]

 

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).]

 

Section 35ABB Expenditure for obtaining licence to operate telecommunication services

 

(1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services [either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year]

 

Explanation. For the purposes of this section,

 

[(i) "relevant previous years" means,

(A) in a case where the licence fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced;

(B) in any other case, the previous years beginning with the previous year in which the licence fee is actually paid, and the subsequent previous year or years during which the licence, for which the fee is paid, shall be in force;]

 

(ii) "appropriate fraction" means the fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years;

(iii) "payment has actually been made" means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee.

 

(2) Where the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of the transfer, shall be allowed in respect of the previous year in which the licence is transferred.

 

(3) Where the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred to obtain the licence and the amount of such expenditure remaining unallowed shall be chargeable to income-tax as profits and gains of the business in the previous year in which the licence has been transferred.

 

Explanation. Where the licence is transferred 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 the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are not less than the amount of expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed under sub-section (1) in respect

 

(5) Where a part of the licence is transferred in a previous year and sub-section (3) does not apply, the deduction to be allowed under sub-section (1) for expenditure incurred remaining unallowed shall be arrived at by

 

(a) subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure 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 licence is transferred.

 

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

 

(i) the provisions of sub-sections (2), (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 transferred the licence.]

 

[(7) Where, in a scheme of demerger, the demerged company sells or otherwise transfers the licence to the resulting company (being an Indian company),

 

(i) the provisions of sub-sections (2), (3) and (4) shall not apply in the case of the demerged company; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company as they would have applied to the demerged company if the latter had not transferred the licence.]

 

[(8) Where a deduction for any previous year under sub-section (1) is claimed and allowed in respect of any expenditure referred to in that sub-section, no deduction shall be allowed under sub-section (1) of section 32 for the same previous year or any subsequent previous year.]

 

Section 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

 

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) where the payment is to a public sector company or a local authority or an association or institution referred to in sub-section (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.

 

[(4) Where an association or institution is approved by the National Committee under sub-section (1), and subsequently that Committee is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which approval was granted, it may, at any time, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association or institution, withdraw the approval.

 

(5) Where any project or scheme has been notified as an eligible project or scheme under clause (b) of the Explanation and subsequently the National Committee is satisfied that the project or the scheme is not being carried out in accordance with all or any of the conditions subject to which such project or scheme was notified, such notification may be withdrawn in the same manner in which it was issued :

 

Provided that a reasonable opportunity of showing cause against the proposed withdrawal shall be given by the National Committee to the concerned association, institution, public sector company or the local authority, as the case may be.]

 

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 notification in the Official Gazette, specify in this behalf on the recommendations of the National Committee.]

 

(6) Notwithstanding anything contained in any other provision of this Act, where

 

(i) the approval of the National Committee, granted to an association or institution, is withdrawn under sub-section (4) or the notification in respect of eligible project or scheme is withdrawn in the case of a public sector company or local authority or an association or institution under subsection (5); or

(ii) a company has claimed deduction under the proviso to sub-section (1) in respect of any expenditure incurred directly on the eligible project or scheme and the approval for such project or scheme is withdrawn by the National Committee under sub-section (5),

 

Section 35B Export markets development allowance

 

[Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35B was inserted by the Finance Act, 1968, w.e.f. 1-4-1968.]

 

Section 35C Agricultural development allowance

 

[Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35C was inserted by the Finance Act, 1968, w.e.f. 1-4-1968.]

 

Section 35CC Rural development allowance

 

[Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35CC was inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977.]

 

Section 35CCA Expenditure by way of payment to associations and institutions for carrying out rural development programmes

 

[(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 ; or

(b) to an association or institution, which has as its object the training of persons for implementing programmes of rural development; [or]

[(c) to a rural development fund set up and notified by the Central Government in this [behalf; or]

[(d) to the National Urban Poverty Eradication Fund set up and notified by the Central Government in this behalf,] 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 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.]

 

[(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.]

 

[(2B) No certificate of the nature referred to in sub-section (2) or sub-section (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 sub-section (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.]

 

Section 35CCB Expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources

 

[(1) ["Where an assessee incurs any expenditure on or before the 31st day of March, 2002"] 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 affore by the prescribed authority; or

(b) to such fund for afforestation as may be notified 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 [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 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.]

 

Section 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),

 

(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 pro visions 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 :

[Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words "an amount equal to one-tenth of such expenditure for each of the ten successive previous years", the words "an amount equal to

 

 

(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 referred 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

 

(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):

[Provided that where the aggregate amount of expenditure referred to in sub-section (2) is incurred after the 31st day of March, 1998, the provisions of this sub-section shall have effect as if for the words "two and one-half per cent", the words "five per cent" had been substituted.]

 

Explanation. In this sub-section

 

(a) "cost of the project" means

(i) in a case referred 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 the Government or the Industrial Finance Corporation of India or the Industrial Credit and Investment Corporation of India or any other financial institution [which is eligible for deduction under clause (viii) 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 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.

 

[(5A) 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 specified in sub-section (1), to another company in a scheme of demerger,

 

(i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous year in which the demerger takes place; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company, as they would have applied to the demerged company, if the demerger 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.]

 

Section 35DD Amortisation of expenditure in case of amalgamation or demerger

 

(1) Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger takes place.

 

(2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act.]

 

Section 35DDA Amortisation of expenditure incurred under voluntary retirement scheme

 

(1) Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee "in connection with his voluntary retirement", in accordance with any scheme or schemes of voluntary retirement, one-fifth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance shall be deducted in equal instalments for each of the four immediately succeeding previous years.

 

(2) Where the assessee, being an Indian company, is entitled to the deduction under sub-section (1) and the undertaking of such Indian company entitled to the deduction under sub-section (1) is transferred, before the expiry of the period specified in that sub-section, to another Indian company in a scheme of amalgamation, 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.

 

(3) Where the undertaking of an Indian company entitled to the deduction under sub-section (1) is transferred, before the expiry of the period specified in that subsection, to another company in a scheme of demerger, the provisions of this section shall, as far as may be, apply to the resulting company, as they would have applied to the demerged company, if the demerger had not taken place.

 

(4) Where there has been reorganisation of business, whereby a firm is succeeded by a company fulfilling the conditions laid down in clause (xiii) of Section 47 or a proprietary concern is succeeded by a company fulfilling the conditions laid down in clause (xiv) of Section 47, the provisions of this section shall, as far as may be, apply to the successor company, as they would have applied to the firm or the proprietary concern, if reorganisation of business had not taken place.

 

(5) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) in the case of the amalgamating company referred to in sub-section (2), in the case of demerged company referred to in sub-section (3) and in the case of a firm or proprietary concern referred to in sub-section (4) of this section, for the previous year in which amalgamation, demerger or succession, as the case may be, takes place.

 

(6) No deduction shall be allowed in respect of the expenditure mentioned in sub- section (1) under any other provision of this Act."

 

Section 35E Deduction for expenditure on prospecting, etc., for certain minerals

 

(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

 

(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 incurred 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 sub-section (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 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 purposes 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.

 

[(7A) 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 demerger,

 

(i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous year in which the demerger takes place; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company as they would have applied to the demerged company, if the demerger 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.]

 

Section 36 Other deductions

 

1306 Substituted for "any sum paid" by the Finance Act, 1999, w.e.f. 1-4-2000..-

(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 _______________________________________________

 

1307 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.(i) the amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores1308 For the meaning of the terms/expressions "damage", "destruction" and "stocks or stores", see Taxmann's Direct Taxes Manual, Vol. 3. used for the purposes of the business or profession;

1309 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.[(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;]

1310 Inserted by the Income-tax (Amendment) Act, 1986, w.e.f. 1-4-1987.1311 In the Income-tax Act,In section 36,sub-section (1),for clause (ib), the following clause shall be substituted w.e.f.the 1st day of April, 2007, in place of :- "(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 S.9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government;" by the Finance Act, 2006.["(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-

(A) 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; or

(B) any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999(41 of 1999);";

 

1312 For relevant case laws, see Taxmann's Master Guide to Income-tax Act.(ii) any sum paid to an employee as bonus or commission1313 For the meaning of the term "commission", see Taxmann's Direct Taxes Manual, Vol. 3. 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 commission1314 For the meaning of the term "commission", see Taxmann's Direct Taxes Manual, Vol. 3.;

1315 First proviso omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to its omission, first proviso, as inserted by the Payment of Bonus (Amendment) Act, 1976, with retrospective effect from 25-9-1975, stood 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."[****]

1316 Second proviso omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to its omission, second proviso, as substituted by the Payment of Bonus (Amendment) Act, 1976, with retrospective effect from 25-9-1975, stood 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."[****]

(iia) 1317 Prior to its omission, clause (iia), as inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981 and later on amended by the Finance Act, 1984, w.e.f. 1-4-1984 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under : '(iia) a sum equal to one and one-third times the amount of the expenditure incurred on payment of any salary for any period of employment before the 1st day of March, 1984 to an employee who, as at the end of the previous year, (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 Assessing Officer, in respect of the first assessment year for which deduction is claimed in relation to each such 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;'[Omitted by the Finance Act, 1999, w.e.f. 1-4-2000.]

1318 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.(iii) the amount of the interest1319 For the meaning of the term "interest" and "capital", see Taxmann's Direct Taxes Manual, Vol. 3. paid in respect of capital1320 For the meaning of the term "interest" and "capital", see Taxmann's Direct Taxes Manual, Vol. 3. borrowed for the purposes of the business or profession.

1321 In Section 36 in sub-section (1) w.e.f.,dt. 1/4/2006, the clause shall be substituted by the "Finance Act, 2005 (iii-a) the pro rata amount of discount on a zero coupon bond having regard to the period of life of such bond calculated in the manner as may be prescribed. Explanation. For the purposes of this clause, the expressions

(i) "discount" means the difference between the amount received or receivable by the infrastructure capital company or infrastructure capital fund or public sector company issuing the bond and the amount payable by such company or fund or public sector company on maturity or redemption of such bond;

(ii)"period of life of the bond" means the period commencing from the date of issue of the bond and ending on the date of the maturity or redemption of such bond;

(iii) 1322 In the Income-tax Act,In section 36 ,sub-section (1),in clause (iiia),in the Explanation, clause (iii) shall be omitted w.e.f. the 1st day of April, 2007 as follows :- "(iii) "infrastructure capital company" and "infrastructure capital fund" shall have the same meanings respectively assigned to them in clauses (a) and (b) of Explanation 1 to clause (23-G) of Section 10;"' by the Finance Act, 2006.[***]

 

1323 In section 36, in sub-section (1), in clause (iii) and before the Explanation, the following proviso shall be inserted by "Finance Act, 2003" with effect from the 1st day of April, 2004"Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.";

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;

1324 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.(iv) "any sum paid1325 For the meaning of the expression "any sum paid", see Taxmann's Direct Taxes Manual, Vol. 3. 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 1326 For conditions specified by the Board, see Taxmann's Master Guide to Income-tax Act.conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual 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;

1327 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.(v) 1328 For relevant case laws, see Taxmann's Master Guide to Income-tax Act.any sum paid1329 For the meaning of the expression "any sum paid", see Taxmann's Direct Taxes Manual, Vol. 3. 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;

1330 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.[(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;]

1331 Substituted for "clauses (i), (ii), (iia), (iii) and (iv) of sub-section (1) or under sub-section (1A)" by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.(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;

1332 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1962.(vii) subject to the provisions of sub-section (2), the amount of 1333 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.[any bad 1334 For the meaning of the term "bad", see Taxmann's Direct Taxes Manual, Vol. 3.debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]:

1335 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985.[Provided that in the case of 1336 Substituted for "a bank" by the Finance Act, 1997, w.r.e.f. 1-4-1992.[an assessee] 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.]

 

1337 Inserted by the Finance Act, 2001, w.r.e.f. 1-4-1989.[Explanation. For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assesses shall not include any provision for bad and doubtful debts made in the accounts of the assessee;]

1338 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.[(viia) 1339 Substituted by the Income-tax (Amendment) Act, 1986, w.e.f. 1-4-1987. Earlier, above opening para of clause (viia) was substituted by the Finance Act, 1985, w.e.f. 1-4-1985. It was also amended by the Finance Act, 1982, w.e.f. 1-4-1983.[1340 Rule 6ABA provides that the aggregate average advances made by the rural branches of a scheduled bank shall be computed in the following manner, namely: (a) the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year shall be aggregated separately; (b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a); (c) the aggregate of the sums so arrived at in respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank.in respect of any provision for bad and doubtful debts made by

(a) a scheduled bank [not being 1341 Words "a bank approved by the Central Government for the purposes of clause (viiia) or" omitted by the Finance Act, 1994, w.e.f. 1-4-1995.[* * *] a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank, an amount 1342 In Section 36, sub-section (1), in clause (viia), the words ["not exceeding five per cent"] shall be substituted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effect from 1st April, 2003.["not exceeding seven and one-half per cent"] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding 1343 Substituted for "four", ibid. Earlier "four" was substituted for "two" by the Finance Act, 1993, w.e.f. 1-4-1994.[ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner:

1344 Proviso and Explanation inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year.

 

1345 In Section 36, sub-section (1), in clause (viia), proviso shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effect from 1st April, 2003.'Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" had been substituted.

 

1346 In section 36 of the income tax Act, in sub-section (1) in clause (viia), in sub-clause (a), after the second proviso and before the Explanation, the following provisos shall be inserted by "Finance Act, 2003" with effect from the 1st day of April, 2004"Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government:

Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession";

Explanation. For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005.]

(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);]

1347 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992.[(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 VI-A).]

1348 In Section 36, sub-section (1), clause (viia), in sub-clause (c) proviso shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effect from 1st April, 2003."Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year.".

Explanation. For the purposes of this clause,

1349 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983.[(i) "non-scheduled bank" means a 1350 Section 5(c) of the Banking Regulation Act, 1949, defines "banking company" as follows: '(c) "banking company" means any company which transacts the business of banking in India. Explanation. Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;'banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank;]

1351 Relettered by the Finance Act, 1982, w.e.f. 1-4-1983.[(ia)] "rural branch" means a branch of a scheduled bank 1352 Inserted, ibid.[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;

1353 Substituted for the following clause (ii), [as amended by the Finance Act, 1985, w.e.f. 1-4-1985] by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 : '(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;'[(ii) "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (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;]

1354 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992.[(iii) "public financial institution" shall have the meaning assigned to it in 1355 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.section 4A of the Companies Act, 1956 (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, 1951 (63 of 1951);

(v) "State industrial investment corporation" means a "Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term 1356 Substituted for "approved by the Central Government under clause (viii) of this sub-section" by the Finance Act, 2000, w.e.f. 1-4-2000.[eligible for deduction under clause (viii) of this sub-section];]

(viii) 1357 Operative part of this clause was amended first by the Finance Act, 1966, w.e.f. 1-4-1966 and then by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 and then by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972 and then by the Finance Act, 1974, w.e.f. 1-4-1975.[in respect of any special reserve created 1358 Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.[and maintained] by a financial corporation1359 Words "Global Depository Receipts" shall be substituted for "shares" by the Finance Act, 2001. w.e.f. 1-4-2002. which is engaged in providing long-term finance for 1360 Substituted for the portion beginning with the words "industrial or agricultural development in India" and ending with the words "such reserve account" by the Finance Act, 1995, w.e.f. 1-4-1996. Prior to its substitution, the quoted portion, as amended by the Finance Act, 1979, w.e.f. 1-4-1980 and the Finance Act, 1985, w.e.f. 1-4-1985, read as under: "industrial or 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 this clause and Chapter VI-A) carried to such reserve account:"[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 long-term finance (computed under the head "Profits and gains of business or profession" 1361 Substituted for "before making any deduction under this section" by the Finance (No. 2) Act, 1996, w.r.e.f. 1-4-1996.[before making any deduction under this clause]) carried to such reserve account:]

1362 First proviso omitted by the Finance Act, 1999, w.e.f. 1-4-2000. Prior to its omission, first proviso, as amended by the Finance Act, 1979, w.e.f. 1-4-1980, read as under : "Provided that the corporation or, as the case may be, the company is for the time being approved by the Central Government for the purposes of this clause :"[*****]

Provided 1363 Word "further" omitted by the Finance Act, 1999, w.e.f. 1-4-2000.[****] that where the aggregate of the amounts carried to such reserve account from time to time exceeds 1364 Inserted by the Finance Act, 1981, w.e.f. 1-4-1982.[twice the amount of] the paid-up share capital 1365 Substituted for "(excluding the amounts capitalised from reserves)" by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997.[and of the general reserves] of the corporation 1366 Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.[or, as the case may be, the company], no allowance under this clause shall be made in respect of such excess.

1367 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1987. Prior to substitution, Explanation as inserted by the Finance Act, 1970, w.r.e.f. 1-4-1966 and later on omitted by the Finance Act, 1974,w.e.f. 1-4-1975 and again inserted by the Finance Act, 1979,w.e.f. 1-4-1980 and further substituted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1987, read as under : 'Explanation. In this clause, (a) "financial corporation" shall include a public company; (b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (lot 1956).'[Explanation. In this clause,

(a) "financial corporation" shall include a public company and a Government company;

(b) 1368 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967."public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);

(c) 1369 For definition of "Government company", see footnote 46 on p. 1.20 ante."Government company" shall have the meaning assigned to it in section 617 of the Companies Act, 1956 (1 of 1956);]

1370 Substituted by the Finance Act, 1997, w.e.f. 1-4-1998. Prior to its substitution, clause (d), as inserted by the Finance Act, 1995, w.e.f. 1-4-1996, read as under : '(d) "infrastructure facility" shall have the meaning assigned to it in section 80-IA;'1371 In the Income-tax Act,In section 36, sub-section (1),in clause (viii), in the Explanation, for clause (d), the following clause shall be substituted w.e.f. the 1st day of April, 2007, namely:- '(d) "infrastructure facility" means- (i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA, or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions as may be prescribed; (ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) of sub-section (4) of section 80-IA; and (iii) an undertaking referred to in sub-section (10) of section 80-IB;'. by the Finance Act, 2006.['(d) "infrastructure facility" means-

(i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA, or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions as may be prescribed;

(ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) of sub-section (4) of section 80-IA; and

(iii) an undertaking referred to in sub-section (10) of section 80-IB;'.

 

 

1372 Inserted by the Finance (No. 2) Act, 1996, w.r.e.f. 1-4-1996.[(e) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;]

(viiia) 1373 Omitted by the Finance Act, 1994, w.e.f. 1-4-1995. Prior to omission clause (viiia), as inserted by the Finance Act, 1982, w.e.f. 1-4-1983 and later on amended by the 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 VI-A) 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);'[*****]

 

1374 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.[(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) 1375 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.[and sub-section (5)] of section 35, of sub-section (3) of section 41 and of Explanation 1 to clause (7) 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;]

 

1376 Inserted by the Finance Act, 1989, w.e.f. 1-4-1989.[(x) any sum paid by a public financial institution by way of contribution towards any Exchange Risk Administration 1377 in clause (x), for the words, brackets, figures and letter "any fund specified under clause (23E) of section 10", the words "any Exchange Risk Administration Fund set-up-by-public financial institutions, either jointly or separately" shall be substituted by "Finance Act, 2003"Fund set-up-by-public financial institutions, either jointly or separately

 

Explanation. For the purposes of this clause, "public financial institutions" shall have the meaning assigned to it in 1378 For text of section 4A of the Companies Act, 1956, and notified institutions thereunder, see Appendix One.section 4A of the Companies Act, 1956 (1 of 1956);]

1379 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[(xi) any expenditure incurred by the assessee, on or after the 1st day of April, 1999 but before the 1st day of April, 2000, wholly and exclusively in respect of a non-Y2K compliant computer system, owned by the assessee and used for the purposes of his business or profession, so as to make such computer system Y2K compliant computer system :

 

Provided that no such deduction shall be allowed in respect of such expenditure under any other provisions of this Act:

Provided further that no such deduction shall be admissible unless the assessee furnishes in the prescribed form1380 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992., along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this clause.

 

1381 In section 36 of the income tax Act, in sub-section (1), after the Explanation below clause (xi), the following clause shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2002"(xii) any expenditure (not being in the nature of capital expenditure) incurred by a corporation or a body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act for the objects and purposes authorised by the Act under which such corporation or body corporate was constituted or established."

 

 

1382 In Section 36, in sub section (1) w.e.f dt. 1/4/2006,clause (xiii) shall be inserted by the Finance Act, 2005.

 

Explanation. For the purposes of this clause, the expressions "banking cash transaction tax" and "taxable banking transaction" shall have the same meanings respectively assigned to them under Chapter VII of the Finance Act, 2005."

 

(a) "computer system" means a device or collection of devices including input and output support devices and excluding calculators which are not programmable and capable of being used in

(b) "Y2K. compliant computer system" means a computer system capable of correctly processing, providing or receiving data relating to date within and between the twentieth and twenty-first century.]

 

1383 Inserted by the Finance Act, 1975, w.r.e.f. 1-4-1965.(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply

 

1384 Substituted for the following clause (;) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989: "(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;"[(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;

(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 1385 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)], but the 1386 Substituted for "Income-tax", ibid., w.e.f. 1-4-1988.[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 1387 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the 1388 Substituted for "Income-tax", ibid. w.e.f. 1-4-1988.[Assessing] Officer is satisfied that such debt or part became a bad debt in any earlier previous year not section 155 shall apply;

1389 Substituted by the Finance Act, 1997, w.r.e.f. 1-4-1992. Prior to its substitution, clause (v), as inserted by the Finance Act, 1985, w.e.f. 1-4-1985, read as under : "(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 provision for bad and doubtful debts account made under that clause."[(v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.]

 

Section 37 General

 

(1) Any expenditure (not being expenditure of the nature described in section 30 to section 36[***] and not being in the nature of capital expenditure for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

 

[Explanation. For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.]

 

(2) [****]

 

[(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.]

 

(3) [*****]

 

(3A) [*****]

 

(3B) [*****]

 

(3C) [****]

 

(3D) [****]

 

(4) [***]

 

(5) [****]

 

Section 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 [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 [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 [clause (ii) of sub-section (1)] of section 32 shall be restricted to a fair proportionate part thereof which the [Assessing] Officer may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession.

 

Section 39 Managing agency commission

 

[Omitted by theDirect Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

 

Section 40 Amounts not deductible

 

1415 Prior to omission. 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.".- Notwithstanding anything to the contrary in section 30 to 1416 Substituted for "39" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.[section 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

 

1417 Substituted for the following sub-clause (i) by the Finance Act, 1988, w.e.f. 1-4-1989. "(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;"[1418 Reintroduced with modification by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier section 35 was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.1419 In section 40 of the income tax Act, in clause (a), with effect from the 1st day of April, 2004, (a) for sub-clause (i), the following sub-clause shall be substituted by "Finance Act, 2003"

(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,-

(A) outside India; or

(B) in India to a non-resident, not being a company or to a foreign company,

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;';

 

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;]

 

1420 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.(ii) any sum paid on account of any rate or tax levied1421 For the meaning of the expressions "any rate or tax levied" and "profits or gains of any business or profession", see Taxmann's Direct Taxes Manual, Vol. 3. on the profits or gains of any business or profession1422 For the meaning of the expressions "any rate or tax levied" and "profits or gains of any business or profession", see Taxmann's Direct Taxes Manual, Vol. 3. or assessed at a proportion of, or otherwise on the basis of, any such profits or gains;

1423 Inserted by the Income-tax (Amendment) Act, 1972, with retrospective effect from 1-4-1962 subject to savings prescribed by sections 4 and 5 of that Act which 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 sub-clause (iia) 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.'[1424 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.(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

1425 In the Income-tax Act,In section 40 , in clause (a), after sub-clause (ii),the following Explanation shall be inserted, namely:- "Explanation 1- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91." by the Finance Act, 2006."Explanation 1- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.";

1426 In the Income-tax Act,In section 40, in clause (a), after sub-clause (ii),after Explanation 1 as so inserted, the following Explanation shall be inserted with effect from the 1st day of the June, 2006, namely:- "Explanation 2- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;" by the Finance Act, 2006."Explanation 2- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;".

 

 

1427 In section 40 of the income tax Act, for sub-clause (iii), the following sub-clause shall be substituted by "Finance Act, 2003" with effect from the 1st day of April, 2004(iii) any payment which is chargeable under the head "Salaries", if it is payable-

 

(A) outside India; or

(B) to a non-resident,

 

(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";

 

1428 In Section 40, clause (a), sub-clause (v) shall be inserted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effect from 1st April, 2003."(v) any tax actually paid by an employer referred to in clause (10-CC) of Section 10;"

 

1429 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to substitution, clause (b), as amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985, the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, and the Direct Tax Laws (Amendment) Act, 1987, 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 firm to such individual or by such individual to the firm 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 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 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;'[(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 1430 In Section 40, clause (2), sub-clause (iv) the word ["eighteen per cent"] shall be substituted by Finance Act, 2002, (20 of 2002) Published in the Gazette of India, Extra, Part II, Section 1, dated May 13, 2002, No.23. With effect from 1st June, 2002.["twelve per cent"] simple interest per annum; or

 

1431 Substituted for "any sum paid" by the Finance Act, 1999, w.e.f. 1-4-2000.-1432 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.(v) any payment of remuneration to any partner who is a working 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 the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder :

 

(1) in case of a firm carrying on a profession referred to in section 44AA or which is notified for the purpose of that section

(2) in the case of any other firm

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 the relevant previous year, computed in the manner laid down in Chapter IV-D 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;]

 

1433 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.[(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.]

(c) [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, it was amended by the Finance Act, 1963, w.e.f. 1-4-1963, Finance Act, 1964, w.e.f. 1-4-1964, Finance Act, 1965, w.e.f. 1-4-1965, Finance Act, 1968, w.e.f. 1-4-1969, Finance (No. 2) Act, 1971, w.e.f. 1-4-1972, Finance Act, 1984, w.e.f. 1-4-1985 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.]

 

(d) [Omitted by the Finance Act. 1988, w.e.f. 1-4-1989.]

 

Section 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 [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;

[*****]

(b) The persons referred to in clause (a) are the following, namely :

(i) where the assessee is an any relative of the assessee; individual

(ii) where the assessee is a any director of the company, partner company, firm, association of the firm, or member of the asso- of persons or Hindu ciation or family, or any relative of undivided family 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.

 

 

 

(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 [[twenty] thousand] rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, [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 in respect thereof in a sum exceeding [[twenty] 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 [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 [[twenty] 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, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.]

 

[(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.]

 

(5) [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original sub-section (5) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972]

 

(6) [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original sub-section (6) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-7972]

 

[[(7)

 

(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any pro vision (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 any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.

Explanation. 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 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.]

 

(8) [******]

 

[(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.

 

(10) Notwithstanding anything contained in sub-section (9), where the [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.]

 

[(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,

(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 institu tion 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.]

 

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

 

Section 41 Profits chargeable to tax

 

[(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

(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 successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.

[Explanation 1. For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.]

[Explanation 2]. 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;]

[(iv) where there has been a demerger, the resulting company.]

 

 

[(2) Where any building, machinery, plant or furniture,

 

(a) which is owned by the assessee;

(b) in respect of which depreciation is claimed under clause (i) of sub-section (1) of section 32; and

(c) which was or has been used for the purposes of business, is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, .

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 for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provision of this sub-section shall apply as if the business is in existence in that previous year.]

 

(2A) [*****]

 

(3) Where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (iv) of sub-section (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) [or, as the case may be, the amount of the deduction under clause (id)] of sub-section (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 section 36, 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.

 

[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 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.]

 

[(4A) Where a deduction has been allowed in respect of any special reserve created and maintained under clause (viii) of sub-section (1) of section 36, any amount subsequently withdrawn from such special reserve shall be deemed to

 

Explanation. Where any amount is withdrawn from the special reserve 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 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), [***] sub-section (3) [, sub-section (4) or sub-section (4A)] in respect of that business or profession, any loss, not being a loss sustained in speculation business [****], 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.

 

[(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 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.]

 

Section 42 Special provision for deductions in the case of business for prospecting, etc., for mineral oil

 

[(1)] 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 [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 :

[****]

[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.

 

[(2) Where the business of the assessee consisting of the prospecting for or extraction or production of petroleum and natural gas is transferred wholly or partly or any interest in such business is transferred in accordance with the agreement referred to in sub-section (1), subject to the provisions of the said agreement and where the proceeds of the transfer (so far as they consist of capital sums)

 

(a) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of transfer, shall be allowed in respect of the previous year in which such business or interest, as the case may be, is transferred;

(b) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred in connection with the business or to obtain interest therein and the amount of such expenditure remaining unallowed, shall be chargeable to income-tax as profits and gains of the business in the previous year in which the business or interest therein, whether wholly or partly, had been transferred :

Provided that in a case where the provisions of this clause do not apply, the deduction to be allowed for expenditure incurred remaining unallowed shall be arrived at by substracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed.

 

Explanation. Where the business or interest in such business is transferred in a previous year in which such business carried on by the assessee is no longer in existence, the provisions of this clause shall apply as if the business is in existence in that previous year;

(c) are not less than the amount of the expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed in respect of the previous year in which the business or interest in such business is transferred or in respect of any subsequent year or years:

[Provided that where in a scheme of amalgamation or demerger, the amalgamating or the demerged company sells or otherwise transfers the business to the amalgamated or the resulting company (being an Indian company), the provisions of this sub-section

(i) shall not apply in the case of the amalgamating or the demerged company; and

(ii) shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the latter had not transferred the business or interest in the business.]]

 

 

[Explanation. For the purposes of this section, "mineral oil" includes petroleum and natural gas.]

 

Section 43 Definitions of certain terms relevant to income from profits and gains of business or profession

 

In section 28 to section 41 and in this section, unless the context otherwise requires"

1495 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.(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:

 

1496 Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. Original proviso was inserted by the Finance Act, 1966, w.e.f. 1-4-1966.[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, 1497 Inserted by the Finance Act, 1975, w.e.f. 1-4-1975.[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

 

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 1498 Substituted for "clause (i), clause (ii) or clause (iii) of sub-section (1) or sub-section (1A)" by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Italicised words were inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.[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).

 

1499 Substituted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its substitution. Explanation 2 stood 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, whichever is the less."[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 1500 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[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 1501 Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[Assessing] Officer may, with the previous approval of the 1502 Substituted for "Deputy Commissioner" by the Finance (No. 2) Act, 1998, w.e.f. 1-10-1998. Earlier "Deputy Commissioner" was substituted for "Inspecting Assistant Commissioner" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.[Joint Commissioner], determine having regard to all the circumstances of the case.

 

1503 Substituted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its substitution. Explanation 4, as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, stood 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 sub-section (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."[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.]

 

1504 Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-10-1996.[Explanation 4A. Where before the date of acquisition by the assessee (hereinafter referred to as the first mentioned person), the assets were at any time used by any other person (hereinafter referred to as the second mentioned person) for the purposes of his business or profession and depreciation allowance has been claimed in respect of such assets in the case of the second mentioned person and such person acquires on lease, hire or otherwise assets from the first mentioned person, then, notwithstanding anything contained in Explanation 3, the actual cost of the transferred assets, in the case of first mentioned person, shall be the same as the written down value of the said assets at the time of transfer thereof by the second mentioned person.]

 

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.

 

1505 Substituted by the Finance Act, 1965, w.e.f. 1-4-1965.[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.]

 

1506 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.[Explanation 7. 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 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.]

 

1507 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[Explanation 7A. Where, in a demerger, any capital asset is transferred by the demerged company to the resulting company and the resulting company is an Indian company, the actual cost of the transferred capital asset to the resulting company shall be taken to be the same as it would have been if the demerged company had continued to hold the capital asset for the purpose of its own business:

 

Provided that such actual cost shall not exceed the written down value of such capital asset in the hands of the demerged company.]

 

1508 Inserted by the Finance Act, 1986, w.r.e.f. 1-4-1974.[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.]

 

1509 Inserted by the Finance (No. 2) Act, 1998, w.r.e.f. 1-4-1994.[Explanation 9. For the removal of doubts, it is hereby declared that where an asset is or has been acquired on or after the 1st day of March, 1994 by an assessee, the actual cost of asset shall be reduced

 

1510 Inserted by the Finance (No. 2) Act, 1998, w.e.f. 1-4-1999.[Explanation 10. Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee :

Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.]

 

1511 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[Explanation 11. Where an asset which was acquired outside India by an assessee, being a non-resident, is brought by him to India and used for the purposes of his business or profession, the actual cost of the asset to the assessee shall be the actual cost to the assessee, as reduced by an amount equal to the amount of depreciation calculated at the rate in force that would have been allowable had the asset been used in India for the said purposes since the date of its acquisition by the assessee;]

 

Explanation 12. Where any capital asset is acquired by the assessee under a scheme for corporatisation of a recognised stock exchange in India, approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the actual cost of the asset shall be deemed to be the amount which would have been regarded as actual cost had there been no such corporatisation.

 

(2) "paid" means actually paid1512 Omitted by the Finance Act, 1997, w.e.f. 1-4-1998. Omitted sub-section (2) was substituted for sub-sections (2) and (2A) by the Finance Act, 1992, w.e.f. 1-4-1993. Erstwhile sub-sections (2) and (2A) were amended by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962, the Finance Act, 1965, w.e.f. 1-4-1965, the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967, the Finance Act, 1968, w.e.f. 1-4-1968, the Finance Act, 1970, w.e.f. 1-4-1970, the Finance Act, 1976, w.e.f. 1-4-1977 and the Finance Act, 1983, w.e.f. 1-4-1976/1-4-1984. Prior to its omission, sub-section (2), as substituted by the Finance Act, 1992, w.e.f. 1-4-1993, and later on amended by the Finance Act, 1994, w.r.e.f. 1-4-1993, read as under : '(2) Notwithstanding anything contained in sub-section (1), any expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year commencing on 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 expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work.' 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";

 

1513 For relevant case laws, see Taxmann's Master Guide to Income-tax Act.(3) "plant1514 For the meaning of the terms "plant" and "books", see Taxmann's Direct Taxes Manual, Vol. 3." includes ships, vehicles, books1515 For the meaning of the terms "plant" and "books", see Taxmann's Direct Taxes Manual, Vol. 3., scientific apparatus and surgical equipment used for the purposes of the business or profession 1516 Inserted by the Finance Act, 1995, w.r.e.f. 1-4-1962.[but does not include tea bushes 1517 In section 43 of the income tax Act, with effect from the 1st day of April, 2004,- in clause (3), after the words "but does not include tea bushes or livestock", the words "or buildings or furniture and fittings" shall be inserted by "Finance Act, 2003"or livestock or buildings or furniture and fittings];

 

(4)

 

1518 Substituted by the Finance Act, 1968, w.e.f. 1-4-1969.[(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

(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;

 

1519 Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3B), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood 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 aircraft 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." Original sub-section was inserted by the Finance Act, 1978, w.e.f. 1-4-1979, and was later omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.(5) 1520 For relevant case laws, see Taxmann's Master Guide to Income-tax Act."speculative transaction1521 For the meaning of the terms/expressions "speculative transaction", "contract" and "actual delivery", see Taxmann's Direct Taxes Manual, Vol. 3." means a transaction in which a contract1522 For the meaning of the terms/expressions "speculative transaction", "contract" and "actual delivery", see Taxmann's Direct Taxes Manual, Vol. 3. for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled1523 For the meaning of the terms/expressions "speculative transaction", "contract" and "actual delivery", see Taxmann's Direct Taxes Manual, Vol. 3. otherwise than by the actual delivery1524 For the meaning of the terms/expressions "speculative transaction", "contract" and "actual delivery", see Taxmann's Direct Taxes Manual, Vol. 3. 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 1525 In Section 43, Clause (5),in clause (c), w.e.f. dt. 1/4/2006,the word "or" shall be inserted at the end by the "Finance Act, 2005. or ;

 

1526 In Section 43, Clause (5),in clause (d), shall be inserted from w.e.f. 1st, day of April, 2006, by the "Finance Act, 2005."(d) an eligible transaction in respect of trading in derivatives referred to in clause 1527 In the Income-tax Act, In section 43 , in clause (5), in the proviso,in clause (d), for the brackets and letters "(aa)", the brackets and letters "(ac)" shall be substituted, by the Finance Act, 2006. "(ac)" of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange;";

 

1528 In Section 43, Clause (5),after clause (d), after provisio an Explanation shall be inserted by the "Finance Act, 2005.Explanation. For the purposes of this clause, the expressions

 

(i) "eligible transaction" means any transaction, (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under Section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and

(B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act;

 

(ii) "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose.'.

 

1529 For relevant case laws, see Taxmann's Master Guide to Income-tax Act.(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 allowed1530 Omitted by the Finance Act, 1997, w.e.f. 1-4-1998. Prior to its omission, sub-section (5), as inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979, read as under : "(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 guest-house within the meaning of sub- section (4)." 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:

 

1531 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962.[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 S.10 of the Income tax Act, 1961 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi);]

 

1532 Inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.[(c) in the case of any block of assets,

(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;

(B) by the reduction of the moneys payable in respect of any asset falling 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

1533 Inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[(C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced

(a) by 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) by 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, so, however, that the amount of such decrease does not exceed the written down value;]

 

 

 

(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 1534 Substituted for "any asset" by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.[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.

 

1535 Substituted for Explanation 2 and Explanation 2A by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to their substitution, Explanation 2 was substituted by the Finance Act, 1965, w.e.f. 1-4-1965 and Explanation 2A was inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.[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

(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.]

 

1536 Explanation 2A, Explanation 2B and proviso thereof inserted by the Finance Act, 1999, w.e.f. 1-4-2000.[Explanation 2A. Where in any previous year, any asset forming part of a block of assets is transferred by a demerged company to the 1537 Substituted for "book value of the assets" by the Finance Act, 2000, w.e.f. 1-4-2000.[written down value of the assets] transferred to the resulting company pursuant to the demerger.

 

Explanation 2B. Where in a previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the 1538 Substituted for "value of the assets as appearing in the books of account", ibid.[written down value of the transferred assets1539 In section 43 of the income tax Act, with effect from the 1st day of April, 2004, in clause (6), in Explanation 2B, the words "as appearing in the books of account" shall be omitted by "Finance Act, 2003" of the demerged company immediately before the demerger.

 

1540 Omitted, ibid. Prior to its omission, proviso, as inserted by the Finance Act, 1999, w.e.f. 1-4-2000, read as under: "Provided that if the value of the assets as appearing in the books of account of the demerged company immediately before the demerger exceeds the written down value of such assets in the hands of the demerged company, the amount representing such excess shall be reduced from the written down value of the assets."[****]]

 

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".

 

1541 Inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.[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.]

 

The following Explanation 5 shall be inserted after Explanation 4 to clause (6) of section 43 by the Finance Act, 2001, w.e.f. 1-4-2002 :

Explanation 5. Where in a previous year, any asset forming part of a block of assets is transferred by a recognised stock exchange in India to a company under a scheme for corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the written down value of the block of assets in the case of such company shall be the written down value of the transferred assets immediately before such transfer.

 

Section 43A Special provisions consequential to changes in rate of exchange of currency.

 

Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment

(a) towards the whole or a part of the cost of the asset; or

 

(b) towards 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 along with interest, if any,

 

the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from

(i) the actual cost of the asset as defined in clause (1) of Section 43; or

 

(ii) the amount of expenditure of a capital nature referred to in clause (;v) of sub-section (1) of Section 35; or

 

(iii) the amount of expenditure of a capital nature referred to in Section 35-A; or

 

(iv) the amount of expenditure of a capital nature referred to in clause (ix) of sub-section (1) of Section 36; or

 

(v) the cost of acquisition of a capital asset (not being a capital asset referred to in Section 50) 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 :

Provided that where an addition to or deduction from the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by the Finance Act, 2002, on account of an increase or reduction in the liability as aforesaid, the amount to be added to, or, as the case may be, deducted under this section from, the actual cost or expenditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment.

 

Explanation 1. In this 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 Management Act, 1999 (42 of 1999).

 

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 section.

 

Explanation 3. Where the assessee has entered into a contract with an authorised dealer as defined in Section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999), 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 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.'.

 

Section 43B Certain deductions to be only on actual payment

 

Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of

[(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, [or]

 

[(c) any sum referred to in clause (ii) of sub-section (1) of section 36,][or]

 

[(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution [or a state financial corporation or a state industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing [, or]

 

[(e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances,] [or]

 

The following clause (f) shall be inserted after clause (e) of section 43B by the Finance Act, 2001, w.e.f. 1-4-2002 :

(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, 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 :

 

[Provided that nothing contained in this section shall apply in relation to any sum [* * * ] which is actually paid by the assessee on or before the due date 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 :

* * * * * * * * * *

Explanation [1]. For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred 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.]

 

[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.]

 

[[Explanation 3]. For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) [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.]

 

[Explanation 3A. For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (e) 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, 1996, 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.]

 

The following Explanation 3B shall be inserted after Explanation 3A to section 43B by the Finance Act, 2001, w.e.f. 1-4-2002 :

Explanation 3B. For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (f) 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, 2001, 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.

 

[Explanation 4. For the purposes of this section,

 

(a) "public financial institutions" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

[(aa) "scheduled bank" shall have the meaning assigned to it in the Explanation to clause (iii) of sub-section (5) of section 11;]

(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 (63 of 1951);

(c) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and [eligible for deduction under clause (viii) of sub-section (1) of section 36].]

 

Section 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 referred 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.]

 

Section 43D Special provision in case of income of public financial Institutions, public companies, etc.

 

Notwithstanding anything to the contrary contained in any other provision of this Act,

(a) 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 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;

 

(b) in the case of a public company, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the National Housing Bank in relation to such debts,

 

Explanation. For the purposes of this section,

 

(a) "National Housing Bank" means the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987);

(b) "public company" means a company,

(i) which is a public company within the meaning of section 3 of the Companies Act, 1956 (1 of 1956);

(ii) whose main object is carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes; and

(iii) which is registered in accordance with the Housing Finance Companies (NHB) Directions, 1989 given under section 30 and section 31 of the National Housing Bank Act, 1987 (53 of 1987);

 

(c) "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

(d) "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;

(e) "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 (63 of 1951);

(f) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects.]

 

Section 44 Insurance business

 

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 [43B], the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule.

 

Section 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 [(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.]

 

Section 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 of account and other documents as may enable the [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 [one lakh twenty] thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds [ten lakh] 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 [one lakh twenty] 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 [ten lakh] rupees, [during such previous year; or

(iii) where the profits and gains from the business are deemed to be the profits and gains of the assessee under section 44AD or section 44AE or section 44AFor section 44BB or section 44BBB, as the case may be, and the assessee has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, during such previous year,]

[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, prescribe, 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 sub-section (2) shall be retained.]

 

Section 44AB Audit of accounts of certain persons carrying on business or profession

 

Every 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 [***]; or

 

(b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any [previous year; or

 

(c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD or section 44AE or section 44AF,or section 44BB or section 44BBB as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year,] [****] get his accounts of such previous year [****] audited by an accountant before the specified date and [furnish by] that date the report of such audit in the

 

[Provided that this section shall not apply to the person, who derives income of the nature referred to in [***] section 44B or section 44BBA, 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 [****], 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 [furnishes by] that date the report of the audit as required under such other law and a further report [by an accountant] 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;

[(ii) "specified date", in relation to the accounts of the assesses of the previous year relevant to an assessment year, means the 31st day of October of the assessment year.]]

 

Section 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]

 

Section 44AD Special provision for computing profits and gains of business of civil construction, etc

 

(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equal to eight per cent of the gross receipts paid or payable to the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession":

 

Provided that nothing contained in this sub-section shall apply in case the aforesaid gross receipts paid or payable exceed an amount of forty lakh rupees.

 

(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :

 

[Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.]

 

(3) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

 

(4) The provisions of section 44AA and section 44AB shall riot apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.

 

[(5) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are lower than the profits and gains specified in sub-section (1), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143.]

 

[(6) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.]

 

Explanation. For the purposes of this section, the expression "civil construction" includes

 

(a) the construction or repair of any building, bridge, dam or other structure or of any canal or road;

(b) the execution of any works contract.]

 

Section 44AE Special provision for computing profits and gains of business of plying, hiring or leasing goods carriages

 

(1) Notwithstanding anything to the contrary contained in section 28 to section 43C, in the case of an assessee, who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head "Profits and gains of business or profession" shall be deemed to be the aggregate of the profits and gains, from all the goods carriages owned by him in the previous year, computed in accordance with the provisions of sub-section (2).

 

(2) For the purposes of sub-section (1), the profits and gains from each goods carriage,

 

(i) being a heavy goods vehicle, shall be an amount equal to two thousand rupees for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year or, as the case may be, an amount higher than the aforesaid amount as declared by him in his return of income;

(ii) other than a heavy goods vehicle, shall be an amount equal to one thousand eight hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or, as the case may be, an amount higher than the aforesaid amount as declared by him in his return of income.

 

(3) Any deduction allowable under the provisions of section 30 to section 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :

 

[Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.]

 

(4) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

 

(5) The provisions of section 44AA and section 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.

 

[(6) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April, 1997 or any earlier assessment year, are lower than the profits and gains specified in sub-sections (1)

 

[(7) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-sections (1) and (2), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.]

 

Explanation. For the purposes of this section,

 

(a) the expressions "goods carriage" and "heavy goods vehicle" shall have the meanings respectively assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988);

(b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.]

 

Section 44AF Special provisions for computing profits and gains of retail business

 

(1) Notwithstanding anything to the contrary contained in section 28 to section 43C, in the case of an assessee engaged in retail trade in any goods or merchandise, a sum equal to five per cent of the total turnover in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession":

 

Provided that nothing contained in this sub-section shall apply in respect of an assessee whose total turnover exceeds an amount of forty lakh rupees in the previous year.

 

(2) Any deduction allowable under the provisions of section 30 to section 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :

 

Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.

 

(3) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the

 

(4) The provisions of section 44AA and section 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the total turnover or, as the case may be, the income from the said business shall be excluded.]

 

[(5) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub-section (1), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB.]

 

Section 44B Special provision for computing profits and gains of shipping business in the case of non-residents

 

(1) Notwithstanding anything to the contrary contained in section 28 to section 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".

 

(2) The amounts referred to in sub-section (1) shall be the following, namely :

 

(i) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; and

(ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India.]

 

[Explanation. For the purposes of this sub-section, the amount referred to in clause (i) or clause (ii) shall include the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature.]

 

Section 44BB Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils

 

(1) Notwithstanding anything to the contrary contained in section 28 to section 41 and section 43 and section 43A, in the case of an assessee [, being a non-resident,] engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be

 

Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.

 

(2) The amounts referred to in sub-section (1) shall be the following, namely:

 

(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and

(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.

"(3) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee"

Explanation. For the purposes of this section,

(i) "plant" includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business;

(ii) "mineral oil" includes petroleum and natural gas.]

 

Section 44BBA Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents

 

(1) Notwithstanding anything to the contrary contained in section 28 to section 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of aircraft, a sum equal to five per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".

 

(2) The amounts referred to in sub-section (1) shall be the following, namely:

 

(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods from any place in India; and

(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods from any place outside India.]

 

Section 44BBB Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects

 

1. Notwithstanding anything to the contrary contained in sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or

 

machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf a sum equal to ten per cent of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession."]

 

"(2) Notwithstanding any thing contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.".

 

Section 44C Deduction of head office expenditure in the case of non-residents

 

Notwithstanding anything to the contrary contained in section 28 to section 43A, in the case of an assessee, being a non-resident, no allowance shall be made, in computing the income chargeable under the head "Profits and gains of business or profession", in respect of so much of the expenditure in the nature of head office expenditure as is in excess of the amount computed as hereunder, namely:

(a) an amount equal to five per cent of the adjusted total income; or

 

(b) [****]

 

(c) the amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India, whichever is the least:

 

Provided that in a case where the adjusted total income of the assessee is a loss, the amount under clause (a) shall be computed at the rate of five per cent of the average adjusted total income of the assessee.

 

Explanation. For the purposes of this section,

 

(i) "adjusted total income" means the total income computed in accordance with the provisions of this Act, without giving effect to the allowance referred to in this section or in sub-section (2) of section 32 or the deduction referred to in section 32A or section 33 or section 33A or the first proviso to clause (ix) of sub-section (1) of section 36 or any loss carried forward under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) [or sub-section (3)] of section 74 or sub-section (3) of section 74A or the deductions under Chapter VI-A;

(ii) "average adjusted total income" means,

(a) in a case where the total income of the assessee is assessable for each of the three assessment years immediately preceding the relevant assessment year, one-third of the aggregate amount of the adjusted total income in respect of the previous years relevant to the aforesaid three assessment years;

(b) in a case where the total income of the assessee is assessable only for two of the aforesaid three assessment years, one-half of the aggregate amount of the adjusted total income in respect of the previous years relevant to the aforesaid two assessment years;

(c) in a case where the total income of the assessee is assessable only for one of the aforesaid three assessment years, the amount of the adjusted total income in respect of the previous year relevant to that assessment year;

 

(iii) [*****]

 

(iv) "head office expenditure" means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of

(a) rent, rates, taxes, repairs or insurance of any premises outside India used for the purposes of the business or profession;

(b) salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of or in addition to salary, whether paid or allowed to any employee or other person employed in, or managing the affairs of, any office outside India;

 

(c) travelling by any employee or other person employed in, or managing the affairs of, any office outside India; and

(d) such other matters connected with executive and general administration as may be prescribed.]

 

Section 44D Special provisions for computing income by way of royalties, etc., in the case of foreign companies

 

Notwithstanding anything to the contrary contained in sections 28 to 44C, in the case of an assessee, being a foreign company,

(a) the deductions admissible under the said sections in computing the 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 with the Indian concern] before the 1st day of April, 1976, shall not exceed in the aggregate twenty per cent of the gross amount of such royalty or fees as reduced by so much of the gross amount of such 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, design, secret formula or process or trade mark or similar property;

 

(b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the 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 with the Indian concern] after the 31st day of March, 1976 but before the 1st day of April, 2003

 

(c) [*****]

 

(d) [****]

 

Explanation. For the purposes of this section,

 

(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;

(d) royalty received [from Government or an Indian concern in pursuance of an agreement made by a foreign company with Govern-

 

Section 44DA Special provision for computing income by way of royalties, etc., in case of non-residents.-

 

(I) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31 st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of-which-the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions ot this Act: Provided that no deduction shall be allowed,-

 

(i) in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or

(ii) in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices.

 

(2) Every non-resident (not being a company) or a foreign company shall keep and maintain books of account and other documents in accordance with the provisions contained in section 44AA and get his accounts audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish along with the return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. Explanation.-For the purposes of this section,-

 

(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) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

(c) "permanent establishment" shall have the same meaning as in clause (iiia) of section 92F.'.

 

Section 45 Capital gains

 

[(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 [****] [54, 54B, [****] [[54D, [54E, [54EA, 54EB,] 54F [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.

 

[(1A) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a 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),

section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.

 

Explanation. For the purposes of this sub-section, the expression "insurer" shall have the meaning assigned to it in clause (9) of section 256 of the Insurance Act, 1938 (4 of 1938).]

 

[(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.]

 

[(2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income-tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub-section (1) of S.10 of the Depositories Act, 1996, and for the purposes of

 

(i) section 48; and

(ii) proviso to clause (42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method.

Explanation. For the purposes of this sub-section, the expressions "beneficial owner", "depository" and "security" shall have the meanings respectively assigned to them in clauses (a), (e) and (l) of sub-section (1) of section 2 of the Depositories Act, 1996.]

 

[(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 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 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.]

 

[(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 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.

"(c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced compensation or consideration referred to in clause (b}, and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration"

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)

 

 [(6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in sub-section (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 80CCB.]

 

Section 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.

 

Section 46A Capital gains on purchase by company of its own shares or other specified securities

 

Where a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities held by such shareholder or holder of other specified securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may be, in the year in which such shares or other specified securities were purchased by the company.

Explanation. For the purposes of this section, "specified securities" shall have the meaning assigned to it in Explanation to section 77A of the Companies Act, 1956 (1 of 1956).]

 

Section 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;

 

(ii) [***]

 

(iii) any transfer of a capital asset under a gift or will or an irrevocable trust:

 

[Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under [any Employees' Stock Option Plan or Scheme of the Company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf];]

 

(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;

 

[(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

(b) the holding company is an Indian company :]

[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;]

 

[(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;]

 

[(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

(vi-aa)" any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government under sub-section (7) of Section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution. Explanation. For the purposes of this clause,

(i) "banking company" shall have the same meaning assigned to it in clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(ii) "banking institution" shall have the same meaning assigned to it in subsection (15) of Section 45 of the Banking Regulation Act, 1949 (10 of 1949);"

 

(b) such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated;]

 

[(vib) any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company;

 

(vic) any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if

 

(a) [the shareholders holding not less than three-fourths in value of the shares] of the demerged foreign company continue to remain shareholders of the resulting foreign company; and

(b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated :

Provided that the provisions of section 391 to S.394 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause;

 

(vid) any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking;]

 

(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;

 

[(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;]

 

[(viii) any transfer of agricultural land in India effected before the 1st day of March, 1970;]

 

[(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 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 declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act;]

 

[(x) any transfer by way of conversion of [bonds or] debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company;]

 

[(xi) any transfer made on or before the 31st day of December, [1998] by a person (not being a company) of a capital asset being membership of a recognised stock exchange to a company in exchange of shares allotted by that company to the transferor.

 

Explanation. For the purposes of this clause, the expression "membership of a recognised stock exchange" means the membership of a stock exchange in India which is recognised under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

 

(xii) any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and sanctioned under S.18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where such sick industrial company is being managed by its workers' co-operative :

 

Provided that such transfer is made during the period commencing from the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of that Act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

 

Explanation. For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);]

 

[(xiii) [ where a firm is succeeded by a company in the business carried on by it as a result of which the firm sells or otherwise transfers any capital asset or intangible asset to the company :]

 

Provided that

(a) all the assets and liabilities of the firm [or of the association of persons or body of individuals] relating to the business immediately before the succession become the assets and liabi-lities of the company;

(b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession;

(c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and

(d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;

(e) the demutualisation or corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for corporatisation which is approved by the Securities and Exchange Board of India established under S.3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

 

"(xiiia) any transfer of a capital asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under S.3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);".

 

(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company :

 

Provided that

(a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company;

(b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and

(c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;

 

 

(xv) any transfer in a scheme for lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is subject to the guidelines issued by the Securities and Exchange Board of India, established under S.3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), in this regard.]

 

Section 47A Withdrawal of exemption in certain cases

 

[(1) 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,

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.]

 

[(2) Where at any time, before the expiry of a period of three years from the date of the transfer of a capital asset referred to in clause (xi) of section 47, any of the shares allotted to the transferor in exchange of a membership in a recognised stock exchange are transferred, the amount of profits and gains not charged under section 45 by virtue of the provisions contained in clause (xi) of section 47 shall, notwithstanding anything contained in the said clause, be deemed to be the income chargeable under the head "Capital gains" of the previous year in which such shares are transferred.]

 

[(3) Where any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 shall be deemed to be the profits and gains chargeable to tax of the successor company for the previous year in which the requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case may be, are not complied with.]

 

Section 48 Mode of computation

 

[.- The income chargeable under the head "Capital gains" shall be 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 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 reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company :

Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted:

[Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government:]

[Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section.]

 

Explanation. For the purposes of this section,

 

(i) "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);

(ii) 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;

(iii) "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later;

(iv) "indexed cost of any improvement" means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place;

[(v) "Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index for urban non- manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.]]

 

Section 49 Cost with reference to certain modes of acquisition

 

[(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;

(iii)

(a) by succession, inheritance or devolution, or

[(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, 1987, 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) [or clause (v)] [or clause (vi)] [or clause (vi-a)] "or clause (vi-a)" of section 47;

 

[(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,]

[Explanation. In this [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) [or clause (iv)] of this [sub-section].]

 

[(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.]

 

[(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.]

 

[(2AA) Where the capital gain arises from the transfer of the shares, debentures or warrants, the value of which has been taken into account while computing the value of perquisite under clause (2) of section 17, the cost of acquisition of such shares, debentures or warrants shall be the value under that clause.]

 

[(2B)] [*****]

 

(2C) The cost of acquisition of the shares in the resulting company shall be the amount which bears to the cost of acquisition of shares held by the assessee in the demerged company the same proportion as the net book value of the assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger.

 

(2D) The cost of acquisition of the original shares held by the shareholder in the demerged company shall be deemed to have been reduced by the amount as so arrived at under sub-section (2C).

 

Explanation. For the purposes of this section, "net worth" shall mean the aggregate of the paid up share capital and general reserves as appearing in the books of account of the demerged company immediately before the demerger.]

 

[(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 47 A, the cost of acquisition of such asset to the transferee-company shall be the cost for which such asset was acquired by it.]

 

Section 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 Income-tax Act, 1922 (11 of 1922), the provisions of section 48 and section 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 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 falling 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.]

 

Section 50A Special provision for cost of acquisition in case of depreciable asset

 

Where the capital asset is an asset in respect of which a deduction on account of depreciation under clause (i) of sub-section (1) of section 32 has been obtained by the assessee in any previous year, the provisions of section 48 and section 49 shall apply subject to the modification that 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.]

 

Section 50B Special provision for computation of capital gains in case of slump sale

 

(1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place :

 

Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets.

 

(2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of section 48 and section 49 and no regard shall be given to the provisions contained in the second proviso to section 48.

 

(3) Every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288, indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section.

 

[Explanation 1 For the purposes of this section, "net worth" shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account:

 

Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth.

 

Explanation 2. For computing the net worth, the aggregate value of total assets shall be,

 

(a) in the case of depreciable assets, the written down value of the block of assets determined in accordance with the provisions contained in sub-item (C) of item (i) of sub-clause (c) of clause (6) of section 43; and

(b) in the case of other assets, the book value of such assets.]]

 

Section 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.

 

Section 52 Consideration for transfer in cases of understatement

 

[Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]

 

Section 53 Exemption of capital gains from a residential house

 

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

 

Section 54 Profit on sale of property used for residence

 

[(1)] [[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 [****], 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 [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

(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

 

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

 

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[(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of incom e under sub-section (1) of section 139] in an account in any such bank or institution which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,

(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

 

 

Explanation [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993]

 

Section 54A Relief of tax on capital gains in certain cases

 

[Omitted by the Finance (No.2) Act, 1971, w.e.f. 1-4-1972. Original section was inserted by the Finance Act, 1965, w.e.f. 1-4-1965. The Direct Tax Laws (Amendment) Act, 1989 has deleted section 54A, dealing with relief of tax on capital gains on transfer of property held under trust for charitable or religious purposes or by certain institution, earlier inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

 

Section 54B Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases

 

[(1)] [Subject to the provisions of sub-section (2), where the capital gain arises] from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his for agricultural purposes [(hereinafter referred to as the original asset)], and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, 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,

 

(i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.]

 

[(2) The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the new asset within the period specified in sub-section (1), then,

(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of two years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

 

Explanation [Omitted by the Finance Act. 1992, w.e.f. 1-4-1993.]

 

Section 54C Capital gain on transfer of jewellery held for personal use not to be charged in certain cases

 

[Omitted by the Finance Act, 1976, w.e.f. 1-4-1976. Original section was inserted by the Finance Act, 1972, w.e.f. 1-4-1973.]

 

Section 54D Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases

 

[(1)] [Subject to the provisions of sub-section (2), where the capital gain arises] from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking belonging to the assessee which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee for the purposes of the business of the said undertaking [(hereafter in this section referred to as the original asset)], and the assessee has within a period of three years after that date purchased any other land or building or any right in any other land or building or constructed any other building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertaking, then, instead of the capital gain being charged to income-tax as the 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,

 

(i) if the amount of the capital gain is greater than the cost of the land, building or right so purchased or the building so constructed (such land, building or right being hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.]

 

[(2) The amount of the capital gain which is not utilised by the assessee for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,

(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

 

 

Explanation admitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

Section 54E Capital gain on transfer of capital assets not to be charged in certain cases

 

(1) Where the capital gain arises from the transfer of a [long-term capital asset] [before the 1st day of April, 1992], (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, within a period of six months after the date of such transfer, invested or deposited the [whole or any part of the net consideration] in any specified asset (such specified asset being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,

 

(a) if the cost of the new asset is not less than the [net consideration] in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the new asset is less than the [net consideration] in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the [net consideration] shall not be charged under section 45:

[Provided that in a case where the original asset is transferred after the 2 8th day of February, 1983, the provisions of this sub-section shall not apply unless the assessee has invested or deposited the whole or, as the case may be, any part of the net consideration in the new asset by initially subscribing to such new asset:]

[Provided further that in a case where the transfer of the original asset is by way of compulsory acquisition under any law and the full amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period of six months referred to in this sub-section shall, in relation to so much of such compensation as is not received on the date of the transfer, be reckoned from the date immediately following the date on which such compensation is received by the assessee [or the 31st day of March, 1992, whichever is earlier].]

 

Explanation 1. [For the purposes of this sub-section, "specified asset" means,

(a) in a case where the original asset is transferred before the 1st day of March, 1979, any of the following assets, namely: ]

(i) securities of the Central Government or a State Government;

(ii) savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959);

(iii) units in the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(iv) debentures specified by the Central Government for the purposes of clause (ii) of sub-section (1) of section 80L;

(v) shares in any Indian company which are issued to the public or are listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), [where the investment in such shares is made before the 1st day of March, 1978];

[(va) equity shares forming part of any eligible issue of capital, where the investment in such shares is made after the 28th day of February, 1978;]

(vi) deposits for a period of not less than three years with the State Bank of India established under the State Bank of India Act, 1955 (23 of 1955), or any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) or any nationalised bank, that is to say, any corresponding new bank, constituted under S.3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a cooperative land development bank);

 

[(b) in a case where the original asset is transferred after the 28th day of February, 1979 [but before the 1st day of March, 1983], such National Rural Development Bonds as the Central Government may notify in this behalf in the Official Gazette;]

[(c) in a case where the original asset is transferred after the 28th day of February, 1983 [but before the 1st day of April, 1986], any of the following assets, namely :

 

(i) securities of the Central Government which that Government may, by notification in the Official Gazette, specify in this behalf;

(ii) special series of units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), which the Central Government may, by notification in the Official Gazette, specify in this behalf;

(iii) such National Rural Development bonds as have been notified under clause (b) of Explanation 1 or as may be notified in this behalf under this clause by the Central Government;

(iv) such debentures issued by the Housing and Urban Development Corporation Limited [a Government company as defined in S.617 of the Companies Act, 1956 (1 of 1956)], as the Central Government may, by notification in the Official Gazette, specify in this behalf;]

 

[(d) in a case where the original asset is transferred after the 31st day of March, 1986, any of the assets specified in clause (c) and such bonds issued by any public sector company, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

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[(e) in a case where the original asset is transferred after the 31st day of March, 1989, any of the assets specified in clauses (c) and (d) and such debentures or bonds issued by the National Housing Bank established under S.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.]

 

 

[Explanation 2. "Eligible issue of capital" shall have the meaning assigned to it in sub-section (3) of section 80CC.]

 

[Explanation 3. An assessee shall not be deemed to have invested the [whole or any part of the net consideration in any equity shares referred to in sub-clause (va) of clause (a)] of Explanation 1, unless the assessee has subscribed to or purchased the shares in the manner specified in sub-section (4) of section 80CC.]

 

Explanation [4] "Cost", in relation to any new asset, being a deposit referred to in [sub-clause (vi) of clause (a)] of Explanation 1, means the amount of such deposit.

 

[Explanation 5. "Net consideration", in relation to the transfer of a capital asset, 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.

 

[(1A) Where the assessee deposits after the 27th day of April, 1978, the [whole or any part of the net consideration in respect] of the original asset in any new asset, being a deposit referred to in [sub-clause (vi) of clause (a)] of Explanation 1 below sub-section (1), the cost of such new asset shall not be

 

(a) the assessee furnishes, along with the deposit, a declaration in writing, to the bank or the co-operative society referred to in the said [sub-clause (vi)] with which such deposit is made, to the effect that the assessee will not take any loan or advance on the security of such deposit during a period of three years from the date on which the deposit is made;

(b) the assessee furnishes, along with the return of income for the assessment year relevant to the previous year in which the transfer of the original asset was effected or within such further time as may be allowed by the [Assessing] Officer, a copy of the declaration referred to in clause (a) duly attested by an officer not below the rank of sub-agent, agent or manager of such bank or an officer of corresponding rank of such co-operative society.]

 

[(1B) Where on the fulfilment of the conditions specified in sub-section (1A), the cost of the new asset referred to in that sub-section is taken into account for the purposes of sub-section (1), the assessee shall, within a period of ninety days from the expiry of the period of three years reckoned from the date of such deposit, furnish to the [Assessing] Officer a certificate from the officer referred to in clause (b) of sub-section (1A) to the effect that the assessee has not taken any loan or advance on the security of such deposit during the said period of three years.]

 

[(1C) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of the original asset, made after the 31st day of March, 1992, in respect of which the assessee had received any amount by way of advance on or before the 29th day of February, 1992 and had invested or deposited the whole or any part of such amount in the new asset on or before the later date, then, the provisions of clauses (a) and (b) of sub-section (1) shall apply in the case of such investment or deposit as they apply in the case of investment or deposit under that sub-section.]

(2) Where the new asset is transferred, or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be [long-term capital assets] of the previous year in which the new asset is transferred or converted (otherwise than by transfer) into money.]

 

[[Explanation 1.] Where the assessee deposits after the 27th day of April, 1978, the [whole or any part of the net consideration in respect] of the original asset in any new asset, being a deposit referred to in [sub-clause (vi) of clause (a)] of Explanation 1 below sub-section (1), and such assessee takes any loan or advance on the security of such deposit, he shall be deemed to have converted (otherwise than by transfer) such deposit into money on the date on which such loan or advance is taken.]

 

[Explanation 2. In a case where the original asset is transferred after the 28th day of February, 1983 and the assessee invests the whole or any part of the net consideration in respect of the original asset in any new asset and such assessee takes any loan or advance on the security of such new asset, he shall be deemed to have converted (otherwise than by transfer) such new asset on the date on which such loan or advance is taken.]

 

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[(3) Where the cost of the equity shares referred to in [sub-clause (va) of clause (a)] of Explanation 1 below sub-section (1) is taken into account for the purposes of clause (a) or clause (b) of sub-section (1) [*****], a deduction with reference to such cost shall not be allowed under section 80CC.]

 

Section 54EA Capital gain on transfer of long-term capital assets not to be charged in the case of investment in [specified securities]

 

(1) Where the capital gain arises from the transfer of a long-term capital asset [before the 1st day of April, 2000] (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of the net consideration in any of the [bonds, debentures, shares of a public company or units of any mutual fund referred to in clause (23D) of section 10,] specified by the Board in this behalf [specified securities]), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,

 

(a) if the cost of the [specified securities] is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the [specified securities] is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the [specified securities] bears to the net consideration shall not be charged under section 45.

 

(2) Where the [specified securities] are transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of their acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such [specified securities] as provided in clause (a) or clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which the [specified securities] are transferred or converted (otherwise than by transfer) into money.

 

Explanation. In a case where the original asset is transferred and the assessee invests the whole or any part of the net consideration in respect of the original asset in any [specified securities] and such assessee takes any loan or advance on the security of such [specified securities], he shall be deemed to have converted (otherwise than by transfer) such [specified securities] into money on the date on which such loan or advance is taken.

 

(3) Where the cost of the [specified securities] has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1), a rebate with reference to such cost shall not be allowed under section 88.

 

Explanation. For the purposes of this section,

 

(a) "cost", in relation to any [specified securities], means the amount invested in such [specified securities] out of the net consideration received or accruing as a result of the transfer of the original asset;

(b) "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by the expenditure incurred wholly and exclusively in connection with such transfer.

 

Section 54EB Capital gain on transfer of long-term capital assets not to be charged in certain cases

 

(1) Where the capital gain arises from the transfer of a long-term capital asset [before the 1st day of April, 2000] (the capital asset so transferred being hereafter in this section referred to as the original asset), and the assessee has, at any time within a period of six months after the date of such transfer invested the whole or any part of capital gains, in any of the assets specified by the Board in this behalf by notification in the Official Gazette (such assets hereafter in this section referred to as the long-term specified assets), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,

 

(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45 ;

(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45.

Explanation. "Cost", in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset.

 

(2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of seven years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a), or as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money.

 

Explanation. In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken.

 

(3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1), a deduction from the amount of income-tax with reference to such cost shall not be allowed under section 88.]

 

Section 54EC Capital gain not to be charged on investment in certain bonds

 

26* The following clause (b) shall be substituted for the existing clause (b) of Explanation to section 54EC by the Finance Act, 2001, w.e.f. 1-4-2002: "(b) "long-term specified asset" means any bond redeemable after three years issued, on or after the 1st day of April, 2000, by 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) or by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988).]" .-

(1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time with in a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,

 

(a) if the cost of the long-term specified asset is not less than the capita! gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45.

 

(2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head 'Capital gains"relating to long-term capital asset of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money.

 

Explanation. In a case where the. original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date, on which such loan or advance is taken.

 

"(3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1),

 

(a) a deduction from the amount of income tax with reference to such cost shall not be allowed under Section 88 for any assessment year ending before the 1st day of April, 2006;

(b) a deduction from the income with reference to such cost shall not be allowed under Section 80-C for any assessment year beginning on or after the 1st day of April, 2006.".

 

(b) "long-term specified asset" means any bond redeemable after three years, issued,

 

(i) on or after the 1st day of April, 2000, by the National Bank for Agriculture and Rural Development established under s.3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981) or by the National Highways Authority of India constituted under S.3 of the National Highways Authority of India Act, 1988 (68 of 1988);

(ii) on or after the 1st day of April, 2001, by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956).

 

Section 54ED Capital gain on transfer of certain listed securities or unit, not to be charged in certain cases

 

(1) Where the capital gain arises 1867 In the Income-tax Act,In section 54ED, in sub-section (1), for the words "from the transfer of a long-term capital asset,", the words, figures and letters "from the transfer before the 1st day of April, 2006, of a long-term capital asset," shall be substituted w.e.f. the 1st day of April, 2007, by the Finance Act, 2006."from the transfer before the 1st day of April, 2006, of a long-term capital asset,", being listed securities or unit (the capital asset so transferred being hereafter in this section referred to as the original asset), and the assesses has, within a period of six months after the date of such transfer, invested the whole or any part of the capital gain in acquiring equity shares forming part of an eligible issue of capital (such equity shares being hereafter in this section referred to as the specified equity shares), the said capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,

 

(a) if the cost of the specified equity shares is not less than the capitalgain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the specified equity shares is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the specified equity shares acquired bears to the whole of the capitalgain shall not be charged under section 45.

Explanation. For the purposes of this sub-section

(i) "eligible issue of capital" means an issue of equity shares which satisfies the following conditions, namely:

(a) the issue is made by a public company formed and registered in India;

(b) the shares forming part of the issue are offered for subscription to the public;

 

(ii) "listed securities" shall have the same meaning as in clause (a) of the Explanation to sub-section (1) of section 112;

(iii) "unit" shall have the meaning assigned to it in clause (b) of the Explanation to section 115AB.

 

 

(2) Where the specified equity shares are sold or otherwise transferred within a period of one year from the date of their acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such specified equity shares as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be the income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such equity shares are sold or otherwise transferred.

 

1868 In Section 54ED ,subsection (3) shall be substituted w.e.f. dt. 1/4/2006 by the Finance Act, 2005"(3) Where the cost of the specified equity shares has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1),

 

(a) a deduction from the amount of income tax with reference to such cost shall not be allowed under Section 88 for any assessment year ending before the 1st day of April. 2006;

(b) a deduction from the income with reference to such cost shall no: allowed under Section 80-C for any assessment year beginning on or after the 1st day of April, 2006.".

 

Section 54F Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house

 

(1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of 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 (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,

 

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

[Provided that nothing contained in this sub-section shall apply where

(a) the assessee,

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

 

(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or

 

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

 

 

(b) the income from such residential house, other than the one residential house owned on the date of transferof the original asset, is chargeable. under the head "Income from house property".]

 

 

Explanation. For the purposes of this section,

 

[***]

[***] "net consideration", in relation to the transfer of a capital asset, 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.

 

(2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the

 

(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.]

 

[(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,

(i) the amount by which

(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause(b) of sub-section (1), exceeds

 

(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and

 

(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.

Explanation [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

Section 54G Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area

 

(1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset, being machinery or plant or building or land or any rights in building or land used for the purposes of the business of an industrial undertaking situate in an urban area, effected in the course of, or in consequence of, the shifting of such industrial undertaking (hereafter in this section referred to as the original asset) to any area (other than an urban area) and the assessee has within a period of one year before or three years after the date on which the transfer took place,

 

(a) purchased new machinery or plant for the purposes of business of the industrial undertaking in the area to which the said undertaking is shifted;

(b) acquired building or land or constructed building for the purposes of his business in the said area ;

(c) shifted the original asset and transferred the establishment of such undertaking to such area; and

(d) incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government for the purposes of this section,

(i) if the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) (such cost and expenses being hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to, or less than, the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be reduced by the amount of the capital gain.

Explanation. In this sub-section, "urban area" means any such area within the limits of a municipal corporation or municipality as the Central Government may, having regard to the population, concentration of industries, need for proper planning of the area and other relevant factors, by general or special order, declare to be an urban area for the purposes of this sub-section.

 

(2) The amount of capital gain which is not appropriated by the assessee towards the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for all or any of the purposes aforesaid before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for all or any of the purposes aforesaid together with the amount, so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within the period specified in that sub-section, then,

(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and

(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid :

Explanation [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

Section 54H Extension of time for acquiring new asset or depositing or investing amount of capital gain

 

Notwithstanding anything contained in section 54, section 54B, section 54D[***] [, section 54EC] and section 54F, where the transfer of the original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period for acquiring the new asset by the assessee referred to in those sections or, as the case may be, the period available to the assessee under those sections for depositing or investing the amount of capital gain in relation to such compensation as is not received on the date of the transfer, shall be reckoned from the date of receipt of such compensation :

Provided that where the compensation in respect of transfer of the original asset by way of compulsory acquisition under any law is received before the 1st day of April, 1991, the aforesaid period or periods, if expired, shall extend up to the 31st day of December, 1991.]

 

Section 55 Meaning of "adjusted", "cost of improvement" and "cost of acquisition"

 

(1) For the purposes of [section 48 and section 49],

 

(a) [****]

[(b) "cost of any improvement",

(1) in relation to a capital asset being goodwill of a business [or a right to manufacture, produce or process ["or right to carry on any business"] shall be taken to be nil; and

(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 [1st day of April,[1981]], [***] 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 [sub-section (1) of] section 49, by the previous owner,

 

 

 

(2) [For the purposes of section 48 and section 49, "cost of acquisition",

 

[(a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process ["or right to carry on any 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) [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 S.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)]-

(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;

(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 in 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 ;

[(iiia) in relation to the financial asset allotted to the assessee without 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 ;] and

(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;]

 

 

(ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for demutualisation or corporatisation approved by the Securities and Exchange Board of India established under S.3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange,

"Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil;".

(b) in relation to any other capital asset, ]

(i) where the capital asset became the property of the assessee before the [1st day of April, [1981]], means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the [1st day of April, [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 [sub-section (1) of] section 49, and the capital asset became the property of the previous owner before the [1st day of April, [1981]], means the cost of the capital asset to the previous owner or the fair market value of the asset on the [1st day of April, [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;

(iv) [***]

[(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on

(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.

 

Section 55A Reference to Valuation Officer

 

With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the [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 [Assessing] Officer is of opinion that the value so claimed is less than its fair market value ;

 

(b) in any other case, if the [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 S.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 [Assessing] Officer under sub-section (1) of section 16A of that Act.

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).]

 

Section 56 Income from other sources

 

(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 incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :

 

(i) dividends ;

[(ia) income referred to in sub-clause (viii) of clause (24) of section 2 ;]

[(ib) income referred to in sub-clause (ix) of clause (24) of section 2 ;]

[(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";]

[(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 income-tax 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";

[(iv) income referred to in sub-clause (xi) 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" or under the head "Salaries".]

 

Section 57 Deductions

 

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, other than dividends referred to in section 115-O [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 [or interest] on behalf of the assessee ;

 

[(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 and [sub-sections (1) [* * *] and (2)] of section 32 and subject to the provisions of [section 38];

 

[(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 01- [fifteen] 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 ;]

 

(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 :

 

[****]

 

Explanation [Omitted by the Finance Act, 1988, w.e.f. 1-4-1989].

 

Section 58 Amounts not deductible

 

[(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 ;

[(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 [***] ;

(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 ;

(iv) [***]

 

(b) [***]

 

[(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".]

 

[(2) The provisions of section 40A 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".]

 

[(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".]

 

[(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 from 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.]

 

Section 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".

 

(2) [*****]

 

(3) [****]

 

[****]

 

 

CHAPTER 5 INCOME OF OTHER PERSONS, INCLUDED IN ASSESSEE'S TOTAL INCOME

 

Section 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.

 

Section 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.

 

Section 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.

 

Section 63 "Transfer" and "revocable transfer" defined

 

For the purposes of section 60, section 61 and section 62 and of this section,

(a) a transfer shall be deemed to be revocable if

 

(i) it contains any provision for the re-transfer 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 re-assume 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.

 

Section 64 Income of individual to include income of spouse, minor child, etc

 

[[(1)] In computing the total income of any individual, there shall be included all such income as arises directly or indirectly

 

(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:

[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;]

 

(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;

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

(vi) to the son's wife, [***] of such individual, from assets transferred directly or indirectly on or after the 1 st day of June, 1973, to the son's wife [* * *] by such individual otherwise than for adequate consideration; [****]

(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 of his or her spouse [* * *]; and]

[(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 [****].]

 

[Explanation 1. For the purposes of 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 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

(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.

 

Explanation 2A [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

[Explanation 3. For the purposes of clauses (iv) and (vi), where the assets transferred directly or indirectly by an individual to his spouse or 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

 

[(1A) In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child [, 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.]

 

[(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 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 [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 [** *] shall be deemed to arise to the individual and not to the family;

 

[(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 [* * *] on partition shall be deemed to arise to the spouse [****] from assets transferred indirectly by the individual to the spouse [* * *] 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 the individual.

 

Explanation [1]. For the purposes of sub-section (2), [* * *] "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.

 

[****]]

 

[Explanation 2. For the purposes of this section, "income" includes loss.]