Circular : No. 127 [F.
No. 501/2/72-FDT], dated 10-1-1974.
628-632. Agreement
for avoidance of double taxation with
1. The question whether the agreement for the avoidance
of double taxation of income between India and Pakistan (notified under
Notification No. 28, dated 10- 12-1947 [printed here as Annex]) continues to be
operative after the outbreak of the Indo-Pakistan armed conflict of December
1971 has been examined and it has been decided that it is no longer operative for the assessment year 1972-73 and the
subsequent assessment years in relation to Pakistan as well as to Bangladesh. For these assessment years, a person resident in
2. In regard to assessment years prior to the assessment year 1972-73
(including reopened assessments), the provisions of the aforesaid
double taxation agreement, with
ANNEX
- NOTIFICATION NO. 28, DATED 10-
12-1947
In exercise of the powers conferred
by section 49 of the Indian Income-tax Act, 1922 (11 of 1922), section 11 A of
the Excess Profits Tax Act, 1940 (15 of 1940), and section 18A of the Business
Profits Tax Act, 1947 (21 of 1947), as adopted by the Indian (Adaptation of
Income-tax, Profits Tax and Revenue Recovery Acts) Order, 1947, the Central
Government is pleased to direct that all provisions of the annexed Agreement
for the avoidance of double taxation of income, profits and gains under the said
Acts which has been concluded between India and Pakistan shall be given effect
to in the Dominion of India.
TEXT OF ANNEXED
AGREEMENT
Whereas the Government of the Dominion of
India and the Government of the Dominion of Pakistan desire to conclude an agreement for the avoidance of double taxation of income
chargeable in the two Dominions in accordance with their respective laws;
Now, therefore, the said two Governments
do hereby agree as follows :
ARTICLE 1 - The taxes which are the
subject of the present Agreement are the taxes imposed the Dominions of lndia and
ARTICLE II -
Subject to the provisions of Article IX, this Agreement shall continue in force
so long as the basis of residence and the scope of the charging provisions in
the aforesaid Acts as adapted remain unaltered in both
the Dominions, and shall apply to the following assessments made under the said
Acts in the two Dominions:
(i) Assessments
made on or after the 15th day of August, 1947, for the
assessment year 1947-48 (or for the corresponding chargeable accounting
period).
(ii) All other assessments made on or after the 1st day of April, 1948 excepting excess profits tax assessments for
chargeable accounting periods for which provisional assessments have been made
before the l st April, 1948.
ARTICLE III - Save under the provisions of section 34 of the Indian
Income-tax Act, 1922 and section 15 of the Excess Profits Tax Act, 1940, as
adapted neither Dominion shall charge to tax any income of a person whose
assessment (whether regular or provisional) including such income had been
completed before the 15th day of August, 1947 or 1st day of April, 1948, as the
case may be, by an Income-tax Officer or Excess Profits Tax Officer functioning
respectively under the Indian Income-tax Act, 1922, or the Excess Profits Tax
Act, 1940, or under those Acts as adapted and applied to any areas or to either
Dominion.
ARTICLE IV - Each Dominion shall make assessment in the ordinary way
under its own laws; and, where either Dominion under the operation of its laws
charges any income from the sources or categories of transactions specified in
column 1 of the Schedule to this Agreement (hereinafter referred to as the
Schedule) in excess of the amount calculated according to the percentage
specified in columns 2 and 3 thereof, that Dominion shall allow an abatement equal
to the lower amount of tax payable on such excess in other Dominion as provided
for in Article VI.
ARTICLE V -
Where any income accruing or arising without the territories of the Dominions
is chargeable to tax in both the Dominions, each Dominion shall allow an abatement equal to one-half of the lower amount of tax
payable in either Dominion on such doubly taxed income.
ARTICLE VI - (a) For
the purposes of the abatement to be allowed under Article IV or V, the tax
payable in each Dominion on the excess or the doubly taxed income, as the case
may be, shall be such proportion of the tax payable in each Dominion as the
excess or the doubly taxed income bears to the total income of the assessee in
each Dominion.
(b) Where at the time
of assessment in one Dominion, the tax payable on the total income in the other
Dominion is not known, the first Dominion shall make a demand without allowing
the abatement, but shall hold in abeyance for a period of one year (or such
longer period as may be allowed by the Income-tax Officer in his discretion)
the collection of a portion of the demand equal to the estimated abatement. If the assessee produces a
certificate of assessment in the other Dominion within the period of one year
or any longer period allowed by the Income-tax Officer, the uncollected portion
of the demand will be adjusted against the abatement allowable under this
Agreement; if no such certificate is produced, the abatement shall cease to be
operative and the outstanding demand shall be collected forthwith.
ARTICLE VII -
(a) Nothing in this Agreement shall be construed as modifying or interpreting in any
manner the provisions of relevant taxation laws in force in either Dominion.
(b) If any question arises as to
whether any income falls within any one of the items specified in the Schedule
and if so, under which item, the question shall be decided
without any reference to the treatment of such income in the assessment made by
the other Dominion.
ARTICLE VIII - The Schedule
to this Agreement may be modified from time to time by
agreement between the Central Boards of Revenue of the two Dominions and
references to the Schedule in the foregoing Articles shall be read as
references to the Schedule, as modified.
ARTICLE IX - Either of the Contracting Parties may, six months
before the beginning of any financial year (beginning of the 1st day of April),
give to the other Contracting Party, through diplomatic channels, notice of
termination, and in such event this Agreement shall cease to have effect in
relation to any assessment to income-tax for the financial year beginning with
the 1st day of April next following and in relation to assessments to any other
tax on the income of the corresponding chargeable accounting period.
THE SCHEDULE
[See Article IV]
|
Source of income or nature of transaction from which income is
derived |
Percentage of
income which each Dominion is entitled to charge under the Agreement |
Remarks
|
||||||||
|
|
1 |
2 |
3 |
4 |
||||||
|
1. |
(a)
Salaries paid by employers other than Government. |
100 per cent by the Dominion in which
the salary is earned by service. |
Nil by the other. |
|
||||||
|
|
(b)
Salaries paid by Government. |
100 per cent by the Dominion
which pays the salary. |
Nil by the other. |
|
||||||
|
2. |
(a) Interest on Government
securities. |
100 per cent by the Dominion where the
securities are enfaced for payment of interest and
principal. |
Nil by the other. |
|
||||||
|
|
(b) Interest on securities other
than Government securities. |
100 per cent by the
Dominion in which the investment is used. |
Nil by the other. |
|
||||||
|
3. |
Income from property. |
100 per cent by the
Dominion in which the property is situated. |
Nil by the other. |
|
||||||
|
4. |
Income from profession
or vocation. |
100 per cent by the Dominion in which
professional service is rendered. |
Nil by the other. |
|
||||||
|
5. |
Income from businessor
other sources : |
|
|
|
||||||
|
|
(a) Rent or royalty from lease,
renting or hire of property. |
100 per cent by the
Dominion in which the property is situated. |
Nil by the other. |
|
||||||
|
|
(b)
Rent or royalty or licence fees or any like consideration from rights
conceded in respect of property. |
|
|
|
||||||
|
|
|
|
|
|||||||
|
|
(c) Rent or royalty
or any like consideration from
any interest in property. |
|
|
|
|
|||||
|
|
(d) Profits or gains
from dealings in property growing out of the ownership or use of or interest
in such property. |
|
100 per cent by the Dominion in which the property is situated. |
Nil by the
other. |
|
|||||
|
|
(e) Rent or royalty for the use of
or for the privilege of using patents, copyrights, goodwill, trade marks and
other like property. |
100 per cent by the Dominion in which the asset is used. |
Nil by the
other. |
|
||||||
|
|
(f) Income derived from any money
lent at interest and brought into a Dominion in cash or in kind. |
100 per
cent by the Dominion into which the money is brought. |
Nil by the other |
|
||||||
|
|
(g) Transport :
Ships, Air, Road. |
100 per cent by the Dominion in which the traffic originates. |
Nil by the
other. |
|
||||||
|
6. |
Capital
gains : |
|
|
|
||||||
|
|
(a) From sale,
exchange or transfer of an immovable capital asset, and any rights pertaining
thereto. |
100 per cent by the Dominion in which the capital asset is situated. |
Nil by the
other. |
|
||||||
|
|
(b) From the sale,
exchange or transfer of other assets. |
100 per cent by the Dominion in which the sale, exchange or transfer
takes place. |
Nil by the
other. |
|
||||||
|
7. |
(a) Goods purchased in one Dominion
and sold in the other in the same condition without any manufacturing process
so as to change the identity of the goods. |
10 per cent
of the profits by the Dominion in which goods are purchased
provided there is a branch or regular purchasing agency in the Dominion. |
90
per cent by the other. |
If there is no
regular purchasing agency, 100 per cent shall be chargeable by the. Dominion
in which goods are sold and nil
by the other |
||||||
|
|
(b) Goods, merchandise or
commodities manufactured in one Dominion and delivered by the manufacturer to
buyer in the same Dominion. |
100 per
cent by the Dominion in which the goods are manufactured. |
Nil by the
other. |
|
||||||
|
|
(c) Goods, merchandise or
commodities manufactured in one Dominion and sold by the manufacturer in the
other without any further process and without having a selling establishment
or regular agency in the latter Dominion. |
75 per cent
by the Dominion in which goods are manufactured. |
25 per cent
by the Dominion in which goods are sold. |
|
||||||
|
|
(d) Goods, merchandise or
commodities manufactured in one Dominion and sold by the manufacturer in the
other through a selling establishment or a regular agency. |
50 per cent of the
Dominion in which goods are manufactured. |
50 per cent by the
Dominion in which goods are sold. |
|
||||||
|
|
(e) Goods,
merchandise or commodities manufactured by the assessee partly in one
Dominion and partly in the other. |
50
per cent of the profits by the each Dominion. |
50 per cent of the profits by each Dominion. |
|
||||||
|
|
(f) Metal ores, minerals, mineral
oils and forest produce extracted in one Dominion and delivered by the
extractor to a buyer in the same Dominion. |
100 per cent of
the profits by the Dominion in which minerals are extracted. |
Nil by the
other. |
|
||||||
|
|
(g)
Metal ores, minerals mineral oils and forest produce extracted in one
Dominion and sold in the other without any further manufacturing process and
without selling establishment or a regular agency. |
75 per cent of the
profits by the Dominion in which minerals are extracted. |
25 per cent by the
Dominion in which goods are sold. |
|
||||||
|
|
(h) As above but sold in the other Dominion through a branch or
selling establishment or regular agency. |
50 per cent of the profits by the Dominion in which
minerals are extracted. |
50 per cent of the profits by the Dominion in which
goods are sold. |
Relief in respect of any excess income-tax
Deemed to be paid by the shareholder shall be allowed by each Dominion in
proportion to the profits of the company chargeable by each under this
Agreement. |
||||||
|
8. |
Dividends |
By each Dominion in proportion to
the profits of the company chargeable by each Dominion under this Agreement. |
(As in preceding column.) |
|||||||
|
9. |
Any income derived from a source or category of
transactions not mentioned in any of the foregoing items of this Schedule. |
100 per cent by the Dominion in
which the income actually accrues or arises. |
Nil by the other. |
|
||||||
Circular: No.
128 [F. No. 133(98) 73-TPL],
dated 2-2-1974.
SECTIONS 269D AND 269P l
PRELIMINARY NOTICE/STATEMENT OF TRANSFERS
1269. Amendments made by Income-tax
(Amendment) Act, 1973 in sections 269D and 269P - Implications explained
1. The Income-tax (Amendment) Bill, 1973, as
passed by Parliament, received the assent of the President on December 25, 1973
and has been enacted as the Income-tax (Amendment) Act, 1973. This circular
explains the provisions of the aforesaid Act
(hereinafter referred to as the Amending Act).
2. The object of the Amending Act is to remove certain practical difficulties
experienced in the administration of the provisions contained in Chapter XX-A
of the Income-tax Act relating to acquisition of immovable properties in
certain cases of transfer to counteract evasion of tax. For this purpose, the
Amending Act has amended sections 269D and 269P of the Income-tax Act and has also made independent provisions to validate action in
certain past cases.
3. Under section 269D, as it stood prior to its
amendment proceedings for the acquisition of immovable property could be
initiated by the competent authority by publication of a notice to that effect
in the Official Gazette before the expiration of a period of six months from the end of the month
in which the instrument of transfer in respect of the property is registered
under the Registration Act, 1908. The time limit within which proceedings for
acquisition of immovable property can be initiated by
the competent authority has now been raised from six months to nine months from
the end of the month in which the instrument of transfer in respect of the
property is registered. This amendment has been made with retrospective
effect from November 15, 1972 (i.e.,
from the date of coming into force of the provisions of Chapter XX-A with a
view to protecting past cases where notices for the initiation of proceedings
for the acquisition of immovable property were not published in the Official
Gazette in time. To place the matter beyond doubt, a specific provision has also been made for
validating past action in cases where such notices were published in the
Official Gazette after the expiry of six months, but before the expiry
of nine months from the end of the month in which the instrument of transfer
was registered. In cases where the notice issued by the
competent authority before the commencement of the Amending Act could not be
published in the Official Gazette within the period of nine months from the end
of the month in which the instrument of transfer was registered by reason of
any injunction or order of any court, the notice may be published after the
injunction is vacated. In such cases, the extended period of limitation
will be reckoned after excluding the time of the continuance of the injunction
or order, the day on which it was issued or made and the day on which it was
withdrawn [vide clause (b) of the second proviso to section
269D(1)].
4. It is not unlikely that in some cases which have now been validated by
the Amending Act, the concerned persons might not have exercised their right of
calling in question the jurisdiction of the competent authority under section
269B(3) or of raising
objections against the proposed acquisition under section 269E. The Amending Act has,
therefore, provided that in such cases the concerned persons may call in question the jurisdiction of the
competent authority under section 269B(3) within 30 days from the date of
publication of the notice in the Official Gazette or within 30 days from the
commencement of the Amending Act (i.e.,
before January 25, 1974) whichever is
later. Likewise, objections against the acquisition of immovable
property may be made under section 269E within the period allowed under that
section or a period of 45 days from the commencement of the Amending Act (i.e., before February 9, 1974),
whichever period expires later.
5. Section 269P as it stood prior to its amendment by the Amending Act, provided that no registering officer shall register any
document purporting to transfer any immovable property unless a statement in
duplicate in respect of such transfer is furnished to him along with the
instrument of transfer. The statement was required to be
furnished in respect of every immovable property regardless of its
value. The collection and submission of such statements to the competent
authorities had thrown considerable burden on registering officers. With a view
to keeping the administrative work within manageable limits, the Amending Act has amended section 269P to
provide that no statement need be furnished in cases
where the consideration declared in the instrument of transfer does not exceed
Rs. 10,000. This amendment has been made with
effect from January 1, 1974 and will accordingly apply in respect of
registrations made on or after that date.
Circular : No.
129 [F.No. 275/35/74-ITJ], dated 12-3-1974.
FINANCIAL YEAR 1974-75
1730.
Instructions for deduction of tax at source from interest on securities during
financial year 1974-75 at the rates specified in Part III of First Schedule to
Finance Bill, 1974
I am directed to forward a copy of draft
circular letter setting out the rates at which income-tax
and surcharge should be deducted from interest on Government securities on or
after April 1, 1974. It is requested that a circular on the
basis of this draft may be issued by you immediately to all Treasury
Officers and Sub-Treasury Officers under your control, individually.
DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS
1. I am to invite your attention to this Office Letter......regarding
deduction of income-tax and surcharge from interest on Government securities
during the financial year 1973-74.
2. According to the Finance Bill, 1974, income-tax is to be deducted from
the entire amount of interest
on securities at the following rates, namely :
|
|
|
Income-tax
|
|
|
|
|
Rate of
Income-tax |
Rate of
Surcharge |
|
I. |
In the case
of a person other than a company |
|
|
|
|
(i)
where the person is resident |
|
|
|
|
on interest on securities (excluding interest
payable on a tax-free security) |
21 per cent |
2 per cent |
|
|
(ii)
where the person is not resident in |
|
|
|
|
(a)
on interest on securities (excluding interest payable on a tax-free security) |
income-tax at 30 per cent and surcharge
at 3 per cent of the amount of the interest, |
|
|
|
|
or |
|
|
|
|
income-tax and surcharge on income-tax
in respect of the interest at the rates prescribed in Sub-Paragraph I of
Paragraph A of Part III of the First Schedule to the Finance Bill, 1974, if
such interest income had been the total income, |
|
|
|
|
whichever is higher ; |
|
|
|
(b)
on interest payable on a tax-free security |
15 per cent |
1.5 per cent |
|
II. |
In the case
of a company |
|
|
|
|
(i)
where the company is a domestic company |
|
|
|
|
on interest on securities (excluding
interest payable on a tax-free security) |
22 per cent |
1 per cent |
|
|
(ii)
where the company is not a domestic company |
|
|
|
|
(a)
on interest payable on a tax-free security |
44 per cent |
2.2 per cent |
|
|
(b)
on interest on other securities |
70 per cent |
3.5 per cent |
3. The term domestic company means an Indian company, or
any other company which in respect of its income liable to income-tax under the
Act for the assessment year commencing on April 1, 1974 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 in
accordance with the provisions of section 194.
4. In making payment or crediting interest on Government securities on or
after April 1, 1974, you should, therefore, deduct income-tax
at the rates specified above, except in cases where an exemption or abatement
certificate granted by an Income-tax Officer under sub-section (1) of section
197 is produced. The following instructions should be followed in this connection :
(1)
Exemption or abatement certificates issued before April 1, 1974 authorising
deduction of tax at a particular rate expressed as
percentage of the amount of interest, should be accepted and acted upon, if
operative for the financial year ending on March 31, 1975.
(2)
Where a certificate is issued by the Income-tax Officer on or after April 1,
1974 authorising deduction of tax at a specified rate in respect of any person,
income-tax should be deducted at the rates specified
therein.
(3)
No tax should be deducted in cases in which, from a certificate, issued by the
Income-tax Officer or otherwise, you are satisfied that the payee is a person
exempt from the income-tax under sections 10 to 13.
(4) No tax should be deducted from any interest payable on 4 per
cent National Defence Bonds, 1972 or 6 per cent Gold
Bonds, 1977 or 7 per cent Gold Bonds, 1980 where any such Bonds are held by a
resident individual and in the case of the aforesaid Gold Bonds, where the
holder thereof makes a declaration in writing before the person responsible for
making the payment that the total nominal value of 6 per cent Gold Bonds, 1977
or, as the case may be, the 7 per cent Gold Bonds, 1980 held by him (including
such Bonds, if any, held on his behalf by any other person) did not in either
case exceed Rs. 10,000 at any time during the period to which the interest
relates.
(5)
No tax should be deducted from interest payable to a non-resident on 4 per cent
National Defence Loans, 1968 and 4 per cent National Defence Loans, 1972, as the interest paid on these loans to
non-residents is totally exempt from income-tax under Notification No. SO 3331, issued under section 10(4). In the case of residents receiving interest on these
loans, deduction of tax has to be made at the
prescribed rates, except when the recipient is an individual.
(6)
No tax should be deducted from interest payable on
National Savings Certificates (First Issue) including National Savings
Certificates (First Issue) Bank Series or 7-year National Savings Certificates
(Fourth Issue).
(7)
No tax should be deducted from any interest payable on any other security of
the Central or State Government where the security is held by a resident
individual, and the holder makes a declaration in writing before the person
responsible for making the payment to the effect :
(a) he has not previously
been assessed under the 1961 Act, or under the 1922 Act ;
(b) his total income of
previous year in which the interest is due is not likely to exceed the minimum
amount not chargeable to income-tax; and
(c) the total nominal
value of the securities held by him (including such securities, if any, as are
held on his behalf, by any other person) did not exceed Rs. 2,500 at any time
during the said previous year.
(8)
No tax should be deducted from any sum payable in respect of any securities
owned by a corporation established by or under a Central Act
which under any law for the time being in force is exempt from
income-tax on its income.
(9)
Under section 288B fractions of one rupee contained in the
amount of tax (including advance tax and tax deducted at source) will
have to be rounded off to the nearest rupee by ignoring amounts less than fifty
paise and increasing amounts of fifty paise or more to one rupee. Hence, the
amount of tax to be deducted at source should be rounded off to the nearest
rupee in accordance with the aforesaid provisions of
the Act.
(10)
In the case of doubt, the Income-tax Officer should be
consulted before making the deduction from interest on Government
securities.
Circular : No. 130 [F.
No. 142/4/74-TPL], dated 16-3-1974.
SECTION 17(2)/RULE 3 [`1]*l PERQUISITE AND ITS VALUATION
189. Rule 3(a) to (c) of Income-tax Rules - Valuation
of perquisites represented by rent-free residential accommodation, residential
accommodation at concessional rent and motor cars -
Effect of amendments made by Income-tax (Amendment)
Rules, 1974
1. The Income-tax (Amendment) Rules, 1974, notified by the Central Board
of Direct Taxes on February 28, 1974, have substituted clauses (a), (b) and (c) of rule 3 of the Income-tax Rules, 1962, relating to
valuation of certain perquisites by three new clauses. The new clauses have
made certain modifications in the provisions relating to the valuation of the
perquisites by way of free residential accommodation and motor cars provided by
employers to their employees. The salient features of the new provisions are explained hereunder.
2. Valuation of rent-free residential accommodation [`2]1- Salaried taxpayers have
been classified into three broad categories for the purposes of determining the
value of the perquisite by way of rent-free residential accommodation provided
to them. The first category consists of (a)
persons holding an office or post in connection with the affairs of the
3. The second category of employees consists of
(a) persons employed by
the Reserve Bank of
(b) persons employed by a statutory corporation or by a company
in which all the shares are held (whether singly or taken together) by the
Government or the Reserve Bank of
(c) persons employed by a
body or undertaking financed wholly or mainly by the Government;
(d) officers of
Government whose services have been lent to, or who are employed after
retirement from Government service with, any company in which not less than 40
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.
In the case of
persons referred to in (a) to (d) above, the perquisite value of unfurnished rent-free residential
accommodation will be taken to be 10 per cent of the salary due to the person
in respect of the period during which the residential accommodation was
occupied by him in the relevant previous year. [For
the purposes of computing the perquisite value of rent-free residential
accommodation, the term salary will include pay, allowances, bonus or
commission payable monthly or otherwise but will not include (i) dearness allowance or dearness
pay, unless it enters into the computation of superannuation or retirement
benefits; (ii) employers
contribution to the provident fund account of the employee; (iii) allowances which are exempted (from
payment of tax; and (iv) any
allowance in the nature of an entertainment allowance, to the extent such
allowance is deductible under section 16(ii).] If the accommodation is furnished, the
value of the perquisite will first be determined on the above basis and then
increased by an amount equal to 15per cent [`3]2of
the original cost of the furniture (including refrigerators, television
sets, radio sets, other household appliances and air-conditioning equipment)
provided to the employee. If the furniture is hired by the employer, the hire charges payable
for the furniture will, instead, be taken into account.
4. Employees who do not fall in the first two categories would fall in the
third or residuary category mainly comprising of employees in the private
sector. In the case of these persons, the perquisite value of rent-free
unfurnished accommodation will ordinarily be taken to
be 10 per cent of the salary of the employee in respect of the period during
which he occupied the accommodation during the relevant previous year. If
the Income-tax Officer is satisfied that the perquisite value of the
accommodation computed on this basis exceeds the fair rental value of the
accommodation, the value of the perquisite will be limited to such fair rental
value. However, if the fair rental value of the accommodation
exceeds 20 per cent of the employees salary for the relevant period, the
Income-tax Officer will have the discretion to increase the value of the
perquisite (computed on the basis of 10 per cent of the salary) by so much of
the excess of the fair rental value over 20 per cent of the salary, as he may,
having regard to the nature of the accommodation, deem fit. In the case
of employees residing at
5. Residential accommodation at concessional
rent - If residential
accommodation is provided by the employer at a concessional
rent, the value of the perquisite will first be determined as if
the employee had been provided with rent-free residential accommodation and the
amount so computed will be reduced by the rent payable by the employee.
6. Value of motor car used by employees for
personal or private purposes - If a motor
car is provided by the employer exclusively for the private or personal
purposes of the employee, the value of the perquisite in the hands of the
employee will be (a) the amount
of the expenditure incurred by the employer on the maintenance and running of
the motor car (including salary paid to a chauffeur), and (b) if the motor car is owned by the
employer, a further amount representing the normal wear and tear of the motor
car. If a motor car is provided by the employer
for use by the employee partly for
his private or personal purposes and partly for use in the performance of his duties, a proportionate part
of the expenditure incurred by the employer on the running and maintenance of
the motor car and of the amount representing normal wear and tear of the motor
car (in cases where the motor car is owned by the employer), which is
attributable to the user of the car by the employee for his private or personal
purposes, will be taken as the value of the perquisite in the hands of the
employee. [In this connection, it may be noted that
the use of a motor car by an employee for the purposes of going from his
residence to the place where the duties of employment are to be performed or
from such place back to his residence, will be regarded as use of the motor car
for private or personal purposes and not in the performance of his duties].
If the computation of the value of the
perquisite on the aforesaid basis presents any practical difficulty, the value
of the perquisite will be computed on the following basis :
a. where the motor car is owned or hired by the
employer and the running and maintenance expenses are also borne by him :
|
- |
in the case of a motor car with horse
power not exceeding 16 or with cubic capacity of the engine not exceeding
1.88 litres |
|
|
- |
in the case of other motor cars |
b. where the motor car is owned or hired by the
employer but the running and maintenance expenses are borne by the employee :
|
- |
in the case of a motor car with horse
power not exceeding 16 or with cubic capacity of the engine not exceeding
1.88 litres |
|
|
- |
in the case of other motor cars |
If the employer also provides a chauffeur for running the motor car,
the value of the perquisite computed on the above basis will
be increased by a sum of Rs. 150 per month.
7. In cases where any
particular car is not placed at the disposal of the employee but he is allowed
the use of one or more motor cars out of a pool of motor cars owned or hired by
the employer, the value of the perquisite
will be computed in accordance with the rates specified in the preceding
paragraph, as if the employee had been provided with one motor car for use
partly for his private or personal purposes and partly in the performance of his
duties. However, if the horse power rating of any one of these motor cars exceeds 16
or the cubic capacity of the engine of any one of these motor cars exceeds 1.88
litres, the value of perquisite will be computed as
if the employee had been provided with a motor car with horse power exceeding
16. Further, if a chauffeur is provided by the employer to
run any of these motor cars, the value of the perquisite will be
increased by a sum of Rs. 150 per month.
8. If the employee owns a
motor car but the actual running and maintenance charges (including salary of
the chauffeur, if any) are met or reimbursed by the employer, proportionate part of the expenditure borne by the
employer as is reasonably attributable to the user of the motor car by the
employee for his private or personal purposes, will be taken by the Income-tax
Officer as the value of the perquisite.
9. Use of motor car at concessional rate -
In cases where the employee is provided with, or allowed the use of, a motor
car for his private or personal purposes at a concessional
rate, the value of the perquisite will first be computed as if the perquisite
had been provided by the employer free of charge and the amount so computed
will be reduced by the amount payable by the employee to the employer.
10.
Use of conveyance other than motor cars - Where
any other type of conveyance is provided by the employer to the employee, a
proportionate part of the expenditure incurred by the employer on the running
and maintenance of the conveyance (including amount representing the normal
wear and tear of the conveyance) as is attributable to the user of the
conveyance by the employee for his private or personal purposes, will be taken
by the Income-tax Officer as the value of the perquisite in the hands of the
employee.
11. The new provisions will take effect from
April 2, 1974 and will,
accordingly, apply for the purposes of deduction of tax at source from
salaries during the financial year 1974-75 and for the purposes of making
regular assessments in the case of salaried taxpayers from the assessment year
1975-76.
Circular : No.
131 [F. No. 275/36/74-ITJ], dated 18-3-1974.
FINANCIAL YEAR 1974-75
1697. Instructions for deduction of tax at source from
salary during financial year 1974-75 at the rates specified in Part III of
First Schedule to Finance Bill, 1974
1. I am directed to invite a reference to this Ministrys
Circular No. 107 [F. No. 275/57/73-ITJ], dated 7-3-1973 on the subject of
deduction of income-tax from salaries paid during the
year 1973-74. The Finance Bill introduced in the Parliament on February 28,
1974, inter alia,
prescribes the rates at which income-tax has to be
deducted during the financial year 1974-75 from income chargeable under the
head Salaries. These rates will be applicable to deduction of tax from salaries
paid or payable on or after April 1, 1974. An extract of Sub-Paragraph I of
Paragraph A of Part III of the First Schedule to the Finance Bill, 1974,
insofar as it relates to levy of income-tax on salaries is enclosed [Annex I]. It is requested
that pending the passing of the Finance Bill, 1974, deduction of tax from
salaries may be made during the financial year 1974-75 according to the rates
in the said Schedule. Three typical examples of calculations are
given in Annex II.
2. The substance of the main provisions in the law insofar as they relate
to income from salaries on which tax is to be deducted at source during the
financial year 1974-75 is given hereunder :
(1) No tax will be deductible at source in any case unless the
estimated salary income for the financial year exceeds Rs. 6,000.
(2) The Income-tax (Amendment) Rules,
1974, notified by the Central Board of Direct Taxes on February 28, 1974, have
made certain modifications in the provisions relating to the valuation of
perquisites by way of free residential accommodation and motor cars provided by
employers to their employees. The salient features of the new provisions have been explained in the Boards Circular No. 130, dated
16-3-1974. The new provisions take effect from April 2, 1974 and will, therefore, have to be taken into account for the
purposes of computing the estimated salary income of employees for the purposes
of deduction of tax at source during the financial year 1974-75.
(3) The taxable salary is to be computed
after providing a standard deduction
in respect of expenditure incidental to employment. The standard deduction is
to be allowed in an amount equal to 20 per cent of the
salary up to Rs. 10,000 and 10
per cent of the salary in excess thereof, subject to maximum of Rs. 3,500. For
the purpose, the term salary will include fees, commission, perquisites or
profits in lieu of or in addition to salary, but will not include any payments
received by the employees which are specifically exempt from tax under clauses (10), (10A), (11), (12) and (13A) of section 10. Thus, house rent allowance
which is exempt under section 10(13A)
of the Income-tax Act will not be taken into account for the purposes of
computing the amount of the standard deduction. It may be noted that the
standard deduction on the above basis is to be allowed irrespective of whether
any expenditure incidental to employment is actually incurred by the employee
or not. This deduction will, however, not be
admissible in the case of retired pensioners who have not been in employment at
any time during the financial year 1974-75. In the case of persons who retire
from service in the course of the financial year 1974-75, the standard
deduction will be calculated only with reference to the salary derived from employment
during the financial year without taking into account the pension received by
the employee. Further, the standard deduction will be limited
to Rs. 1,000 only in cases (a)
where the employee is in receipt of a conveyance allowance, or (b) where he is provided with any
motor car, motor cycle, scooter or other moped by his employer (for use
otherwise than wholly or exclusively in the performance of his duties) or where
he is allowed the use of any one or more motor cars (otherwise than wholly or
exclusively in the performance of his duties) out of a pool of motor cars owned
or hired by the employer. In this connection, it may
be noted that the use of a motor car by the employee for the purpose of going
from his residence to the place where the duties of employment are to be
performed or from such place back to his residence will not be regarded as use
of the motor car in the performance of his duties.
(4) While computing the taxable
income, the disbursing officers should allow a deduction of the whole of the
first Rs. 2,000, 50 per cent of the next Rs. 3,000 and 40 per cent of the
balance of the qualifying amount of payments towards life insurance premia, contributions to provident fund, contributions for
participation in the Unit-linked Insurance Plan, 1971 made under section 19(1)(cc) of the Unit Trust of India Act,
1963 and deposits in a 10-year Account or 15-year Account under the Post Office
Savings Bank (Cumulative Time Deposits) Rules, 1959. The qualifying
amount of these items taken together will be limited to 30 per cent of the
estimated salary [after the deduction in respect of expenditure incidental to
the employment of the assessee referred to in item (3) above] or Rs. 20,000,
whichever is less.
(5) The total income computed in accordance with the provisions
of the Act should be rounded off to the nearest multiple of ten rupees by
ignoring the fraction which is less than five rupees
and increasing the fraction which amounts to five rupees or more, to ten
rupees. The net amount of tax deductible should be similarly
rounded off to the nearest rupees.
(6) No deduction should be made from the
salary income in respect of any donations for charitable purposes. The tax
relief on such donations will have to be claimed by
the taxpayer separately at the time of finalisation
of the assessment. However, in cases where contributions to the National Defence Fund, Jawaharlal Nehru Memorial Fund or the Prime
Ministers Drought Relief Fund are made by deduction
from the pay bills, 55 per cent of such contributions may be deducted in
computing the taxable income of the employee. Care should be
taken to see that the aggregate of such contributions for the year is
not less than Rs. 250. Disbursing Officers should show the total contributions
in the remarks column of the return under section 206.
(7) Attention is also invited to
section 276B, wherein it is provided that if a person without reasonable cause
or excuse fails to deduct or after deducting fails to pay the tax as required
under the provisions of Chapter XVIIB he shall be punishable with rigorous
imprisonment for a term which may extend to six months, and shall also be
liable to fine which shall be not less than a sum calculated at the rate of
fifteen per cent per annum on the amount of such tax from the date in which
such tax was deductible to the date on which such tax is actually paid.
ANNEX
I - EXTRACT FROM PART III OF FIRST SCHEDULE TO FINANCE
BILL, 1974
Paragraph A
Sub-Paragraph I
In the case of every
individual or Hindu undivided family or unregistered firm or other association
of persons or body of individuals, whether incorporated or not, or every
artificial juridical persons referred to in sub-clause (vii) of clause (31)
of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II
of this Paragraph or any other Paragraph of this Part applies
|
(1) |
where the total income does not exceed
Rs. 6,000 |
Nil; |
|
(2) |
where the total income exceeds Rs. 6,000
but does not exceed Rs. 10,000 |
12 per cent of the amount by which the total
income exceeds Rs. 6,000; |
|
(3) |
where the total income exceeds Rs.
10,000 but does not exceed Rs. 15,000 |
Rs. 480 plus 15 per cent of the amount by which the total income
exceeds Rs. 10,000; |
|
(4) |
where the total income exceeds Rs.
15,000 but does not exceed Rs. 20,000 |
Rs. 1,230 plus 20 per cent of the amount by which the total income
exceeds Rs. 15,000; |
|
(5) |
where the total income exceeds Rs.
20,000 but does not exceed Rs. 25,000 |
Rs. 2,230 plus 30 per cent of the amount by which the total income
exceeds Rs. 20,000; |
|
(6) |
where the total income exceeds Rs.
25,000 but does not exceed Rs. 30,000 |
Rs. 3,730 plus 40 per cent of the amount by which the total income
exceeds Rs. 25,000; |
|
(7) |
where the total income exceeds Rs.
30,000 but does not exceed Rs. 50,000 |
Rs. 5,730 plus 50 per cent of the amount by which the total income
exceeds Rs. 30,000; |
|
(8) |
where the total income exceeds Rs.
50,000 but does not exceed Rs. 70,000 |
Rs. 15,730 plus 60 per cent of the amount by which the total income
exceeds Rs. 50,000; |
|
(9) |
where the total income exceeds Rs.
70,000 |
Rs. 27,730 plus 70 per cent of the amount by which the total income
exceeds Rs. 70,000 : |
Surcharge on income-tax
The amount of income-tax
computed in accordance with the preceding provisions of this Sub-paragraph
shall be increased by a surcharge for purposes of the
ANNEX
II - TYPICAL EXAMPLES OF INCOME-TAX CALCULATION
Example I
|
|
|
Rs. |
|
1. |
Total salary income |
9,500 |
|
2. |
Contributions to general provident fund |
720 |
|
3. |
Payment towards life insurance premium |
500 |
|
|
|
1,220 |
|
4. |
Total salary income |
9,500 |
|
5. |
Deduct : Standard deduction of 20 per cent of salary in
respect of of expenditure incidental to the
employment |
1,900 |
|
|
|
7,600 |
|
6. |
Deduct : Whole of the qualifying contributions towards
general provident fund and life insurance premia |
1,220 |
|
7. |
Taxable income |
6,380 |
|
8. |
Income-tax payable on Rs. 6,380, i.e., at 12 per cent on Rs. 380 |
45.60 |
|
9. |
Union surcharge at 10 per cent on
income-tax |
4.56 |
|
10. |
Total tax payable |
50.16 |
|
|
Rounded off to |
50.00 |
Example II
|
1. |
Total salary income |
18,325 |
|
2. |
Contributions to general provident fund |
1,200 |
|
3. |
Payment towards life insurance premia |
1,600 |
|
|
|
2,800 |
|
4. |
Total salary income |
18,325.00 |
|
5. |
Deduct : Standard deduction in respect of expenditure
incidental to employment at Rs. 2,000 plus
10 per cent of the amount by which salary exceeds Rs. 10,000 |
2,832.50 |
|
|
|
15,492.50 |
|
6. |
Deduct : Whole of the first Rs. 2,000 and 50 per cent of
the balance qualifying contributions towards general provident fund and life
insurance premia (Rs. 2,000 plus 50 per cent of Rs. 800) |
2,400.00 |
|
7. |
Taxable income |
13,092.50 |
|
|
Rounded off to |
13,090.00 |
|
8. |
Income-tax on Rs. 13,090 (Rs. 480 plus 15 per cent of Rs. 3,090) |
943.50 |
|
9. |
Union surcharge at 10 per cent |
94.35 |
|
10. |
Total tax payable |
1,037.85 |
|
|
Rounded off to |
1,038.00 |
Example III
|
1. |
Total salary income |
|
28,588 |
|
2. |
Contributions to general provident fund |
|
3,500 |
|
3. |
Payment towards life
insurance premium. [The employee
is in receipt of a conveyance allowance of Rs. 200 per month from his
employer] |
|
6,275 |
|
|
|
|
9,775 |
|
4. |
Total salary income |
|
28,588 |
|
5. |
Deduct : Standard deduction in respect of expenditure
incidental to employment restricted to Rs. 1,000 |
|
1,000 |
|
|
|
|
27,588 |
|
6. |
Deduction on account of contributions
towards general provident fund and life insurance premia
paid, Rs. 9,775 in all but limited to 30 per cent of Rs. 27,588, i.e., Rs. 8,276.40 |
|
|
|
|
- on the first Rs. 2000 (full) |
Rs. 2,000.00 |
|
|
|
- on the next Rs. 3000 at 50 per cent |
Rs. 1,500.00 |
|
|
|
- on the balance Rs. 3,276.40 at 40 per
cent |
Rs. 1,310.56 |
|
|
|
|
|
4,810.56 |
|
7. |
Taxable income |
|
22,777.44 |
|
|
Rounded off to |
|
22,780.00 |
|
8. |
Income-tax on Rs. 22,780 (Rs. 2,230 plus 30 per cent of Rs. 2,780) |
|
3,064.00 |
|
9. |
Union surcharge at 10 per cent |
|
306.40 |
|
10. |
Total tax payable |
|
3,370.40 |
|
|
Rounded off to |
|
3,370.00 |
Circular : No. 132 [F.
No. 207/11/74-IT(A-II)], dated 26-3-1974.
SECTION 52 [`9]1l TRANSFER FOR
LESS THAN FAIR MARKET VALUE
424. Whether sub-section (2) can be invoked in the
cases of transfer of capital assets at the instance of Government or where consideration for such transfer is fixed by the Government or
Reserve Bank
I am directed to say
that the Board has examined in consultation with the Ministry of Law the
question whether the provisions of section 52(2) can be invoked in respect of
transfer of capital assets at the instance of the Government or where the
consideration for such transfer is determined or fixed by the Central
Government or the Reserve Bank of India. In cases where a capital
asset is acquired by or under any law for the time
being in force relating to the compulsory acquisition of property, then the
amount finally paid or determined under that law shall be taken to be its fair
market value on the date of its transfer[`10]1.
Similarly, when any capital asset is
transferred to the Government or to any other person and the consideration for
such transfer is determined or fixed by the Central Government or the Reserve
Bank of
Circular : No. 133 [F. No. 275/41/74-ITJ], dated 29-3-1974.
FINANCIAL YEAR 1974-75
1755. Instructions for deduction of tax at source from
winnings from lottery or crossword puzzle during financial year 1974-75 at the
rates specified in Part II of First Schedule to Finance Act, 1974
1. Under section 194B every person responsible for
paying to any person, whether resident or non-resident, any income by way of
winnings from any lottery or crossword puzzle, in an amount exceeding Rs. 1,000
is required to deduct income-tax thereon at the rates
prescribed in this behalf in the Finance Act of the relevant year. The rates of
deduction of income-tax at source for the financial year 1974-75 have been
prescribed in Part II of the First Schedule to the Finance Bill, 1974 and are
as follows :
|
|
|
|
(a)
where the person is resident in |
33 per cent (IT 30 per cent + SC 3 per
cent); |
|
(b)
where the person is not resident in |
33 per cent (IT 30 per cent + SC 3 per
cent); |
|
|
or |
|
|
income-tax and surcharge on income-tax
at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the
First Schedule to the Finance Bill, 1974, if the winnings from lottery or
crossword puzzle had been the total income, |
|
|
whichever is higher. |
|
II. In the case of a company : |
|
|
(a)
where the company is a domestic company |
23 per cent (IT 22 per cent + SC 1 per
cent); |
|
(b)
where the company is not a domestic company |
73.5 per cent (IT 70
per cent + SC 3.5 per cent). |
2. It is requested that pending
the passing of the Finance Bill, 1974, deduction of tax from lotteries and
crossword puzzle prizes may be made during the financial year 1974-75 according
to the above rates. If any changes are made in the
Finance Bill, 1974, before it is passed into law, the same will be communicated
to you in due course.
3. The substance of the main provisions in the law
insofar as they relate to deduction of income-tax at source from winnings from
lotteries and crossword puzzles is given hereunder :
(1) No tax will be
deducted at source where the income by way of winnings from lottery or
crossword puzzle is Rs. 1,000 or less.
(2) Where the prize is given partly in
cash and partly in kind, income-tax will be deductible
from the cash prizes with reference to the aggregate amount of the cash prize
and the value of the prize in kind. Where, however, the prize is given only in
kind no income-tax will be required to be deducted.
(3) Income-tax will be deductible at
the aforesaid rates during the financial year 1974-75, from prizes given after
March 31, 1974, even if the relevant draw in respect of lottery or, as the case
may be, the competition in respect of a crossword puzzle may have been held on
or before that date.
(4) Where the lottery or crossword
puzzle is paid in instalments,
the deduction will be made at the time of actual payment of each instalment.
(5) Income-tax will be deductible from
the amount of the prize money paid to the owner of the lucky ticket with
reference to the amount paid to him. Income-tax is not
deductible from the income by way of bonus or commission paid to lottery agents
or sellers of lottery tickets on the sales made by them.
(6) In view of section 288B, the
amount of tax to be deducted at source should be
rounded off to the nearest rupee by ignoring amounts less than fifty paise and
increasing amounts of fifty paise or more to one rupee.
(7) Tax deducted on behalf of Government
should be paid to the credit of the Central Government
on the same day by book adjustment. In other cases, the tax deducted should be paid to the credit of the Central Government
within one week from the date of deduction. The challans
for paying income-tax in the Government account may be
obtained from the Income-tax Officer concerned.
(8) The relevant forms in relation to
the provisions for deduction of income-tax at source
from lotteries and crossword puzzle prizes are prescribed by the Income-tax
Rules. In this connection, the following instructions may be noted
:
(i) In
the case of any person, other than a company, it is open to the recipient of
the prize to make an application in Form No. 13B to the Income-tax Officer
concerned and obtain from him a certificate authorising the payer to deduct tax
at such lower rates or deduct no tax as may be appropriate to his case. Such a
certificate will be valid for the period specified therein unless it is cancelled by the Income-tax Officer earlier.
(ii) The
person responsible for making any payment by way of winnings from lotteries or
crossword puzzles should issue a certificate in Form No. 19B showing therein
the amount of the prize, the amount of tax deducted at source and the date of
payment in the Government account.
(iii)
The person making deduction of tax in accordance with section 194B from
income by way of winnings from lotteries or crossword puzzles should send to
the Income-tax Officer having jurisdiction to assess him the statement in Form
No. 26B quarterly on July 15, October 15, January 15 and April 15 in respect of
deductions made by him during the immediately preceding quarter.
Circular : No.
134[F.No. 275/12/74-ITJ], dated 16-5-1974.
1073. Instructions for
deduction of tax at source from interest other than interest on securities
during financial year 1974-75 at the rates specified in Part II of First
Schedule to Finance Act, 1974
1. Under section 194A any person not being an individual
or a Hindu undivided family, paying to a resident, any income by way of
interest (other than interest on securities) is required, at the time of credit
of such income to the account of the payee or at the time of payment thereof in
cash or by issue of a cheque or a draft, to deduct income-tax thereon at the rates
in force. The rates for the
financial year 1974-75 as prescribed in Part II of the First Schedule to the
Finance Act, 1974 are as follows :
|
|
Income-tax |
Surcharge |
|
II. In the
case of a company |
10 per cent |
Nil |
|
(a)
where the company is a domestic company |
20 per cent |
1 per cent |
|
(b)
where the company is not a domestic company |
7 per cent |
3.5 per cent |
2. Under section 195 any person responsible for paying
to a non-resident, not being a company, or to a company which is neither an
Indian company nor a company which has made the prescribed arrangements for the
declaration and payment of dividend within India, any interest (other than
interest on securities), will be required, at the time of payment, to deduct income-tax
thereon at the rates in force. The
rates prescribed for the purpose in Part II of the First Schedule to the
Finance Act, 1974 for the financial year 1974-75 are as under
:
|
|
Income-tax |
Surcharge |
|
|
30 per cent |
3 per cent |
|
|
or income-tax and surcharge in respect of
the income by way of interest at the rates prescribed in Sub-Paragraph I of
Paragraph A of Part III of this Schedule, if such income had been the total
income, whichever is higher; |
|
|
II. In the case
of a company |
70 per cent |
3.5 per cent. |
Circular : No. 135 [F. No.
275/42/74-ITJ], dated 21-5-1974.
FINANCIAL YEAR 1974-75
1786. Instructions for deduction of tax at source from
insurance commission during financial year 1974-75 at the rates specified in
Part II of First Schedule to Finance Act, 1974
1. Section 194D provides for deduction of income-tax at source, at such
rates as may be prescribed by the Finance Act of the relevant year, from
payments of income by way of insurance commission, to a resident, whether an
individual, a company or any other category of person. The rates for deduction
of tax at source for the financial year 1974-75 which are prescribed in Part II
of the First Schedule to the Finance Act, 1974 are as below :
|
|
|
Income-tax |
Surcharge |
|
I. |
In the case of a person other than a
company |
10 per cent |
Nil; |
|
II. |
In the case of a domestic company |
22 per cent |
1
per cent. |
2. Though provisions of section 194D apply only in
relation to income by way of insurance commission paid to residents, under the
provisions of section 195, income-tax is required to be deducted from payments
(including payments of income by way of insurance commission) made to
non-corporate non-resident taxpayers as also to companies which are neither
Indian companies nor companies which have made arrangements for declaration and
payment of dividends within India as prescribed under rule 27. In the case of a person other than
a company, who is not resident in India, the rate of deduction of tax at
source, as specified in item 1(b)(i) of Part II of the First Schedule
to the Finance Act, 1974 is 33 per cent (income-tax 30 per cent plus surcharge 3 per cent) of the
income by way of insurance commission or income-tax and surcharge thereon at
the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the said
First Schedule, if such income had been the total income of such person,
whichever is higher. In the case of a company which
is not a domestic company, tax is to be deducted at the rate of 73.5 per cent
(income-tax 70 per cent plus
surcharge 3.5 per cent).
3. It is requested that the deduction of tax at
source from payments of income by way of insurance commission may be made
during the financial year 1974-75 according to the above rates.
The substance of the main provisions in
the law insofar as they relate to deduction of income-tax from insurance
commission is given hereunder :
(1)
For the purpose of deduction of tax at source, insurance commission will mean
income by way of remuneration or reward, whether by way of commission or
otherwise, for soliciting or procuring insurance business (including business
relating to continuance, renewal or reviving of policies of insurance).
(2)
Income-tax will be deductible from the amount credited or paid after May 31, 1973
even if the relevant amounts accrued before that date.
(3)
Deduction will be made at the time of the credit of
the income to the account of, or the payment thereof (by whatever mode) to the
payee, whichever is earlier.
(4)
The tax deducted should be paid to the credit of the
Central Government by remitting it into the Government Treasury or the office
of the Reserve Bank of
(5)
In view of the existing provisions in section 288B, the amount of tax to be deducted at source should be rounded off to the nearest
rupee by ignoring amounts less than 50 paise and increasing the amounts of 50
paise or more to one rupee.
(6)
At the time of deducting tax from the insurance commission credited to an
agents account, adjustment for any debits made in his account in respect of
excess commission credited or paid to him earlier is not permissible and income-tax must be deducted from the full amount of
commission credited to his account.
(7) It will be open to the recipient of the commission to make an
application in Form No. 13D to the Income-tax Officer concerned and obtain from
him a certificate authorising the person responsible for paying the income by
way of insurance commission to deduct tax at such lower rates, or deduct no
tax, as may be appropriate to his case.
(8) Such a certificate will be valid for
the period specified therein unless it is cancelled by the
Income-tax Officer earlier.
(9)
The person responsible for making the payments should issue a certificate in
Form No. 19D showing therein the amount of income by way of insurance
commission credited or paid, the amount of tax deducted at source, and the date
of payment to the Government account.
(10)
The person making deduction of tax in accordance with section 194D from income
by way of insurance commission should send to the Income-tax Officer having
jurisdiction to assess him
(a) a certificate in Form No. 26D quarterly on 15
July, 15 October, 15 January and 15 April, in respect of deduction of tax made
by him during the preceding quarter;
(b) a statement in Form No. 26E on or before June
30 each year containing details of amounts of insurance commission from which
tax has been deducted by him during the immediately preceding financial year;
and
(c) a statement in Form No. 26-I on or before June 30 each year containing details of amounts of insurance commission paid or credited during the immediately preceding financial year without deduction of tax.
Circular : No.
136 [F. No. 331/1/74-GT],
dated 24-5-1975[`11]1.
1441. Whether clause (a) of sub-section (1) should
be invoked in cases where consideration for transfer of property is
determined/approved by Central Government/Reserve Bank
The Board have examined the question
whether the provisions of section 4(1)(a)
should be invoked in cases where the consideration for the transfer of property
is determined, fixed or approved by the Central Government or the Reserve Bank
of India. It has been decided that when any property is transferred and the
consideration for such transfer is determined, fixed or approved by the Central
Government or the Reserve Bank of
Circular : No.
137 [F. No. 207/39-IT(A-II)], dated 13-6-1974.
393. Whether, in computing capital gains on sale of
motor car to which proviso to section 43(1) applies for the purposes of
depreciation allowance, actual cost has to be historic and true cost of
acquisition or actual cost as artificially reduced
1. I am directed to say that the Board has considered
whether in computing the capital gains on sale of motor car to which proviso to
section 43(1) applies for
purposes of allowance of depreciation, the actual cost has to be historic and
true cost of acquisition or the actual cost as artificially reduced under the
proviso to section 43(1).
2. Under the proviso to section 43(1), the excess of the
actual cost of a motor car over Rs. 25,000 acquired by the assessee after March
31, 1967, and is used otherwise than in a business of running it on hire for
tourists, is to be ignored and actual cost has to be limited to Rs. 25,000 only
for the purpose of allowance of depreciation. Sub-clause (b)
of clause (1) of Explanation to section 32(1)
provides for a proportionate adjustment of the sale price, etc., for
calculation of terminal loss under section 32(1)(iii). A similar proportionate
adjustment has to be made while computing the profit
under section 41(2).
3. Section 50(1) says that the cost of acquisition of a depreciable asset
for the purpose of computation of capital gains, shall
be taken to be its written down value as defined under section 43(6). Referring to section 43(6) the written down value is linked
to the actual cost, which in the case of motor car of
the nature referred to above, is subject to the limitation enacted in the
proviso to section 43(1).
4. The definition given in section 43 of the words actual cost is relevant
for computation of income from profits and gains of business or profession
only. The opening sentence of section 43 itself makes it clear that the
definition is for the purpose of sections 28 to 41 and 43, unless the context
otherwise requires. It would be seen that computation
of capital gains comes under section 45, which is not mentioned in section 43.
5. There cannot be any capital gains unless the consideration received by
the seller of the capital asset is more than the cost of acquisition. The use
of the words unless the context otherwise requires in the opening sentence of
section 43 also indicates that this definition has not to be extended where
there is no need for the same and application of the same may lead to absurd
results.
6. In view of the above, for
computation of capital gains only, the historic and the true cost of acquisition
of the motor car to which the proviso to section 43(1) applies, is to be taken into consideration.
To cite an example: A purchased a motor
car for Rs. 50,000 in 1967 for purposes of business. After three years use in carrying on the business the car is sold in
1970 for Rs. 40,000. At the time of sale the WDV was
Rs. 12,000 computed by deducting/depreciation for 3 years from Rs. 25,000 at
the rate of 20 per cent. The capital gain/loss on the sale of the car will be
worked out as under :
|
|
Rs. |
Rs. |
|
|
|
|
40,000 |
|
|
Cost of
acquisition : |
|
|
|
|
Actual cost |
50,000 |
|
|
|
Less : Depreciation allowed |
12,200 |
|
|
|
|
37,800 |
|
|
|
Add : Profit under section
41(2) |
7,200 |
|
45,000 |
|
Capital loss |
|
|
5,000 |
FINANCE
ACT, 1974 - CIRCULAR NO. 138, DATED 17-6-1974
Circular : No.
139 [F. No. 275/51/74-ITJ],
dated 21-6-1974.
1050.
Instructions for deduction of tax at source from dividends during financial
year 1974-75 at the rates specified in Part II of First Schedule to Finance
Act, 1974
Under section 194, the
principal officer of an Indian company or a company which has made the
prescribed arrangements for the declaration and payment of dividends (including
dividends on preference shares) within India is required before making any
payment in cash or before issuing any cheque or warrant in respect of any
dividends or before making any distribution or payment to a shareholder of any
dividend within the meaning of sub-clauses (a) to (e) of
clause (22) of section 2, to
deduct income-tax thereon at the rates in force. The rates for the financial year 1974-75 specified in
Part II of the First Schedule to the Finance Act, 1974 are as follows :
|
|
|
Income-tax |
Surcharge |
|
I. |
In the case
of a person other than a company |
|
|
|
|
(a)
where the person is resident |
21 per cent |
2 per cent |
|
|
(b)
where the person is not resident in |
30 per cent |
3 per cent |
|
|
|
or |
|
|
|
|
income-tax and surcharge on income-tax
in respect of the income at the rates prescribed in sub-paragraph I of
paragraph A of Part III of the First Schedule to the Finance Act, 1974, if
such income had been the total income, |
|
|
|
|
whichever is higher. |
|
II. In the case
of a company
|
(a) |
where the company is a domestic company |
22 per cent |
1 per cent; |
|
(b) |
where the company is not a domestic
company |
24.5 per cent |
1.225 per cent |
Circular : No. 140 [F. No. 167/231/74-IT (A-I)],
SECTION 80MM [`12][`1]l ROYALTIES, ETC., RECEIVED
FROM ANY CONCERN IN
599. Approval of agreement under which
assessee-company receives royalty, etc., from any concern in
clarification 1
Attention is invited to the Boards Circular No. 140 [F. No.
167/231/74-IT(A-I)], dated 6-7-1974 [Clarification
2], para 1(xiii), wherein it was stated that in the case of a composite
agreement which specified a consolidated amount as consideration for purposes
which included matters outside the scope of section 80MM, the Board may not
approve such an agreement for purposes of section 80MM if, in the opinion of
the Board, it was not possible to properly ascertain and determine the amount
of the consideration relatable to the provision of technical know-how or
services in connection with provision of such technical know-how qualifying for
section 80MM. Thus, the benefit of
section 80MM could be denied to the entire amount of
royalty, commission, fees, etc., receivable under such an agreement. The Board
has had occasion to reconsider it. It has been decided that
in such cases approval would be
granted by the Board subject to a suitable disallowance for the non-qualifying
items, after taking into consideration the totality of the agreement, so that
the balance, royalty, commission, fees, etc., which is for provision of
technical know-how or services in connection with provision of such technical know-how
covered by section 80MM, can be exempted.
Circular : No. 332 [F. No. 167/231/74-IT(A-I)], dated 25-3-1982.
clarification 2
1. Reference is invited to the Boards Circular No. 124
[F. No. 167/231/72-IT(A-I)], dated 13-11-1973 [Annex II]. Paragraph 2 of the said
circular contains the guidelines which had then been
evolved by the Board for the grant of its approval to agreements for the
purpose of section 80MM. These guidelines have since been
reviewed and modified. The revised
guidelines are as follows :
(i) An agreement
which, in the opinion of the Board, is not bona fide and genuine and is a collusive arrangement for abuse
of the tax concession admissible under section 80MM will not be approved.
(ii) An agreement which does not
clearly specify the technical know-how to be. provided
thereunder or the services in connection with the
provision of the technical know-how to be rendered thereunder,
which is expressed in very general and broad terms and which is vague as to the
nature and scope of the technical know-how to be provided or the services to be
rendered and the consideration therefor will not
qualify for approval.
(iii) In cases, where grant of
the tax concession envisaged, under section 80MM, will not, in the opinion of
the Board, further the objectives underlying the grant of the tax concession, viz., minimising
repetitive import of technical know-how from abroad and encouraging indigenous
development of the technical know-how in India, the agreements will not be
approved in such cases.
(iv) An agreement
which has not been genuinely entered into on or after April 1, 1969 will
not be eligible for approval. In cases where the provision of
a technical know-how or rendering of services in connection with the provision
of the technical know-how is really pursuant to an agreement, whether written
or oral, made before April 1, 1969, agreements entered into on or after April
1, 1969 for the provision of such technical know-how or for rendering of
services in connection therewith will not be approved.
(v) Agreement with a person who is not carrying on a
business in
(vi) The technical know-how provided
under the agreement must be such as, by its nature and the manner of its
provision, is covered by any of the clauses of sub-section (2) of section 80MM
and is likely to assist directly in
any of the operations mentioned in clause (i) of sub-section (1) of the said section.
1[(vii[A13][A2]) (a) Where the agreement is for provision of a technical know-how which is
likely to assist in the manufacture of goods or the processing of materials or
in the installation or erection of plant or machinery for such manufacture or
processing, the technical know-how provided should be manufacturing/ processing
techno-logy and/or plant/machinery design and/or installation/erection
technology of plant or machinery.
(b) Agreements for provision of know-how
relating to management organisation, sales, finance
and accounts and for market or demand studies will not qualify for approval.
(c) Agreements for preparation of feasibility or project reports for the
purpose of supporting applications for assistance from financial or other
institutions will also not qualify for approval.
(d) Agreements for preparation of feasibility or project reports aimed at
assessing the techno-economic viability of a project for the purpose of
investment decisions will qualify for approval under section 80MM only if the
objectives for which the report was prepared had matured so far as it relates
to qualifying items under section 80MM in the project reports.]
(viii)
Agreements for rendering services without the provision of any technical know-how within the meaning of clause (i) of sub-section (1) read with
sub-section (2) of section 80MM will not qualify for approval. In order to
qualify for approval, the services rendered under the agreement must be in
connection with the provision of such technical know-how
and these should be rendered by the person providing such technical know-how.
There should be an inter-connection and inter-relationship between the services
rendered and the provision of such technical know-how.
(ix) Agreements for the provision of technical know-how relating
to civil construction or for rendering services in connection therewith will
not qualify for approval except where the technical know-how provided is such
as is likely to assist directly in any of the operations mentioned in clause (i) of sub-section (1) of section 80MM
and the services rendered are in connection with the provision of such
technical know-how.
([`14][`3]x) Agreements for the supply, erection, installation and commissioning
of plant or machinery whether designed and engineered by the supplier itself or
not, on turnkey basis will not qualify for approval unless the supplier is also
required under the agreement to provide technical know-how within the meaning
of clause (i) of sub-section
(1) read with sub-section (2) of section 80MM or to render services in
connection with the provision of such technical know-how. Mere furnishing
of copies of designs and drawings of the plant or machinery supplied under the
agreement, as also giving of information concerning the working, maintenance,
etc., of such plant or machinery will not be regarded as provision of technical
know-how within the meaning of sub-section (2) of section 80MM.
(xi) An agreement for the provision of technical know-how to a
person who obtains it merely for the purpose of trading in it and who would
thus be acting as a middleman between the person from whom he receives the
technical know-how and the third party to whom he will further pass on the
technical know-how for use in the operation likely to be assisted by it will
not qualify for approval.
(xii) In cases where the amount of the consideration receivable
under an agreement for the provision of technical know-how and/or for rendering
services in connection with the provision of the technical know-how is, in
opinion of the Board, is unreasonably excessive or is motivated by other
considerations, the Board may refuse to give approval in respect of such an
agreement.
(xiii) In cases where the amount of consideration payable under
an agreement is consolidated composite figure for provision of a technical
know-how or for rendering of services in connection with the provision of such
technical know-how within the meaning of section 80MM as also for provision of
technical know-how or goods or services outside the scope of section 80MM and,
in the opinion of the Board, it will not be possible to properly ascertain and determine
the amount of the consideration relatable to the provision of the technical
know-how or for rendering of services in connection with the provision of
technical know-how covered under section 80MM, 1[A15][A4][the approval would be granted by the Board
subject to suitable disallowance for the non-qualifying items, after taking
into consideration the totality of the agreement, so that the balance royalty,
commission, fees, etc., which is for provision of technical know-how or
services in connection with provision of such technical know how covered by
section 80MM, can be exempted.]
(xiv)
Agreements for rendering general technical consultancy services will not
qualify for approval.
2. Consequent to the amendments made to the provisions of section 80MM by
section 7 of the Finance Act, 1974, the tax
relief, under section 80MM, will be available with effect from April 1, 1975
only to an Indian company and will not be available to any other assessee. Accordingly,
agreements entered into by a person other than an Indian company for the
provision of a technical know-how or for rendering
services in connection therewith, will not be eligible for approval for the
assessment year 1975-76 and onwards. Further, approval already given in respect
of the agreement entered into by any such person will also cease to be
operative as from April 1, 1975 and such person shall not be entitled to the
tax relief, under section 80MM, in the assessments for 1975-76 and later years.
3. Two certified copies of such agreement should be sent to the Board along with the application for its approval. In cases, where the
agreement is through exchange of letters, two certified copies of all the
relevant letters constituting offer and acceptance
should be enclosed with the application for approval of the agreement.
4. The applicants should also furnish information in the proforma enclosed [Annex I] along with the application or as soon thereafter as possible.
The information furnished should be duly
signed and certified to be correct by the person
authorised to sign the return of income on behalf of the applicant.
Circular : No. 140 [F. No. 167/231/74-IT (A-I)], dated 6- 7-1974, as modified by
Circular No. 332 [F. No. 167/231/74-IT(A-I)], dated 25-3-1982 and Circular No.
360 [F. No. 167/231/74-IT (A-I) ], dated 16-5-1983.
ANNEX I - REVISED
PROFORMA OF APPLICATION
1. Particulars
of the applicant for approval of the agreement :
(i) Name and address
(ii) Status (whether
Individual/HUF/Firm/AOP/Company)
(iii) If a company, whether an
Indian company within the meaning of section 2(26)
(iv) If
not a company, whether
resident in
(v) Nature of business(es) and/or other activities
(vi) Designation of the ITO having jurisdiction for assessment
purposes and Permanent Account Number or General Index Number
2. Particulars
of the other party to the agreement :
(i) Name and address
(ii) Whether
he is carrying on a business in
(iii) Designation
of the ITO having jurisdiction for assessment purposes, and Permanent Account
Number or General Index Number
3. The date on
which the agreement was entered into. If the agreement
was in fact entered into on a date earlier than that
on which the agreement has been reduced to writing, please also mention such
earlier date
4. Is the present
agreement in renewal, extension or modification of any previous agreement, oral
or written? If so, please give particulars of such previous agreement(s)
5. Did the applicant provide any technical know-how or render any service in connection therewith to
the party at (2) above or to some other person on his behalf, before the
present agreement?
If so,
please give particulars of any such previous agreement and of the nature of the
technical know-how, etc., provided
6. Did
the applicant provide or is providing similar know-how or services as under the
present agreement to any other person ? If so, please
give brief particulars thereof, also indicating whether the agreement(s) in
respect thereof was/were approved by the Central Government/Board
7. Is the present
agreement for provision of technical know-how or for
rendering services in connection with the provision of technical know-how, or
both?
In case
the agreement is for rendering services only, please specify who is providing
the technical know-how in connection with which the
services are rendered by the applicant and how the rendering of services by the
applicant is connected with the provision of the technical know-how by another
person.
8. Whether
the technical know-how is provided and/or services are
rendered under the present agreement in
If
outside
9. Whether
the technical know-how provided under the present agreement is
:
(i) a patent, invention, model, design, secret
formula or process or similar property. (Please specify the category in which
it falls and explain how); or
(ii) an information concerning industrial,
commercial or scientific knowledge, experience or skill. (Please briefly
describe the information and specify in which category it falls.)
10. If
the technical know-how falls under 9(i)
above, please indicate :
(a) how the applicant
acquired it or what arrangements he has made for acquiring it;
(b) what are the
applicants own rights in respect thereof ;
(c) whether its provision
to the other party to the agreement involves :
(i) transfer of all
or any rights of the applicant in respect of it; if so, please specify the
nature and extent of the right transferred and the manner of its transfer;
(ii) the imparting of any information concerning its working or
use; if so, please specify the information imparted and the manner of its
imparting;
(iii) its use by the other person to the agreement; if so, please
specify the nature and manner of the use.
11. If the technical know-how falls under 9(ii) above, please specify
:
(i) the arrangements
available with the applicant for obtaining and imparting it;
(ii) the manner of imparting it.
12. Please refer to the provisions of clause (i) of sub-section (1) of section 80MM
and give the following information in respect of each type of technical
know-how provided under the agreement :
|
Sl. No |
Brief particulars of the
technical know-how provided, its nature and the
manners of its provision. (Please also cite
reference of the appropriate entry under paras 9,
10 and 11 above as may be applicable) |
Which of the activities
mentioned in thesaid clause is likely to be
assisted in, viz, (i) the manufacture or
processing of goods or materials; (ii) the installation or
erection of machinery or plant for such manufacture or processing; (iii) in the working of a mine, oil well or other source of mineral
deposit; (iv) in the search for, or
discovery or testing of, mineral deposits or the winning of access to them; (v) any operation relating to
agriculture, animal husbandry, dairy or poultry farming, forestry or fishing Please
give a precise description
|
Please indicate how a
particular activity will be assisted |
Amount of consideration
receivable/received |
|
. |
|
|
|
|
13. Are
any services also rendered under the agreement in addition to the provision of
technical know-how ? If so, please give the following
information in respect of each such service :
|
Sl. No. |
Nature of the service
rendered |
Whether the rendering of
the service is in connection with the provision of a know-how |
If answer to col. 3 is
yes, please specify the technical know-how in connection with which the
service is rendered (please also cite
reference to the Sl. No. under para
12 above against which the particular know-how is mentioned) |
Please explain how the
rendering of the service is in connection with the provison
of a technical know-how |
Amount of consideratation receivable/received |
|
|
|
|
|
|
|
14. Does the agreement cover provisions of a know-how, services and/or goods other than those mentioned
in paras 12 and 13 above? If so, please specify them and also the amount of consideration receivable/received in
respect of them.
15. Does
the applicant (including any of its members/partners/ directors, as the case
may be) has any family relationship with the other party to the agreement
(including any of its members/partners/directors, as the case may be)? If so,
please give details thereof
16. Does the applicant (including any of its
members/partners/ directors, as the case may be) has any interest, other than
that under this agreement, in the business of the other party to the agreement
(including any of its members/partners/directors, as the case may be)? If so,
please give details thereof
17. What are the arrangements and facilities
available with the applicant for providing the technical know-how
and/or for rendering services in connection therewith as under this agreement
18. Has the applicant made any agreement or
arrangement with any other person, in
(i) the name and address
of such other person ;
(ii) details of the
agreement or arrangement together with a certified copy of the written
agreement, if any;
(iii) the nature and extent
of applicants relationship and association with such other person
19. Was any application made previously for the
approval of this agreement under section 80MM of the Income-tax Act ? If so, please state :
(i) the date on which the
application was made;
(ii) whether approval was
granted or refused (please quote the letter number under which the decision
regarding approval/refusal was communicated)
20. If
the agreement is a turnkey contract involving manufacture, supply, erection,
etc., of a plant, please state :
(i) whether the process know-how/product design, and/ or the
plant design and engineering know-how is being provided by the other party to
the agreement, if not, how has the applicant acquired this know-how ? If he is
acquiring it from some other person, the name and address of such other person,
the particulars of the agreement/arrangement made with such other person in
this behalf and particulars of any family relationship or other association and
interest between the applicant and such other person;
(ii) the amount of the consideration relatable to the provision
of technical know-how, if any, or for rendering services, if any, in connection
therewith, and the amount of the consideration relatable to the price of the
machinery/plant as such. The basis on which the total consideration receivable
under the agreement is so split up as may also please
be specified
21. If
the agreement involves provision of technical know-how consisting of plant
designing and engineering, please state whether the process know-how or product
design has been provided by the other party to the agreement, if not, has the
applicant acquired it from some other person? In case the applicant is receiving/has
received it from some other person, please specify :
(i) the name and address of such other person;
(ii) the particulars of the agreement/arrangement made with such
other person in this behalf;
(iii) particulars of any family relationship or other association
or interest between the applicant and such other person
22. Any
other information which the applicant considers
relevant.
ANNEX II - CIRCULAR
NO. 124, DATED 13-11-1973 REFERRED TO IN CLARIFICATION
1. The Finance Act, 1969 introduced, with effect from
April 1, 1970, a new provision in section 80MM for the concessional
taxation of income received by an Indian company by way of royalties, technical
service fees, etc., from any business concern in India in consideration of
providing technical know-how or rendering services in connection with the
provision of such technical know-how.
Under the provision, a company was entitled to a deduction of 40 per cent of
such income in the computation of its taxable income. The section
has been amended by the Finance Act, 1970 and the Finance (No. 2) Act, 1971.
With effect from April 1, 1972, the tax concession has been extended to cover
cases where technical know-how or technical services
are provided by resident non-corporate taxpayers, such as individuals, Hindu
undivided families, partnership firms, etc. The requirements of the section are
as under :
(a) The deduction is allowable only it the technical know-how
(whether patented or not) provided by the assessee is likely to assist in the
manufacture or processing of goods or materials or in the installation or
erection of machinery or plant for such manufacture or processing, or in the
working of a mine, oil well or other source of mineral deposits, or in
prospecting for and testing of mineral deposits or winning access to them, or
in carrying out any operation relating to agriculture, animal husbandry, dairy
or poultry farming, forestry or fishing.
Royalties, commission, fees, etc., received in
consideration of provision of technical know-how
relating to production of electricity or construction of ships will also
qualify for deduction.
(b)
The term provision of technical know-how has been
defined in sub-section (2) to mean
(i) the transfer of all or any rights
(including the granting of a licence) in respect of a patent, invention, model,
design, secret formula or process or similar property;
(ii) the imparting of any
information concerning the working of or the use of a patent, invention, model,
design, secret formula or process or similar property;
(iii) the use of any patent, invention, model,
design, secret formula or process or similar property;
(iv) the imparting of any information
concerning industrial, commercial or scientific knowledge, experience or skill.
The agreement for the provision of technical
know-how need not provide for all the matters listed
in clauses (i) to (iv). This is because clauses (i) to (iv) of
sub-section (2) of section 80MM have to be read disjunctively and an agreement
which provides for any matter referred to in any one of these clauses would
fall within the ambit of section 80MM. It is, however, important to note that
the provision of technical know-how must directly
assist in the manufacture or processing of goods or materials, or in the
installation or erection of machinery or plant for such manufacture or
processing or in any one or more of the other operations or activities
specified in sub-section (1) of section 80MM.
(c)
The technical know-how or services should be provided
under an agreement entered into by the assessee on or after April 1, 1969.
(d)
Deduction under the section will be allowable only if the agreement
in question has been approved by the Board. Approval of the Board will,
however, not be necessary in cases where the agreement was
approved by the Central Government for the purposes of this section
before April 1, 1972. All applications for approval made to the Central
Government, which had not been disposed of before April 1, 1972 have been transferred to the Board for disposal.
(e)
In order to be eligible for this deduction, the technical know-how
and services should be provided under an agreement entered into by the assessee
on or after April 1, 1969 and the approval of the Board to such agreement
should have been applied for before 1st October of the relevant assessment
year. Once a valid approval has been granted, it would
hold good for the life of the agreement provided the conditions laid down in
the law continued to be satisfied.
(f) In the case of non-corporate taxpayers other than
co-operative societies, the deduction under the section will be allowed in
respect of the agreements which have been approved only if the accounts of the
relevant previous years have been audited as provided in sub-section (2A) and
the assessee furnishes along with his return of income the report of such audit
in Form No. 3C prescribed under rule 6AB duly signed and verified by the
auditor.
(g)
No deduction is allowable under this section in respect of any income which is chargeable under the head Capital gains.
(h) No deduction under the section will be allowed in
relation to any income if the assessee is entitled to a deduction under section
80-O in respect of the same income.
2. The incentive has been provided with the twin
objectives of minimising repetitive import of
technology and of encouraging development of local know-how by providing tax
relief as explained above in respect of income arising from the transfer and
servicing of technical know-how. Keeping in view the purpose behind the
incentive and the requirements of the statutory provisions, the Board have
evolved the following guidelines for grant of such approval :
(i) The agreement should have been entered
into bona fide and not
collusively for the purpose of tax avoidance.
(ii) An agreement which is in very broad terms
or is vague may not be approved.
(iii) The agreement should have been genuinely entered
into on or after April 1, 1969. An old agreement in a new garb will not
qualify for approval.
(iv) In the case of resident non-corporate taxpayers, agreements
genuinely entered into on or after April 1, 1969 will be considered for
approval, but the benefit under section 80MM will be available to them only for
and from the assessment year 1972-73.
(v) The know-how provided must be such as will
minimise repetitive import of technology or will
contribute to the development of local technology.
(vi) Agreements for rendering services will qualify for approval under
section 80MM only if such services are rendered in connection with the
provision of technical know-how by the person
providing the know-how. Services rendered as a consultant or in any other
capacity otherwise than in connection with the provision of technical know-how will not qualify under the section.
(vii) Agreements for preparation of project reports dealing with the
feasibility of the project from the point of view of the availability of raw
materials, the market, the nature of the equipment, size of the plant, etc.,
for making a techno-economic decision will normally qualify for approval under
the section. Agreements for provision of commercial information in the fields
of management, accounting, sales, etc., or for rendering of services in
connection therewith, will, however, not qualify for
approval unless the provision of such information will directly assist in the
manufacture of goods, etc.
(viii) Agreements for provision of technical know-how
relating to civil construction, or for rendering services in connection
therewith, will not qualify for approval unless the civil construction is directly
and intricately connected with the process or the plant.
(ix) Turnkey contracts for the erection and supply at site of a
ready-built plant will not qualify for approval. Where, however, they involve
transfer of a right in a patent or design or imparting any know-how
relating to any formula or operation or the supply of designs and drawings
relating to manufacture or operation, or the provision of manuals concerning
manufacturing operations, the fees attributable to such provision of technical
know-how will qualify for deduction.
(x) The agreement should be with a person carrying
on business in
(xi) It is necessary that the industry in which the
technical know-how will be utilised
should be located in
(xii) The payment under the agreement should be reasonable both in relation to its quantum and its tenure. Where the
payments appear to be excessive or motivated by other than commercial
considerations, the application is liable to be rejected.
(xiii) In
the case of composite agreements specifying a consolidated amount as
consideration for purposes which, inter alia, include matters outside the scope of
section 80MM, such as use of trade marks, supply of equipment, imparting of
information which cannot be considered as technical know-how, imparting of
technical know-how which is not likely to assist in the manufacture or
processing of goods or materials or other operations specified in the section,
or services not rendered in connection with the provision of technical
know-how, the amount of the consideration relating to the provision of
technical know-how or rendering services in connection therewith will have to
be determined separately on an investigation of all the relevant facts. Where, however, such an ascertainment is not
possible, the Board reserves the right to refuse the grant of approval to such
a composite agreement.
JUDICIAL
ANALYSIS
Explained in - In Dey Paper Consultants (P.) Ltd. v. CBDT [1991]
197 ITR 624 (Bom.) the abovesaid circular was
referred to with the following observations :
The result is that, even according to the guidelines,
if the agreement is in connection with technical know-how
and the services are rendered by a person providing such technical know-how and
there is an inter-connection and inter-relationship between the services
rendered and the provision of such technical know-how, the agreement will
qualify for approval under section 80MM. (p. 628)
Circular: No.
141 [F. No. 400/2/74-ITCC],
dated 23-7-1974.
942. Date of encashment of cheque is the date of
payment of tax in terms of rule 81 of Treasury Rules
1. Attention is invited to Boards Circular No. 3 [F.No.
16/5/69-IT(Coord)], dated
11-2-1969.
2. In para 5 of the
above referred circular, it was stated that the date of tax payment would be
the date on which the proceeds of the cheque were realised
and credited to the Government amount.
3. Instances have come to notice where assessees
have claimed interest under section 214 in respect of payments made towards
advance tax through cheques which were encashed in the
financial year subsequent to the one in which the payment should have been
made. They have drawn support from rule 80(1) of the Treasury Rules which says that payment made through a cheque would be
deemed to have been made on the date of presentation of the cheque, if it is honoured.
4. The above plea taken by most of the assessees
is not correct inasmuch as rule 81 of the Treasury Rules specifically empowers
the department, which undertakes to accept cheques
from the public, to prescribe any overriding conditions. The condition
prescribed in para 5 of
Boards circular letter, referred to above, was prescribed within the meaning of
the rule 81 of the Treasury Rules.
5. The opinion of the Law Ministry has been obtained.
They too are of the view that the party which takes advantage
of the facility of payment by cheque, as contemplated in Boards circular
referred to above, will have to conform to the conditions and limitations
prescribed therein which are quite permissible in view of rule 81 of the
Treasury Rules. Accordingly, the date of encashment of the cheque will be the
date of payment of tax.
6. However, proper care must be exercised to
ensure that the cheques so received are sent to the
Bank without any delay.
Circular : No. 142 [F.
No. 204/25/74-IT(A-II)], dated 1-8-1974.
31. Taxability of subsidy - Revenue receipt or capital
receipt - 10 per cent Central Outright Grant of Subsidy Scheme, 1971
1. The Board
had occasion to consider whether the amount of subsidy received under 10 per
cent Central Outright Grant of Subsidy Scheme for industrial units to be set up
in certain selected backward districts/areas would constitute revenue receipt
or capital receipt in the hands of the recipient for the purpose of income-tax.
2. I am directed to say that the payment of subsidy under the
scheme is primarily given for helping the growth of industries and not for
supplementing their profits. Under the scheme, the quantum of subsidy is
determined with reference to the fixed capital and not the profits. The working
capital has been specifically excluded from the
computation of fixed capital for this purpose. One of the conditions for the
grant of the subsidy is that the undertaking must remain in production at least
for a period of five years after it goes into production. Since the subsidy is
intended to be a contribution towards capital outlay of the industrial unit,
the Board are advised that such subsidy can be regarded as being in the nature of capital receipt
in the hands of the recipient.
JUDICIAL
ANALYSIS
explained in - In CIT v. Sahney Steel & Press Works Ltd. [1985] 152 ITR 39 (AP) the above
circular was explained with the following observations :
A perusal of the circular makes it clear that it was issued with respect to a particular scheme, viz., 10% Central Outright Grant of
Subsidy Scheme of 1971. It is not a circular applicable to all types of subsidy
schemes. This much is conceded by Mr. Anjaneyulu also. But what he
argues is that inasmuch as our scheme is in the same terms as the Central
Scheme of 1971, the principle of the said circular should be applied. We are
unable to accede to this contention. We cannot extend the scope of the circular
by analogy. Secondly, on a perusal of the Central Scheme of 1971, we find that
the scheme concerned therein was not in the same terms as the State Scheme with
which we are concerned herein. The subsidy under the Central Scheme was
available only to the industrial units with a capital of less than fifty lakhs
whereas the State Scheme is applicable to units with a capital up to five
crores. The circular was applicable only to those industrial units
which were located in the specified districts/areas called selected
districts/areas whereas the State Scheme is applicable to industries located
throughout the State. To those industries which are
located in the specified backward districts, certain additional incentives are
provided under the State Scheme. Paras 5 to 7 of the
Central Scheme would show that it prescribed a particular procedure
which had to be followed by the industrial units for availing of the
benefits thereunder which is at variance with the
procedure prescribed under the State Scheme. Moreover, the Central Scheme did
not provide for refund of sales tax or other taxes and charges paid but
provided for an outright grant to the extent of 10% of the estimated fixed
capital investment. We are, therefore, of the opinion that the said circular is
absolutely of no help to the assessee herein. (pp. 61-62)
explained in - In CIT v. Malayalam Plantations Ltd. [1987] 168 ITR 63 (Ker.) the abovesaid circular was
explained with the following observations :
We may also in this context refer
to a Circular No. 142, dated August 1, 1974, issued by the Central Board of
Direct Taxes. By this circular, the Board stated that 10% Central Outright
Grant of Subsidy Scheme, 1971, was given for helping
the growth of industries in selected backward districts/areas and not for
supplementing the profits of the recipient. The subsidy was accordingly not
treated by the Board as a revenue receipt for the purpose of income-tax.
In so deciding, the Board acted on the principle that amounts paid specifically
for beneficial purposes are not to be treated for the purpose of income-tax as a revenue receipt. (p. 70)
explained in -
In
Circular : No. 143 [F.
No. 180/74/73-IT(A-I)], dated 20-8-1974.
172. Audit report in Form No. 10B in terms of rule 17B
- Auditor can accept as a correct list of specified persons as given by
managing trustee while filing report
1. Under section 12A(b), in the cases of charitable and religious trusts or
institutions whose total income, without giving effect to the provisions of
sections 11 and 12, exceeds 25,000 rupees in any previous year, the accounts of
the trust or institution should have been audited by an accountant as defined
in the Explanation below
section 288(2) and the person in receipt of the income should furnish, along
with the return of income for the relevant assessment year, the report of such
audit in the prescribed form duly signed and verified by such authority and
setting forth such particulars as may be prescribed. Rule 17B of the Income-tax Rules, 1962 lays down that
the report of audit of accounts of the trust of the institution should be in
Form No. 10B. The Annexure to Form No. 10B requires the auditor to certify, inter alia, as
to the non-application or non-user of the income or property for the benefit of
persons referred to in section 13(3).
2. The Board have considered a representation
that while filing Form No. 10B and its
annexure an auditor can accept as correct the list of persons covered by
section 13(3), as given by the
managing trustees, etc. The Board agree that an auditor
can accept as correct the list of specified persons, till given further
instructions, by the managing trustees and base their report on the strength of
this certificate.
FINANCE
(NO. 2) ACT, 1974 - CIRCULAR NO. 144,
DATED 9-9-1974
DIRECT
TAXES (AMENDMENT) ACT, 1974 - CIRCULAR NO. 145,
DATED 9-9-1974
Circular : No.
146 [F. No. 228/2/73-IT(A-II)], dated 26-9-1974[`16]1.
385. Provision for estimated service gratuity payable to its
employees -Deduction under section 37(1) and section 40A(7)
after its insertion by the Finance Act, 1975, with effect from 1-4-1973
clarification 1
In the Boards Circular
No. 47, dated 21-9-1970 [Clarification
2]. It was
stated that provisions made by an assessee in his accounts on a
scientific basis in respect of estimated service gratuity payable to employees
would be admissible as deduction under section 37(1). The matter was
re-examined by the Board in 1974 and the earlier instructions
were withdrawn by the Boards Circular No. 146 dated 26-9-1974 [Clarification 2]. Some of the High Courts have recently
taken a view that a provision made by an assessee in his accounts in respect of
estimated service gratuity payable to employees will be deductible in computing
the taxable income in cases where the provision has been made
on a scientific basis in the form of actuarial valuation. In
order to remove uncertainty, in the matter,
the Finance Act, 1975 has inserted a new sub-section (7) in section 40A which
provides that no deduction will be allowed in the computation of taxable
profits in respect of mere provisions made by employers in their books of
account for payment of gratuity to their employees on their retirement or on
termination of their employment for any reason. The amendment will not, however, affect provisions made for the
purpose of payment of sums by way of contribution towards approved gratuity
funds that have become payable during the previous year, or for the purpose of
making any payment on account of gratuity to employees where such gratuity has
become payable during the previous year and such provisions will continue to be
eligible for deduction as hitherto.
Circular : No. 169 (para 27),
dated 23-6-1975.
JUDICIAL
ANALYSIS
Commented upon - The above
circular was commented upon in CIT v.
Chackolas Spg. & Wvg. Mills Ltd. [1989] 178 ITR 603 (Ker.) with the following observations :
The circular issued by the Central
Board of Direct Taxes, as also the Notes on Clauses referred to above, clearly
indicate that what is contemplated by section 40A(7)(b)(i) of the
Act, is a definite or clear provision by the assessee for the purpose of
payment of a sum, by way of any contribution towards an approved gratuity fund. It is not sufficient if a mere
reserve or mere provision, without anything more, is made. In this case, there
is no dispute that the assessee had made provision, which was clearly one made for payment to an approved gratuity fund. . . . (p.
609)
clarification 2
1. Attention is invited to the Boards Circular No. 47 [F. No. 9/100/69-IT(A-II), dated September 21, 1970] [Clarification 3] on the above subject. In this circular, the
Board had considered the question as to whether provision made by an assessee
in its accounts for estimated service gratuity payable to its employees could be allowed as a deduction even though no approved gratuity
fund under the provisions of the Income-tax Act had been set up. At the
relevant time when this circular was issued, the
Supreme Courts decision in the case of Metal
Box Co. of India Ltd v. Their Workmen [1969] 73 ITR 53 was available and
taking note of certain observations in this particular decision of the Supreme
Court, it was felt that provision of gratuity on a scientific basis (in the
form of actuarial valuation carried out every year) could be considered to
represent a real liability of the employer to the employees. Accordingly, the
Board decided that such provision would not be a contingent liability and may be treated as admissible deduction under section 37(1).
2. The decision of the Board has been re-examined in the light of the
unreported judgment of the Supreme Court in the case of Bombay Dyeing & Manufacturing Co. Ltd. v. CWT [since reported in [1974] 93 ITR
603]. In this judgment, their Lordships have confirmed their own views in Standard Mills Co. Ltd. v. CWT [1967] 63 ITR 470 and have observed
that the decision in Metal Box Co.s case
(supra) was rendered under a
different Act and in a different context.
3. In view of the later
pronouncement of the Supreme Court in the case of Bombay Dyeing and Manufacturing Co. Ltd. (supra) and on the clear provisions of law contained
in section 36(1)(v) under which
any sum paid by an employer by way of contribution towards an approved gratuity
fund created by him for the exclusive benefit of its employees under an
irrevocable trust alone was admissible, any allowance of such liability towards
an unapproved gratuity fund under section 37(1) does not arise. In view of this, the earlier instructions of the Board
referred to above, stand withdrawn with immediate effect.
4. All pending assessments may be completed in
the light of the present instructions.
Judicial
analysis
explained in -
In CBDT v. Chloride India Ltd. [1997] 225 ITR
129 (Cal.), it was held that
circular of the Central Board of Direct Taxes dated September 26, 1974,
providing that any allowance of gratuity liability towards an unapproved
gratuity fund under section 37(1) of the Income-tax Act, 1961, shall not be
made, is in direct conflict with the law laid down by the Supreme Court in Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53. The circular, therefore,
has to be ingored in making assessments for the
assessment year 1972-73; for the assessment year 1973-74 onwards the law
applicable would be in accordance with section 40A(7) of the Income-tax Act, 1961, as declared by the Supreme Court
in Shree Sajjan Mills Ltd.
v. CIT [1985] 156 ITR
585 (SC).
clarification 3
A question has arisen whether the provision made by an assessee in its
accounts on account of the estimated service gratuity
payable to the employees can be allowed as a deduction when no gratuity
fund has been set up under Part C of the Fourth Schedule to the Income-tax Act.
The Board have
decided that following the decision of the Supreme Court in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53, the
provision of gratuity on a scientific basis (in the form of an actuarial
valuation carried out every year) can be considered to
represent a real liability of the employer to the employees. The Supreme Court,
in the case of Garment Cleaning Works v.
Workmen AIR 1962 SC 673,
decided that the employer would be required to pay gratuity even to an employee
who has been dismissed on account of misconduct. The
Board have, therefore, come to the conclusion that the liability so ascertained cannot
be considered as a contingent liability. Such provision of gratuity may be treated as an admissible deduction under section
37(1).
Circular : No. 47 [F. No. 9/100/69-IT(A-II)], dated 21-9-19701
clarification 4
I am directed to
refer to your letter dated 25-1-1971, on the above subject and to say if an
assessee decided to start making a provision on gratuity from the current year,
then the provision made in respect of the current year only will be allowable
as deduction under section 37. The
liability for paying gratuity in respect of earlier years will
not be allowed as deduction in computing the income for the current
year. In the year when the gratuity is actually paid to the
employee, the portion of gratuity
which is not covered by the
annual provisions made in respect of
those employees on the basis of actuarial valuation and allowed as deduction in
the computation of income, the employer will be allowed as deduction
in the year in which the gratuity is paid to the employee.
This will, of course,
necessitate maintenance of two sets of accounts for the employee
i. gratuity payable to him for the period during
which the provision for gratuity was not allowed as deduction in computing the
income of the employer; and
ii. gratuity payable to the employee on the basis of actuarial
valuation made from year to year, debited to the profit and loss account and
allowed as deduction in the computation of income of the employer.
In the year in which the employee is paid the gratuity, only the first amount will be allowed
as deduction, the second having been allowed in the earlier years when
provisions were made.
Letter : F. No. 204/10/71-IT(A-II), dated 17-4-1971.
clarification 5
I am directed to refer
to your letter dated 31-5-1971 [Annex]
on the above subject and to say that the provision has to be made in respect of gratuity payable to each
employee and it has to be decided by taking into account several factors such as length of service,
salary progressions and the like which would be lost sight of in making an
overall provision for the company as a whole and that would not reflect the
correct provision for gratuity.
Letter : F. No. 204/10/71-IT(A-II), dated 17-8-1971.
ANNEX - LETTER,
DATED 31-5-1971 REFERRED TO IN CLARIFICATION
With reference to your Circular No. 47, dated 21-9-1970
on the above subject, our clients are raising a doubt as to actuarial valuation
of gratuity liability.
It appears that actuarial valuation can
be made only in respect of general gratuity liability of the company,
covering all the employees entitled to gratuity and not in respect of a
particular employee of the company.
It appears from your circular that the actuarial
valuation for the gratuity liability should be obtained in respect of each and every employee and record is to be maintained by
the company, in respect of this particular valuation for each year.
Under the circumstances, we request you to kindly
clarify the point and confirm that actuarial valuation of general gratuity
liability of the company covering all the employees will suffice.
Circular: No. 147 [F. No.
275/80/74-ITJ], dated
28-10-1974.
Deduction of Tax At source
Section 192 l
Salary
943. Employee claiming that salary is not chargeable
to tax and no income-tax should be deducted at source
- Employer to require employee to obtain certificate under section 197(1)
Under the provisions of section 192, any
person responsible for paying any income chargeable under the head Salaries is
required at the time of payment to deduct income-tax
from the amount payable. In any case where an employee claims
that his salary is not chargeable to income-tax and, therefore, no income-tax
should be deducted at source from the salary receivable by him, the employer
should require the employee to obtain from the concerned Income-tax Officer a
certificate under section 197(1) authorising no deduction or deduction at such
lower rates as may be prescribed in the said certificate. In the absence of such a certificate
from the employee, the employer should
deduct income-tax on the salary payable at the
normal rates.
COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 -
CIRCULAR NO. 148, DATED 15-11-1974
Circular : No. 150 [F. No. 142(46)/74-TPL], dated 19-11-1974.
190. Rule 3(a)(i) of Income-tax Rules - Valuation of perquisite
represented by rent-free residential accommodation in the case of Government
employees - Effect of amendments made by Income-tax (Third Amendment) Rules,
1974
1. The Income-tax (Third
Amendment) Rules. 1974, notified by the Central Board
of Direct Taxes on 21-9-1974, have substituted sub-clause (i) of clause (a) of rule 3 of the Income-tax Rules, relating to valuation of
the perquisite represented by rent-free residential accommodation in the case
of Government employees, etc., by a new sub-clause. The provisions of the new
sub-clause are explained hereunder.
2. Under rule 3(a)(i), as it stood prior to the amendment made by the Income-tax
(Third Amendment) Rules, 1974, the perquisite value of rent-free residential accommodation (whether furnished or unfurnished)
provided to (a) persons holding
an office or post in connection with the affairs of the Union or of a State,
and (b) officers of Government
whose services have been lent to a body or undertaking under the control of
Government (occupying residential accommodation allotted to the body or
undertaking by the Government) was to be taken to be the rent which
would have been determined as payable by the person in accordance with the
rules framed by the Government for allotment of residences to its officers. Under the new provision, the perquisite value of
rent-free residential accommodation in such cases will be determined as follows :
1. If the accommodation is unfurnished, the perquisite value of the accommodation will be determined on the
same basis as adopted hitherto. The perquisite value will thus be taken to be
an amount equal to the rent which has been or would
have been determined as payable by the person concerned in accordance with the
rules framed by the Government for allotment of residences to its officers.
2. If
the accommodation is furnished, the value of the perquisite will first be
computed in accordance with (1) above as if the accommodation was furnished;
the amount so computed will then be increased by an amount equal to 15 per cent [`17]1of
the original cost of the furniture (including television sets, radio sets,
refrigerators, other household appliances and air-conditioning plant and
equipment, if any) provided by the employer. If the furniture is hired by the
employer, the value of perquisite will, instead, be increased by the
hire charges payable by the employer.
The effect of the new provision is that the perquisite value of free
furniture (including television sets, radio sets, refrigerators, other
household appliances and air-conditioning plant and equipment) provided to all
categories of salaried taxpayers will be taken to be 15 per cent1 of
the original cost of such furniture or, where the furniture is hired, the hire
charges payable by the employer.
3. The new provision has come into force on 21-9-1974 and
will, accordingly, apply for the assessment year
1975-76 and subsequent years. The new provisions will, however, have to be
taken into account for the purposes of deducting income-tax
on income chargeable under the head, Salaries under section 192 during the
financial year 1974-75.
224. Norms and principles to be
applied in assessing foreign/Indian participants in technical collaboration[`18]1
1. It has been represented to
the Board that in determining the tax liability of foreign and Indian
participants in technical collaboration agreements, different norms and
principles are being applied by different Income-tax Officers with the result
that there is a great deal of uncertainty in the minds of the foreign parties
regarding the incidence of Indian tax on the income derived by them under such
agreements. A suggestion has,
therefore, been made that in order to remove this uncertainty, the various tax
problems arising under technical collaboration agreements may be reviewed by
the Board and detailed instructions issued to the Assessing Officers so that
there is uniformity as well as certainty in the matter of tax treatment.
2. It may be observed at the outset that the tax problems
arising in the cases of foreign collaborations are extremely varied and diverse
and the decision depends not merely upon the terms of the particular agreement
but also on the nature of the technical know-how
actually imparted thereunder. It is, therefore, not
possible to lay down clear-cut solutions to cover all
conceivable situations. Only general principles and guidelines can be indicated which should be applied in individual cases
according to the facts of each case.
3. Technical know-how
is a term of wide connotation and
includes several kinds of technical knowledge, assistance and services. There are several ingredients constituting
technical know-how such as (i) the design of the product to be
manufactured, (ii) the design
of the process for manufacture, (iii) the
design and engineering of the plan, and (iv)
the erection and commissioning of the plant, etc., etc. There are also
different ways of imparting technical know-how which
may be (i) through outright
sale of designs, know-how, etc., (ii)
by lending the services of foreign technicians, (iii) by giving technical assistance during the period of
agreement, (iv) through royalty
or licensing agreements, or (v)
through foreign capital participation. A further important aspect is whether or not the nomenclature used in the collaboration
agreement really indicates the correct nature and purpose of the payment. In
such cases, the real nature and purpose of the payment has to be ascertained and taken into account.
4. Broadly speaking, the tax problems arising under
technical collaboration agreements are of two kinds, viz., those relating to the admissibility of the expenditure
incurred in the assessments of the Indian participant, and those relating to
the taxation of the amounts in the hands of the non-resident participant. As
regards the former, i.e., the
admissibility of the expenditure in the hands of the Indian participant, the
question would be whether the expenditure has been incurred
for acquiring or bringing into existence an asset or advantage of enduring
benefit to the assessees business. If so, the
expenditure will have to be regarded as one on capital
account. On the other hand, if the
expenditure has been incurred for running the business
and working it with a view to produce profits, the payment would be allowable
as revenue expenditure. The question has necessarily to be examined with
reference to the facts of each particular case and no general proposition can
be laid down that all payments for technical know-how
should be regarded as revenue payments or that they are always capital in
nature.
5. A point to be remembered in
this connection is that the nature of
a receipt as capital or revenue in the hands of the non-resident participant is
not always determinative of the nature of the outgoing in the hands of the
person who pays it. If
the payment is an outright payment for, say, the
acquisition of a secret process formula, the benefit of which would enure permanently to the Indian participants business,
there would be every justification for treating the payment in question, as of
a capital nature. It may, however, well happen that the payment has been received by the foreign participant in the ordinary
course of his business so that it has to be assessed as a revenue receipt in his
hands. It can also happen in some cases that the receipt might
be regarded as a capital receipt in the hands of the foreign participant
but the payment may be regarded as revenue expenditure in the assessment of the
Indian participant. However, before disallowing theexpenditure
in the assessment of the Indian participant as capital expenditure, the
Income-tax Officer must fully understand and comprehend the nature of the asset
or enduring benefit which the assessee has acquired. If what has been acquired under
the agreement is merely a licence for
the user, for a limited period, of the technical knowledge of the
foreign participant, together with or without the right to use the patents and
trade marks of the foreign party, the payment
would not bring into existence an asset of enduring advantage to the
Indian participant, and should be
regarded as expenditure incurred for the purpose of running the business during
the period of the agreement. The payment would, therefore, be
revenue in nature. The recent decision
of the Supreme Court in the case of CIT v. Ciba of India Ltd. [1968] 69 ITR 692 provides clear guidance in cases of this
type.
6. The first
step, therefore, in dealing with foreign collaboration agreements is to analyse the terms of the agreement and ascertain the facts relating to the
working or implementation of the agreement in order to find out, what rights or
benefits or property have been acquired under the
agreement by the Indian participant and for what consideration. In a case where
the payment is made wholly or in part for a specific service or the supply of
clearly defined item of technical know-how, no difficulty is likely to arise in
determining the nature of the payment, i.e.,
whether expenditure is on capital or revenue account. It happens, however, that
in several agreements, the payment of a single sum is
stipulated for a variety of services, assistance and information
supplied by the foreign participant. Sometimes, this payment is
expressed as a percentage of sales made by the Indian undertaking. The
Income-tax Officer will, therefore, have to go into the facts and determine the
extent to which the payment made represents consideration for
:
a. the
mere use of technical knowledge and information for running the business during
the period of the agreement;
b. the
user of patents or trade marks; or
c. the
acquisition of an asset or benefit of enduring advantage to the business.
While payments for (a) and (b) above would be allowable as revenue expenditure in
the hands of the Indian participant, expenditure
under (c) would be of a capital nature.
7. Where the technical know-how obtained relates to the design and engineering of
the plant in
Where,
however, the technical know-how is not directly relatable to the depreciable assets
and cannot be regarded as forming part of their cost, the expenditure,
though treated as capital, would not be eligible for the allowance of
depreciation and development rebate.
As regards technical know-how obtained in the
form of drawings and designs and technical information and knowledge concerning
the product to be manufactured and the process of manufacture, it will be sometimes difficult to decide whether the
payment made therefor is capital or revenue
expenditure. A pertinent question to
be answered in this connection will be : Have the technique and knowledge obtained through the
designs, drawings, etc., become the property of the Indian participant for all
time to come or only for the duration of the agreement ? If it is only
for the duration of the agreement, the next question is whether the agreement
is for such a long period that the Indian participant might
still be said to have acquired an enduring benefit for the purpose of
his trade. Further, after the conclusion of the.period
of the collaboration, what are the rights and benefits, if any, which would
permanently accrue to the Indian participants business? These and other related
questions have to be looked into in order to decide
whether the expenditure is capital or revenue in nature. If as
a result of this examination, it is found that no asset or advantage of
a permanent or enduring character is acquired by the Indian participant, the
expenditure should be treated as revenue expenditure and allowed as a
deduction. It may, however, be noted in this connection that if the said
expenditure, on product and process designs and drawings is treated as capital
expenditure, the Indian participant will not be entitled to any depreciation or
development rebate on the outlay. The amount cannot also be amortised
and allowed over a period of years (unless the payment is for the acquisition
of patent rights which are discussed separately) as there is at present no
provision to this effect in the Income-tax Act.
As regards expenditure of a capital nature incurred after February 28,
1966 on the acquisition of patent rights or copyrights used for the purpose of
business, section 35A provides that the
expenditure will be allowed as a deduction in equal instalments over a period of 14 years.
8. As regards the foreign participant is tax
liability also the first question would be whether the amount received for the
supply of technical know-how, is a receipt on capital
account or revenue account. The answer would again depend on the facts of the
case. It has to be
observed that the nature of the outgoing in the hands of the Indian
participant will not always be determinative of the nature of the receipt in
the hands of the foreign party. In the U.K., it has been held
by the Courts that a receipt from the sale of know-how would be a capital
receipt only where the sale of the technical know-how or the imparting of
technical knowledge and information results in the transfer or parting with the
property or asset or any special knowledge or skill which would ripen into a
form of property and that after such transfer, the transferor is deprived of
using the assetsee Moriarty v. Evans Medical Supplies Ltd. [1959]
35 ITR 707. In all other cases, where no capital asset or property is
parted with and the transaction is merely a method of trading by which the
recipient acquires the particular sum of money as profits and gains of that
trade, the consideration received for the sale of technical know-how will be on
revenue account.
9. If the amount received by the foreign participant is a
revenue receipt in his hands and the amount is received by him outside
a. for services rendered abroad, or
b. for
services rendered in
c. represents
royalty.
If the amount
received by the foreign participant is for services rendered entirely outside
10. The cases where payments of each of the above
categories are clearly and truly ascertainable from the terms of the agreement
and with reference to all relevant facts will not present serious difficulty. But in cases where
the agreement stipulates a consolidated payment or where the true character of
the payment is different from that ascribed to it in the agreement difficulty
would arise in the allocation of the payment for the various services rendered
under the agreement. Ordinarily, a payment expressed as a percentage of the
sales in
It is,
therefore, necessary that the utmost care should be exercised
by the Assessing Officers in determining the true nature of the payment when it
is a consolidated figure or is expressed as a percentage of sales, by whatever
terms the contracting parties may decide to call it. Allocation of the
payment among the various services in India and abroad towards the royalty
element, if any, included in the arrangement, has to be made objectively and
after a careful appraisal of the precise terms of the collaboration agreement
and the actual manner in which the terms have been implemented in practice.
11[`19]1. With reference to cases of
foreign capital participation it may be noted that where shares are allotted to a non-resident participant in the form of
equity capital of an Indian concern, in consideration for transfer abroad of
technical know-how or services
or delivery abroad of machinery and plant, and the payment is not taxable under
section 5(2)(b) as
income accruing or arising or deemed to accrue or arise in India, it has been
decided that no attempt should be made by the department to bring to tax the
profits or gains on such transaction merely on the ground that the situs of the shares is in India. However, if any operations are
effected or services are rendered in
12. In the end, a reference may be made to the provisions
of section 195, particularly sub-section (2) of that section, which deserves to
be more widely made use of than is being done at present. In
a foreign technical collaboration, where the Indian participant who is
responsible to pay a technical fee, etc., to the foreign party, considers that
the whole of such sum would not be income chargeable in the hands of the
recipient, he could apply to the Income-tax Officer under section 195(2) for
determination of the appropriate proportion of such payment which would be
taxable and in respect of which tax is to be deducted in accordance with
sub-section (1). In effect, therefore, this sub-section provides for an
advance ruling being given by the Income-tax Officer
in the matter of the tax liability of the non-resident participant. [[`20]1*
* *]
Circular : No. 21 [F.
No. 7A/40/68-IT(A-II)], dated 9-7-1969.
JUDICIAL
ANALYSIS
Explained in - The above circular was explained in CIT v. Union Carbide Corporation [1994] 206 ITR 402 (
In any case, if the
Central Board of Direct Taxes, while explaining the law, engages in a forensic
exercise and wants the officers to understand its view of the provision of law
as though it was declaring law as a competent judicial or quasi-judicial
authority empowered to decide questions of law between contending parties, that
would be of no effect and the instruction issued on that basis cannot be
elevated to the status of information in its special significance in the
context of section 147(b).
We have persued
the circular of the Board and we find that the Board has made its own
interpretation as to how the law relating to the assessability
of technical service fees should be understood by the
Assessing Officer. If the amount received by the foreign participant is a
revenue receipt in his hands and the amount is received by him outside
(i) for services rendered abroad, or
(ii) for services rendered in
(iii) representing royalty.
If the amount received by the foreign
participant is for services rendered entirely outside
It is not that the circular merely draws
the attention of the Assessing Officers to existing judge-made law in the form
of judicial decision or proclamation in the shape of decisions coming from
quasi-judicial authority competent to decide questions of law between
contending parties.
The opinion of the Board can be
information for the purpose of the relevant section only where it expresses the
opinion while performing its appellate function......
(pp. 411-412)
Circular: No.
152 [F.No. 484/31/74-FTD-II], dated 27-11-1974.
1158. Where whole
payment would not be income chargeable to tax in the hands of recipient
non-resident, person responsible for paying such sum may make application for
determination of appropriate portion
1. I am directed to state that section 195 imposes a
statutory obligation on any person responsible for paying to a non-resident any
interest (not being interest on security) or any other sum (not being
dividends) chargeable under the provisions of the Income-tax Act to deduct
income-tax at the rates in force, unless he is himself liable to pay income-tax
thereon as an agent. Payments to a non-resident, by way of royalty for the use of, or
the right to use, any copyright (e.g.,
of literary, artistic or scientific work including cinematograph films or films
or tapes for radio or television broadcasting), any patent, trade mark, etc.,
and payments for technical services rendered in India are some of the typical
examples of sums chargeable under the provisions of the Income-tax Act to which
the aforesaid requirement of tax deduction at source will apply. The
term rates in force means the rates of income-tax
specified in this behalf in the Finance Act of the relevant year.
2. Where the
person responsible for paying any such sum to a non-resident considers that the
whole amount thereof would not be income chargeable under the Income-tax Act in
the case of the recipient non-resident, he may make an application under
section 195(2) to the Income-tax Officer for the determination of the appropriate
portion of such payment which would be taxable and in respect of which tax is
to be deducted under section 195(1).
3. The object of section 195 is to ensure that the tax
due from non-resident persons is secured at the
earliest point of time so that there is no difficulty in collection of tax
subsequently at the time of regular assessment. Failure to deduct tax at source
from payment to a non-resident may result in loss of revenue
as the non-resident may sometimes have no assets in
Circular : No. 153 [F.
No. 215/22/71-IT(A-II)], dated 30-11-1974.
SECTION 2(38) l RECOGNIZED PROVIDENT FUND
20. Provident fund exempt under section
17(1) of the Employees Provident Fund Act, 1952 - Whether recognition by the
Commissioner necessary before it can enjoy benefits of recognised
provident fund
1. Reference is invited to Boards Circular F. No.
44/14/64-ITJ, dated 22-3-1965 [Annex]
on the above subject.
2. I am directed to say that the Board has
re-examined the contents of its circular referred to above. According to
section 2(38), the term recognised provident fund means a provident fund which has
been and continues to be recognised by the
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 Fund Act, 1952. It would thus appear that in order to
avail of the benefits of the Income-tax Act, a provident fund
has either to be recognised in accordance with
the provisions of the Income-tax Act or it must be established under a Scheme
framed under the Employees Provident Fund Act, 1952. The funds which are not
established under the Employees Provident Fund Scheme, 1952, have to be
expressly recognised by the Commissioner under rule 3
of Part A of the Fourth Schedule to the Income-tax Act before they can be
covered by the definition of section 2(38).
3. When a fund is exempted
under section 17 of the Employees Provident Fund and Family Pension Fund Act,
1952, it is implicit that it is not established under the Employees Provident
Fund Scheme, 1952. It has, therefore, to be recognised by the Commissioner under the relevant
provisions of the Income-tax Act before it can enjoy benefits of a recognized
provident fund under the Act.
In view thereof, Boards Circular No.
44/14/64-ITJ, dated 22-3-1965 is withdrawn with
immediate effect.
ANNEX - CIRCULAR,
DATED 22-3-1965 REFERRED TO IN CLARIFICATION
According to section 2(38) recognised
provident fund means a provident fund which has been and continues to be recognised by the 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 Fund Act, 1952.
A question was raised as to whether private provident funds
(as distinguished from provident funds maintained by the Central Board of
Trustees constituted under the provisions of the Employees Provident Fund
Scheme) which were or are exempt under the provisions of section 17(1) of the
Employees Provident Fund Act, 1952, and/or under Para 79 of the Employees
Provident Fund Scheme, 1952, will be covered by the definition of recognised provident fund under section 2(38). Such funds are not
established under either the Employees Provident Fund
Act or under the Employees Provident Fund Scheme. As such, they do not fall
within the terms of the definition under section 2(38) and cannot automatically get recognition under the
Income-tax Act. In order to get the benefits of recognition, they will have to
apply for recognition under Part A of the Fourth Schedule.
Circular : No. 154 [F.
No. 201/5/71-IT(A-II)], dated 5-12-1974.
326. Amortisation of cost of
production/cost of acquiring distribution rights of films - Assessments of film
producers/distributors - General guidelines for allowance thereof[`21]1
clarification 1
1. Attention is invited to Boards Circular No. 92, dated
l8-9-1972 [Clarification 2],
modifying its earlier circulars issued on the above subject.
2. The Board has re-examined the question relating to the
amortisation of the cost of production of feature
films in the assessments of film producers and distributors. A study of the
results of the business earnings of the feature films has revealed that it is
not always possible to know the final receipts of any particular film in the
first year. Therefore, it would be appropriate to make the assessments on a
provisional basis in the first instance by allowing proportionate deduction in
respect of cost of production and cost of acquiring distribution rights on an
estimated basis. On determination of the final results
on the expiry of the exploitation period, the income/loss can be adjusted under
section 154 by revising the figure of allowance in respect of cost of
production and acquisition of distribution rights in the proportion of the
earnings spread over the period of exploitation.
3. By way of a general guideline, in the case of producers the entire cost of
production can be allowed in the year of release if
the picture was fully exploited in that year. For example, if all the
territories have been sold by way of outright sale in
the year of release the entire cost of production will be allowed in computing
the income of the year of release to the producer. In the case of pictures sold on minimum guarantee (M.G.) basis, if the
entire collections have come in the year of release, the full cost of production
will similarly be allowed in the year of release, as it can be said that the
picture was fully exploited in that year. In cases where all the territories have not been sold either on M.G. basis
or on outright sale basis, the picture cannot be said to have been exploited
fully in that year and, therefore, the entire cost cannot be allowed in the
year of release. For this purpose, the most reliable factor to be taken into account for finding out whether the picture
has been fully exploited or not is the actual collection from the film. As the figures of actual collection are not likely to be known in
the first year of release, the assessments may be made on a provisional basis
in the first year by adopting the actual receipts and allowing a part of cost
of production also on an estimated basis taking into consideration future
estimated receipts subject to final adjustment after the period of exploitation
is over.
4. Three examples are given
below by way of illustration of the above guidelines. In these examples, it has been presumed that the period of exploitation runs to 18
months. However, this period has to be determined by the Income-tax Officers
with reference to facts of each individual case :
|
EXAMPLE
I |
|||||
|
Cost of production |
Rs. 50 lakhs |
||||
|
Month of release |
September 1970 |
||||
|
Accounting year of the assessee for
1971-72 assessment |
31-3-1971 |
||||
|
- Realisations
up to 31-3-1971 (6 months) |
Rs. 45 lakhs |
||||
|
- Realisations
from 1-4-1971 to 31-3-1972 (12 months) |
Rs. 30 lakhs |
||||
|
- Cost to be allowed for the 1971-72
assessment |
|
||||
|
|
Rs. 50 lakhs Rs.
45 lakhs |
|
i.e., Rs. 30 lakhs |
||
|
Rs. 75 lakhs |
|||||
|
- Cost to be allowed for the 1972-73
assessment |
Rs. 20 lakhs |
||||
|
example ii |
|||||
|
Cost of production |
Rs. 50 lakhs |
||||
|
Month of release |
September 1970 |
||||
|
Accounting year of the assessment for 1971-72
assessment |
31-3-1971 |
||||
|
- Realisations
up to 31-3-1971 |
Rs. 27 lakhs |
||||
|
- Realisations
from 1-4-1971 to 31-3-1972 |
Rs. 18 lakhs |
||||
|
|
Total |
Rs. 45 lakhs |
|||
|
Cost to be allowed in the 1971-72
assessment |
|
||||
|
|
Rs. 50 lakhs - Rs.
27 lakhs |
|
i.e., Rs. 30 lakhs |
||
|
Rs. 45 lakhs |
|
||||
|
Cost to be allowed in the 1972-73
assessment |
Rs. 20 lakhs |
||||
|
example iii |
|||||
|
Cost of production |
Rs. 50 lakhs |
||||
|
Month of release |
September 1970 |
||||
|
Accounting year of the
assessee for 1971-72 assessment |
31-3-1971 |
||||
|
Realisations up to 31-3-1971 |
Rs. 40 lakhs |
||||
|
Realisations from 1-4-1971 to 31-3-1972 |
Nil |
||||
|
|
|
|
|
|
|
In this case, the entire
cost will be allowed in the 1971-72 assessment since
the entire realisations during the 18-month period
were effected before March 31, 1971 itself.
5.
In the
case of distributors, the entire cost of acquiring the distribution rights may
be allowed on the basis of collections during the
period of exploitation of the film. As
the period of exploitation is likely to exceed one year, the assessment for the
first year may be framed provisionally by allowing a
part of the cost of distribution rights on an estimated basis against the
actual receipts in the year under consideration. The final adjustment in the
case of the producer will be made after the
exploitation period under section 154. However, if a distributor produces
evidence to the satisfaction of the Income-tax Officer that a particular
picture has failed at the box office in the year of release itself and there is
no possibility of further collection in the following years, the entire cost of
acquisition of distribution rights may be allowed in
the first year itself.
6.
All pending assessments may be regulated in accordance with the guidelines spelt out
in this circular. In
case where the assessments were completed in accordance with the instructions
contained in Boards Circular No. 92 and the appeals are pending either before
the Appellate Assistant Commissioner or the Appellate Tribunal, the Department
may agree to such assessment being set aside to be reframed on the basis of the
guidelines laid down in this circular and the concerned assessees
have agreed to the adoption of such a course of action.
Judicial
Analysis
The above circular was referred to, along with earlier
circulars, and applied in CIT v. Dosseni Films [1995] 80 Taxman 223 (
. . .Therefore, two things
emerged from the above clarifications, namely :
(1) that the Circular No.
92, dated 18-9-1972 was to be modified in the manner laid down in the Circular
dated 5-12-1974, and
(2) that modification was
for pending assessments.
In other words, the assessments
which had been completed could not be brought within the ambit of the
Circular dated 5-12-1974. Therefore, the Tribunal by relying on the Circular
dated 5-12-1974 and Circular dated 18-9-1972 had obviously committed an error.
(pp. 225-226).
clarification
2
1. Attention is invited to Boards Circular No. 4
(XI-3)D, dated 9-4-1959, as modified by Circular No. 30, dated 4-10-1969 [Clarifications 3 and 4] on the above
subject.
2.
The Board has reconsidered the
question relating to the amortisation of the cost of
production of a feature film. The effective life of a feature film depends on
many factors, the most important among them being the market value of the stars
acting in the films, which in turn is reflected in the
cost of production.
On the basis of cost of production, the
feature films can be categorised into three classes :
|
Class |
Cost of
production including cost of positives |
|
A |
Rs. 35 lakhs and above. |
|
B |
Between Rs. 10 to 35 lakhs. |
|
C |
Below Rs. 10 lakhs. |
3. Normally feature films are disposed of by a producer
either under the minimum guarantee formula or by way of outright sale. Under the minimum guarantee system
a minimum amount is guaranteed to be paid to the producer by the distributor.
In addition, a right to participate in the overflow is also
retained by the producer. Overflow represents the amount which is
arrived at after the distributor has recouped the minimum guaranteed amount and
his commission. In the case of outright sale, the producer transfers all his
rights of exploitation of the feature film to the distributor for a lump sum
consideration.
4. An actual case study of the films
in A class was undertaken. Feature films
produced with the cost of production of Rs. 35 lakhs and above were found to have a run of more than 2 years. The Board
has, therefore, decided to revive the amortisation
formula for such films under which the value of the film will be depreciated by
60 per cent in the first year, 25 per cent in the second year and 15per cent in
the third year on time basis as elucidated in Boards Circular dated 9-4-1959
referred to in para 1. The percentages are not to be
deviated from and are to be followed in allowing cost of amortisation
of A class feature films.
5. The effective life of feature films in B and C categories was found to be normally of one year. It has,
therefore, been decided by the Board that the entire cost of production
may be allowed in the very first year of production if the film was released in
the first half of the accounting year. In case the film was
released in the later half of the accounting year, the value of the film
should be taken at 50 per cent of the cost of production at the end of that
accounting year and the balance 50 per cent should be adjusted in the second
year.
6. The Board has also decided that the cost of acquiring distribution
rights should be treated in the hands of the distributor in the same way as the
cost of production is treated in the hands of the film producer, the rates of
the allowance and the manner being as indicated in paras
4 and 5 above.
7. If the producer sells the
film outright for all the territories,
the entire cost of production should be allowed as a
deduction in the year of the sale irrespective of the category to which the
film belongs. If the distributor after having acquired the film by way of
outright purchase sells the film outright to another person in the first or
subsequent years, he would be assessable on the profits made on that
transaction by allowing the deduction for the price which
he had paid to acquire the exploitation rights.
8. In cases where the producer or the distributor disposes of the
exploitation rights of an A class film on mixed basis, i.e., some territories on minimum guarantee and others on
outright sale, the deduction for the cost of production should be effected in
the same proportion as the amount of outright sale bears to total receipts. The
remaining balance of the cost of production should be amortised
on lines indicated in para 4
above. If, for example, the cost of production of an A class film is Rs. 40
lakhs and the exploitation lights for three territories are disposed of for Rs.
20 lakhs on minimum guarantee basis, and the remaining territories for Rs. 25
lakhs by way of outright sale, the cost of production should be amortised on the following basis :
|
Cost of production |
Rs. 40 lakhs |
|
|
|
Minimum guaranteed amount |
Rs. 20 lakhs |
|
|
|
Outright sale |
Rs. 25 lakhs |
|
|
|
|
Rs. 45 lakhs |
|
|
|
25 : 45 = X : 40 = |
Rs. 22, 22,222 |
|
|
Therefore, the outright deduction from the
cost of Rs. 40 lakhs would be Rs. 22,22,222. The
balance amount i.e., Rs. 40
lakhs less Rs. 22,22,222, should be amortised on
time basis as indicated in para 4.
9. Boards circulars referred to in para 1 above stand modified to the extent indicated above.
Circular : No. 92 [F. No. 201/5/71-IT (A-II)], dated 18-9-1972[`22]1.
judicial
analysis
Explained in - The abovesaid Circular was explained in CIT v. Jyothi Pictures [1988] 169 ITR 412 (AP),
with the following observations :
. . . There can be little dispute about the
proposition that Circular No. 92, dated September 18,1972, does undoubtedly
apply to the assessment year 1973-74. Indeed, it was issued even during the
currency of the assessees accounting year relevant to
the said assessment year. This is not even a case where the accounting year
adopted by the assessee was over by the date of issuance of the revised
circular (Circular No. 92). We are, therefore, unable to see why the revised
circular can be said to be not applicable to the
accounting year relevant to the assessment year concerned herein. . . . (p.
415)
. . . The relevance of the accounting year followed by
the particular assessee cannot be taken as relevant.
What is relevant is the assessment year, and if the circular was
in force on the first day of the assessment year, it would apply to that
assessment year. . . . (p. 416)
Explained in - In CIT v. Sankarapandia Asari & Sons [1987]
165 ITR 616 (
What is contended by learned counsel
for the Revenue is that when the Board has prescribed that amortisation
in full may be permitted where the film is released in the first half of the
accounting year and amortisation at half the rate
would be permissible if the film is released in the other half year, the
circular purports to grant a concession and the assessee cannot claim amortisation on any other basis. Now, the circular by the Board would be in the nature
of an ad hoc direction to the
Income-tax Officer. That circular has no statutory basis. . . . (p. 619)
clarification
3
1. Attention is invited to Boards Circular No. 4 (XI-3) D, dated 9-4-1959
[Clarification 4] on the above
subject.
2. The film producers have represented to the Board that a cinema film no
longer has an effective life of about 3 years as was presumed by the Income-tax
Department when devising the formula for the amortisation
of the cost of the films spelt cut in the circular mentioned above.
3. The matter has been carefully considered by the Board. In view of the changed situation regarding the
minimum guarantee system operating in the film industry at present, it is
perhaps inappropriate to resort to the inflexible rule in every case of amortisation of the cost of the film over a period of 3
years. The Board also agree that the effective and
earning life of the large majority of the present-day cinema films seldom
exceeds one year.
4. It has, accordingly, been decided that if the
producer of a film does not wish to write off the cost of the film in his books
in the manner indicated in Boards circular mentioned above, then he may be
permitted to write off the entire cost in the year in which the picture is
released. On his doing so, the entire cost of the film will be allowed as an
admissible deduction in the year in which the picture is released and the cost
of the film is written off in the books.
5. Boards Circular No. 4 (XI-3) D, dated 9-4-1959 is modified to the
extent indicated above.
Circular : No. 30 [F. No. 9/80/69-IT(A-II)], dated 4-10-1969.
judicial
analysis
commented upon - The abovesaid circular was commented upon in CIT v. N.T. Ramarao (HUF) [1987] 163 ITR 453
(AP), with the following observations :
. . . We are of the view that the circular that was in
force during the year of assessment is the circular that should
be applied while granting deductions under the relevant provisions of
the Income-tax Act. The 1969 circular (see
Circular No. 30) was admittedly in force during the relevant assessment
years corresponding to January 1, 1970 to December 31, 1970 and January 1, 1971
to December 31, 1971. The revised circulars were issued only in September, 1972 (see
Circular No. 92) and later in 1974. These circulars
which were issued subsequent to the relevant period cannot be applied to
a period anterior thereto. In this view, we are fortified by a Full Bench
decision of the Kerala High Court in CIT v. B.M Edward, India Sea Foods [1979]
119 ITR 334. . . . (p. 456).
See also CIT v.
Prasad Productions (P.) Ltd. [1989] 179 ITR 147 (Mad.).
Explained in - The above circular
was explained and applied in Shakti Raj Films
Distributors v. CIT
[1995] 213 ITR 20 (Bom.) with the observation that Circular dated October 4,
1969 would be applicable to the assessment of the assessee for the assessment
year 1972-73. This circular evidently was a beneficial circular. It gave an
option to the assessee to write off the cost of the film in
its books either in the manner indicated in the circular dated April 9,
1959, or to write off the entire cost in the year in which the picture was
released. It stated in clear and unambiguous language that on his doing so, the
entire cost of the film would be allowed is an admissible deduction in the year
in which the picture was released and the cost of the film was written off. The
circular conferred a valuable right on the assessee in the matter of
computation of his income for the purpose of assessment and levy of income-tax. The assessee, on fulfilment
of the condition set out therein, was entitled to claim deduction of the entire
cost of the film in the year of release and the Income-tax Officer was bound to
allow the same. Modifications of the above circular during the pendency of the assessment were not relevant. Such
assessment for the assessment year 1972-73 had to be
completed by following the circular dated October 4, 1969.
clarification
4
1. Attention is invited to Boards Circular No. 1-D, dated 4-1-1951 [Clarification 5] on the above subject.
2. For paragraph 2 of the above circular, the following shall be substituted :
While it will not be right
and may lead to tax evasion if the percentages mentioned in the standard
formula are applied irrespective of the point of time a film is purchased or
released for exhibition in a particular year, the Board feel that insistence on
allowance of these percentages strictly on time-basis alone may not be fair in
several cases and that, therefore, it would be desirable to also take into
account the figures of collections in a particular period for determining the
percentage of amortisation for that period. The Board, therefore, direct that amortisation
in cases of films which conform to the norm of the three-year life should be
worked out in the manner indicated in the following example :
The accounting year of a film producer is
the year ended December 31, 1954 and a film produced during that year was released for public exhibition on October 1, 1954. The
collections were as under :
|
1954 : |
From l-10-1954 to 31-12-1954 |
Rs. 9,50,000 Total for twelve months: |
|
1955 : |
From 1-1-1955
to 30-9-1955 |
Rs.16,00,000 Rs. 25,50,000 |
|
|
From l-10-1955 to 31-12-1955 |
Rs. 1,90,000 Total for twelve months: |
|
1956 : |
From 1-1-1956 to 30-9-1956 |
Rs. 4,75,000 Rs. 6,65,000 |
|
|
From l-10-1956 to 31-12-1956 |
Rs. 1,50,000 Total for twelve months: |
|
1957 : |
From 1-1-1957 to 30-9-1957 |
Rs. 2,50,000 Rs. 4,00,000 |
The
allowance for amortisation should be as follows :
|
Accounting |
Assessment |
Rate of amortisation
|
|
1954 |
1955-56 |
60 9,50,000/25,50,000 = 22.3%
approximately |
|
1955 |
1956-57 |
60 16,00,000/25,50,000 + 37.7%
approximately |
|
|
|
plus
|
|
|
|
25 1,90,00,000/6,65,000 + 7%
approximately |
|
1956 |
1957-58 |
25 4,75,000/6,65,000 + 18% approximately |
|
|
|
plus |
|
|
|
15 1,50,000/4,00,000 + 5.6%
approximately |
|
1957 |
1958-59 |
15 2,50,000/4,00,000 + 9.4%
approximately |
Circular : No. 4(XI-3) D [F. No.
45A/200/54-IT], dated 9-4-1959[`23]1.
clarification 5
1. Attention is invited to Boards demi-official letter R. Dis. No. 178-IT/37, dated 13-5-1937 [Clarification 6]. On representations made by the film industry, the Board wish to
make it clear that the general or
standard formula regarding amortisation of the cost
of production of a film, at 60 per cent in the first year, 25 per cent
in the second year and 15 per cent in the third year should not be treated as
inflexible and that it may be varied
in favour of the assessee if he is able to prove by adducing appropriate
evidence that the earning capacity of the film was extinguished much earlier
than over the period presumed in the above formula. If, for example, an assessee is able
to prove that the film had no real life beyond the first year and there were no
receipts in respect thereof in the next year, the entire cost of the film should be allowed in the first year.
[2[`24]2. It should, however, be carefully noted that
the percentages mentioned in the standard formula are percentages to be allowed
strictly on time-basis, for any other method may open the way for tax evasion.
A person may purchase a film towards the end of the year and claim to be allowed 60 per cent of the amounts in that very year.
With a view to safeguarding against such possibilities
the rates of 60 per cent, 25 per cent and 15 per cent should be treated as
rates per annum. If, for example,
the accounting year of a film producer is the year ended December 31, 1947 and
film produced during that year came to be exhibited on
October 1, 1947, the allowance for amortisation
should be as follows:
|
Accounting year |
Assessment year |
Rate of amortisation |
|
1947 |
1948-49 |
15% ( of 60%) |
|
1948 |
1949-50 |
45% ( of 60%); 6% ( of 25%) |
|
1949 |
1950-51 |
18% ( of 25%); 3% (% of
15%) |
|
1950 |
1951-52 |
11% ( of 15%)]. |
3. The Board
have also decided that the cost of acquiring distribution rights should be
treated in the hands of the distributor in the same way as the cost of
production is treated in the hands of the film producer, the rates of allowance
and the manner of their application being as indicated in paragraph 2 above.
Circular : No. 1-D [C. No. 9(48)-IT/48], dated 4-1-1951.
Explained in - In CIT v. Modern Theatres Ltd. [1963] 50 ITR 548 (
The proper interpretation and effect of those two
circulars can be briefly summarised thus. A film is a stock-in-trade. Its value is to be brought
in and dealt with in the trading account. Under the normal accountancy
principles and commercial practice the closing book value of any stock-in-trade
on hand at the end of accounting year is either the actual cost or market value
whichever is the lower. By market value is understood
the selling price in the open market at the date of the valuation. But in regard to a film neither of these two things would be
practicable. If the actual cost is adopted the assessee gets no deduction or
allowance. The market value of any film cannot be ascertained
with ease or certainty and such value cannot be fixed without controversy or
speculation. So a rough and ready method is
prescribed. For the first year it is 40%; the second year 15%;
and the third year nil. This is
not a rule of thumb or any hard and fast rule. It may vary, be more or less in
each year, depending upon the popularity of the film amongst the public at
large. The greater the public fascination and the greater the
income, the larger the depletion of the life of the film. The amortisation rate is on the time basis. An assessee cannot
release a picture on the date prior to the last day of the accounting year and
claim 60% amortisation. A year is taken as 365 or 366
days and if the film is released 183 days before the expiry of the accounting
year amortisation that would he allowed is 183/365 of
60%, that is, 30%. (pp. 562-563)
clarification 6
After consulting the Commissioners, I have
come to the conclusion that films in the hands of
their producers and of their purchaser should be treated as stock-in-trade. In arriving at the closing stock valuation
the assessees figure should be
accepted if it appears reasonable. In this connection, it should
be borne in mind that since our rates are on a sliding scale and losses are not
allowed to be carried forward, an assessee may be
tempted to manipulate this figure. As a general rule
the greatest deterioration in the value of a film takes place in the first
year. Vachha suggests that a film may be valued at 40
per cent of its cost after one year, 15 per cent after two years and thereafter
at nothing. Bown suggests a figure of about 30 per
cent of cost after one year, 10 per cent after two years and 5 per cent after
three years. The Income-tax Officer
will have to decide for himself what figures to adopt in each case since the
life of a film is subject to great variations.
Where films are hired
for a lum sum for a period of years, the same basis
should be adopted. Where they are hired for annual
payments, the hire paid will be treated as expenditure of the year in which it
is paid.
Letter : No. RD
No. 178-IT/37, dated 13-5-1937.
Circular: No. 155 [F.No. 484/31/74-FTD], dated
21-12-1974.
1157. Clarification contained in Circular No. 155,
dated 21-12-1974 reiterated to ensure proper computation of tax to be deducted at source in the case of non-resident whose tax
liability is to be borne by payer
CLARIFICATION 1
1. It has come to the notice of the Board that in certain cases where
payments are made to non-residents and the tax payable
by the non-resident is borne by the person making the payment, the provisions
of section 195 are not being followed. As a result such persons become liable
to pay interest and penalty under section 201(1A) and section 221, respectively
and also punishment under section 276B.
2. Boards Circular No. 155, dated 21-12-1974 [Clarification 2] outlines the method of computation of tax to be
deducted at source under section 195 in the case of a non-resident, whose tax
liability is to be borne by the payer and its payment to the credit of the
Central Government. Paras 2, 3 and 4 of this circular
are reproduced below :
2. Where the amount payable to a non-resident is
stipulated to be paid to him net of tax (i.e.,
where the tax payable by the non-resident is borne by the person making the
payment), the income chargeable to tax in the hands of the recipient is
determined by the grossing up the net of tax payment to such an amount as
would, after deducting the tax on such gross amount, leave the stipulated net
amount of income. Accordingly, the
sum chargeable to tax in the hands of the non-resident recipient would be this
grossed up amount and it is with reference to this grossed up amount that tax
has to be deducted as required by the provisions of
section 195.
3. Persons responsible for paying to a non-resident
person, any sums which are stipulated to be paid net of taxes should carefully
note that the calculation of tax to be deducted at source as required by
section 195, should be made not
with reference to the net of tax amount payable to the non-resident but should
be made with reference to the gross amount as aforesaid. Deduction of tax at source in this manner should be made every time any such payment is made to the
non-resident.
4. The tax so calculated and deducted should be paid to
the credit of the Central Government as required by section 200, read with rule
30 of the Income-tax Rules, 1962 and should not be withheld on the ground that
the tax will, in any case, be paid by the persons making the payment ultimately
when regular assessments are made in the case of non-resident payee.
3. The contents of Boards
Circular No. 155, dated 21-12-1974 are being reiterated so as to ensure that
the correct amount of tax is deducted at source under section 195 at the time
of payment of non-residents and after deduction, such tax is paid to the credit
of the Central Government within the prescribed time.
Circular: No. 370 [F.No. 391/3/78-FTD], dated 3-10-1983.
CLARIFICATION 2
1. Section195 imposes a statutory obligation on any person responsible
for paying to a non-resident, any interest (not being interest on securities)
or any other sum (not being dividends) chargeable under the provisions of the
Income-tax Act, to deduct income-tax at the rates in force unless he is himself
liable to pay income-tax thereon as an agent. Payments to a non-resident by way
of royalty and payments for technical services rendered in
2. Where the
amount payable to a non-resident is stipulated to be paid to him net of taxes
(i.e., where the tax payable by
the non-resident is borne by the person making the payment), the income
chargeable to tax in the hands of the recipient is determined by grossing up
the net of tax payment to such an amount as would after deducting the tax on
such gross amount, leave the stipulate net amount of income. Accordingly, the sum chargeable to tax in the hands
of the non-resident recipient would be this grossed up amount, and it is with
reference to this grossed up amount that tax has to be
deducted as required by the provisions of section 195.
3. Persons responsible for paying to a non-resident
person, any sums which are stipulated to be paid net of taxes should carefully
note that the calculation of tax to be deducted at source as required by
section 195, should be made not with
reference to the net of tax amount payable to the non-resident but should be
made with reference to the gross amount as aforesaid. Deduction of tax at source in this manner should be made every time any such payment is made to the
non-resident.
4. The tax so
calculated and deducted should be paid to the credit of the Central Government
as required by section 200 read with rule 30 and should not be withheld on the ground that the tax will, in
any case, be paid by the person making the payment ultimately when regular
assessments are made in the case of non-resident payee.
5. Failure to deduct tax or
failure to pay the tax as required by the provisions of the Income-tax Act
would render a person liable to penalty under section 201 read with section
221. In addition he would also be liable under section 201(1A) to pay
simple interest at 12 per cent per annum on the amount of such tax from the
date on which such tax was deductible to the date on which such tax is actually
paid. Attention is also invited to section 276B, wherein it
is provided that if a person without reasonable cause or excuse fails to deduct
or after deducting fails to pay the tax as required under the provisions of
Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term
which may extend to six months, and shall also be liable to fine which shall be
not less than a sum calculated at the rate of fifteen per cent per annum on the
amount of such tax from the date on which such tax was deductible to the date
on which such tax is actually paid.
Circular : No. 156 [F.
No. 173/96/72-IT(A-I)], dated 23-12-1974.
SECTION 57 l DEDUCTIONS FROM INCOME FROM OTHER SOURCES
460. Foreign exchange entitlement
certificate fee under
1. Indians, who have been and are being
repatriated from
2. According to the Ceylon Exchange Control Law, a fee
called foreign exchange entitlement certificate fee is to be
paid before any amount could be remitted outside
3. The matter has been examined and the Board are advised that the interest on the blocked account has
already been earned before the fee under the Ceylon Exchange Control Law is
deducted. It could not, therefore, be said that the
expenditure in question is for the purpose of making or earning the said
income. Hence, the fee under the
Ceylon Exchange Control Law is not a deductible expense under section 57(iii).
Circular : No.
157 [F.No. 228/8/73-IT (A-II)], dated 26-12-1974.
SECTION 164/166 l ASSESSMENT OF TRUST WHERE
SHARE OF BENEFICIARIES UNKNOWN
910. Assessment of discretionary trusts under section
164/166 - Correct procedure therefor
CLARIFICATION 1
1. Attention is invited to Boards Instruction No. 45/78/66/ITJ(5), dated 24-2-1967 [printed here as Clarification 2] on the subject of
assessment made under section 41(2) of the 1922 Act/section 166 of the 1961
Act. In spite of the clear instructions to the effect that
neither section 41 which give an option to the department to tax either the
representative assessee or the beneficial owner of the income nor the parallel
provisions of the 1961 Act contemplated assessment of the same income both in
the hands of the trustees and the beneficiaries, instances have come to the
notice of the Board of such double assessment.
2. According to the Scheme of the 1961 Act, even as it was under the 1922
Act, the general principle is to charge all income only once. The Board desire
to reiterate the earlier instructions in this regard. In order that there is no
loss of revenue, the Income-tax Officer should keep this point in view at the
time of raising the initial assessment either of the trust or the beneficiaries
and adopt a course beneficial to the revenue. Having exercised his option once,
it will not be open to the Income-tax Officer to assess the same income for
that assessment year in the hands of the other person (i.e., the beneficiary or the trustee).
Judicial
analysis
Explained in - The above circular was referred to in WTO v. Sneh Kumar Gadhaiya
[1984] 9 ITD 610 (Cal.). The Tribunal observed as
follows:
....Our attention was also drawn to
Circular No. 157 [F. No. 228/8/73-IT (A-II)], dated 26-12-1974in
which it has been mentioned that the general principle was to charge
total income only once. Reiterating the earlier instructions
in this regard, the Board directed the ITOs to keep
the question of assessment under section 41(2) of the 1922 Act and under
section 166 of the 1961 Act open at the time of raising the initial assessment
either of the trust or the beneficiary, because once the option was exercised,
it would not be open to the ITO to assess the same income for the assessment
year in the hands of the other person, namely, the beneficiary or the trustee .
. . . (pp. 614-615).
6. It was argued
on behalf of the department that the assessee had not disclosed in any of his
returns that he was the sole beneficiary of the trust, and, therefore, the
property and income of the same was liable to be included in his individual
assessment of wealth/income. The present instructions of the Board and the
authorities on the subject would not help the assessee inasmuch as the exercise
of option by the departmental authorities could be only relevant when they had
the full facts before them. Since the ITO/WTO assessing the present assessee did
not know about the fact of the assessee being also the sole beneficiary from a
trust, it cannot be said that he had exercised the option to exclude the said
income/wealth from the assessees
personal assessments. We, however, are of the opinion that at least the ITO/WTO
assessing the trust could have entered into this inquiry. After
all when the said officer knew that the assessee was the sole beneficiary of
the trust in question, he could have informed the ITO/WTO about the assessment
of the income/wealth of the trust of which the assessee was the sole
beneficiary and should have held up his hands till then as has been advised by
the circulars of the Board referred to. Since he had not chosen to do
so, there appears to be force in the assessees
contention that it is not open to the department now to add the same
income/wealth in the personal assessments of the assessee. (pp. 614-616).
1. Recently
an interesting case came to the notice of the Board. The assessee was one of
the beneficiaries in the trust. The shares of the beneficiaries were known and
determinate. The Income-tax Officer raised an assessment on the trustees taxing
the income of the trust in their hands at the appropriate rate and to the amount which would have been recoverable in the hands of the
beneficiaries. While dealing with the case of one of the beneficiaries of the
trust, the Income-tax Officer again included for rate purposes his share in the
income of the trust. The reason advanced by him was that the
amount of tax leviable should be the same whether the income from the trust is
assessed in the hands of the trustees or in the hands of the beneficiaries and
if the proportionate income from the trust is not included for rate purposes in
the hands of the beneficiary, his income other than the income from the trust
would be taxed at a rate lower than that which would have been applicable if
the trust income were assessed directly in his hands.
2. The Board have been advised that the approach
of the Income-tax Officer is not correct. Section 41 of the 1922 Act
(corresponding to section 166 of the 1961 Act), gave an option to the
department to tax either the representative assessee or the beneficial owner of
the income. Once the choice is made by the department
to tax either the trustee or the beneficiary, it is no more open to the
department to go behind it and assess the other at the same time. The inclusion
of the share income from the trust in the total income of the beneficiary for
rate purposes would virtually amount to an assessment of the income
which has already been assessed and subjected to tax. According to the
scheme of the Act, if certain income is to be included for rate purposes in the
total income, a specific provision in that behalf is made
in the Act. In the absence of any such express provision, the general principle
to charge all income only once would be applicable in such a case.
3. The position under the 1961 Act is also identical. In order that there
is no loss to the revenue, the Income-tax Officers may keep this point in view
while raising the initial assessment on the trust/beneficiaries.
Letter : F. No.
45/78/66-ITJ (5), dated 24-2-1967.
Circular : No. 158 [F.
No. 173/2/73-IT(A-I)], dated 27-12-1974.
SECTIONS 10, 11, 12, 12A AND 13
Incomes
which do not form part of
total income
SECTION 10(3) l RECEIPT OF CASUAL AND NON-RECURRING NATURE [CORRESPONDING TO SECTION 4(3)(vii)
OF THE 1922 ACT]
46. Effect of withdrawal of tax exemption in respect
of receipts of casual and non-recurring nature on liability to tax in respect
of gifts
1. Section 10(3) was amended by the Finance Act, 1972 by which receipts of
casual and non-recurring nature in excess of Rs. 1,000 [`25]1would no longer be exempt from tax. A question has
arisen as to whether this amendment would make receipts in the form of gifts
liable to income-tax.
2. Receipts which are of a casual and non-recurring
nature will be liable to
income-tax only if they can properly be characterised
as income either in its general connotation or within the extended meaning
given to the term by the Income-tax Act. Hence, gifts of a purely personal nature will not be chargeable to income-tax except when they can be regarded as an addition
to the salary or when they arise from the exercise of a profession or vocation.
JUDICIAL
ANALYSIS
Explained in - In CIT v. Sarbamangala Devi [1987]
163 ITR 898 (Pat.), the abovesaid circular was
explained with the following observations :
. . . This circular lays down that
the receipts which are of a casual and non-recurring nature will be liable to
income-tax only if they can properly be characterised
as income either in its general connotation or within the extended meaning
given to the terms by the Income-tax Act and, hence, gifts of a purely personal
nature will not be chargeable to income-tax, except when they can be regarded
as an addition to the salary or when they arise from the exercise of a
profession or vocation.
We have held in CIT
v. Tata Robins Frazer Ltd., disposed of on the
21st of November, 1985 ([1987],163 ITR 886 reasons mentioned on pages 895 to
897) that the circulars which are issued under section 119 of the Act are
binding on the Department and they have to be enforced. On this ground also,
the assessees are bound to succeed as the gifts which are of a purely personal nature are held to be
receipts of casual and non-recurring nature under section 10(3) of the Act. (p.
910)
Explained in - The above circular
was explained in Lohtse Co.-op. Housing Society Ltd. v. ITO [1994] 125 Taxation 13, in the
following words :
14. Thus, it is obvious from the above clarification
that in order to tax a casual receipt as income, the starting point would be to
determine whether the receipt can be called income. In
order to do that, we shall have to refer to the definition of the term income
given in section 2(24) of the
Act. . . . (p. 16)
INTEREST-TAX
ACT, 1974 - CIRCULAR NO. 159, DATED 31-12-1974
[`1]*See new rule 3, introduced with effect
form 1-4-2001.
[`2]1. See also Circular No. 150,
dated 19-11-1974 printed at p. 1.522 post which explains the implication
of the IT (Third Amendment) Rules, 1974 substituting sub-clause (i) of
clause (a) of rule 3.
[`3]2. Later 10 per cent vide IT (Fourth Amendment) Rules, 1976, w.e.f. 2-4-1976.
[`4]1. Later 10 per cent vide IT (Fourth Amendment) Rules, 1976, w.e.f. 2-4-1976.
[`5]1. Later Rs.. 600,
Rs. 800, Rs. 200 and Rs. 300 respectively.
[`6]1. Later Rs.. 600, Rs. 800, Rs. 200 and Rs. 300 respectively.
[`7]1. Later Rs.. 600, Rs. 800, Rs. 200 and Rs. 300 respectively.
[`8]1. Later Rs.. 600, Rs. 800, Rs. 200 and Rs. 300 respectively.
[`9] 1. Omitted by the Finance Act, 1987, w.e.f.
1-4-1988.
[`10] 1. The proviso to sub-section (2), inserted
by the Finance Act, 1975, w.r.e.f. 1-4-1974,
specifically provided that the provisions of section 52 could not apply to the
cases covered under the clarification.
[`11]1. The proviso to section 4(1)(a), inserted by the finance Act, 1975, with retrospective
effect from 1-4-1974, gives statutory recognition to the clarification
contained in this Circular.
[`12]1. Omitted by the Finance Act, 1983, w.e.f.
1-4-1984.
[A13]2. Substituted for the following by Cirtular No. 360 [F. No. 167/231/74-83] dated 16-5-1983:
(vii) Where the agreement is for provision of a technical know-how which is likely to assist in the manufacture of goods or the processing of materials or in the installation or erection of plant or machinery for such manufacture or processing, the technical know-how provided should be the manufacturing/processing technology and/or plants/machinery design and/or installation/erection technology or plant or machinery. Agreements for market or demand studies, pre-investment studies, preparation of project reports aimed at assessing the techno-economic viability of a project for the purpose of investment decisions or for the purpose of supporting applications for assistance from financial or other institutions, will not qualify for approval. Agreements for evaluation/ reappraisal of such studies and reports will also not qualify for approval. Agreements for provision of know-how relating to management, organisation, sales, finance and accounts, etc., will also not qualify for approval.
[`14]3.
Commenting upon this para of the circular, the Delhi
High Court in Simon Carves India Ltd v. CBDT [1979] 120
ITR 172 observed that it is the duty of the Board to consider whether drawings
amount to the provision of technical know-how likely to assist in the
manufacture or processing of goods or materials.
[A15]4. Substituted for the agreement may not be approved for the purpose of section 80MM by Circular No. 332, dated 25-3-1982.
[`16] 1. Views expressed by the Board in these
circular were adversely commented upon by the Bombay High Court in the case of Tata Iron & Steel Co. Ltd v. D.V. Bapat, ITO [1975]
101 ITR 292 which can profitably be referred to on this subject.
[`17]1. Later 10 per cent vide
IT (Fourth Amendment) Rules, 1976, w.e.f. 2-4-1976.
[`18]1. Clarification will be binding for the
assessments commencing prior to 1-4-1976. Attention is invited to amendments
made in section 9(1) by the Finance Act, 1976, w.e.f. 1-4-1976, and new section
44D inserted by the said Act.
[`19]1. Since withdrawn vide
para 4 of Circular No. 382, dated 4-5-1984.
[`20]1. For clarification of other matters not covered by the provisions of
section 195, either the Indian participant or the foreign participant in the
collaboration, could furnish the full facts and terms of the agreement to the
Commissioner of Income-tax concerned or the Central Board of Direct Taxes and
seeks a ruling omitted vide Circular No. 151 [F. No. 499/10/74-FTD], dated
25-11-1974. Circular No. 151 reads
as under :
In para 12 of the Boards Public Circular No. 21, dated
9-7-1969 it was mentioned that for clarification of other matters not covered
by the provisions of section 195, either the Indian participant or the foreign
participant in the collaboration could furnish the full facts and the terms of
the agreement to the Commissioner of Income-tax concerned or the Central Board
of Direct Taxes and seek a ruling. The question whether the
Commissioners of Income-tax or the Central Board of Direct Taxes could give
rulings in individual cases has since been re-examined and it has been
decided that the Commissioners or the Board will not thereafter
give rulings in individual cases. Accordingly, the last sentence in para 12 of the said circular shall stand deleted.
[`21] 1. Detailed provisions have since been made
in rules 9A and 9B of the Income-tax Rules.
[`22] 1. The Kerala
High Court has, in the case of CIT v. Geeva Films [1983]
141 ITR 632, held that subsequent modification of the circular (para 6) would have no relevance because Circular No. 30,
dated 4-10-1969, entitling assessee to 100 per cent amortisation,
would be applicable as it was this circular which stood at the beginning of the
assessment year. To the same effect
is the decision of the Andhra Pradesh High Court in CIT v. N. T. Ramarao (HUF) [1987] 163 ITR 453. The Court held that
the circulars which are in force during the relevant assessment years are the
circulars that have to be applied and subsequent circulars either withdrawing
or modifying the earlier circulars have no application.
[`23] 1. Read with modifications stated in
Clarification 3
[`24] 2. Since substituted by the circular dated
9-4-1959
[`25]1. Increased to Rs. 5,000 vide the Finance Act, 1986, w.e.f. 1-4-1987.