Circular : No. 318

Section 52 l Payment of duty by
transfer of property

1546. Provisions of the section are not resorted to frequently by estate duty authorities because of administrative problems

Query : Section 52 states that the Central Government may, on an application of the accountable person, accept in satisfaction of the whole or any part of such duty any property passing on the death of the deceased at such price as may be agreed upon between the Central Government and that person, and thereupon such person shall deliver possession of the property to such authority as may be specified by that Government in this behalf.

This provision which enables an accountable person to pay estate duty in kind remains on the statute book without implementation and without any attempt to relieve the burden of the accountable person. In a case where a large amount of estate duty was payable and a large part of the estate consisted of immovable property, i.e., lands in respect of which the State Government had served an order of acquisition for public purpose, the accountable person applied to the Controller of Estate Duty to accept that property, at a fair value. Without going into the details of the valuation of the property, the Estate Duty Controller has refused to accept that property. Although the Controller has been good enough to give time for payment of estate duty, it does not help because the property is under acquisition of the State Government. The State Government is not moving in the matter to complete the acquisition proceedings. It is sitting pretty because there is nothing in law which can compel it to complete the acquisition proceedings within any reasonable time. In the meanwhile, interest at 4 per cent is levied by the Controller of Estate Duty. It is submitted that in this case no interest should be charged as the land is not yielding any income. The provisions of section 52 are meant to relieve the genuine difficulty of the accountable person and are not meant to remain on the statute book only. It should not appear that the Government will agree to take over such property and at such price, which will give large income. In this regard, it is suggested that in computing the market value of the property for the purpose of estate duty and wealth-tax, the assessee should have a right to give over the property to the Government at assessed value in payment of the taxes.

Answer : Chairman remarked that the provision was not resorted to frequently mainly because of the administrative problems. He further said that till the valuation organisation was built up properly no improvement was likely.

Source : Relevant extracts of minutes of discussion with Chairman, CBDT at meeting with IMC, Bombay on 27-9-1971 - Reproduced from IMCs Journal - December 1971 issue.

 

 

Circular : No. 319 [F. No. 178/47/81-IT(A-I)], dated 11-1-1982.

 

SECTION 80P l INCOME OF CO-OPERATIVE SOCIETIES

605. Whether regional rural banks can be treated as co-operative societies engaged in carrying on business of banking or providing credit facilities to its members

1. A question has arisen whether regional rural banks (to which the provisions of the Regional Rural Banks Act, 1976, apply) can be treated as co-operative societies for the purpose of section 80P.

2. There is a specific provision, namely, section 22 in that Act, which is to the following effect :

For the purpose of the Income-tax Act, 1961, or any other enactment for the time being in force relating to only tax on income, profits or gains, a regional rural bank shall be deemed to be a co-operative society.

3. Therefore, the provisions of section 80P will also be applicable in respect of regional rural banks. In this view deductions admissible under section 80P (2)(a)(i) have to be allowed, in making income-tax assessments of these banks.

 

Circular : No. 320 [F. No. 131(31)/81-TP(Pt.)], dated 11-1-1982.

 

SECTION 167A l ASSESSMENT WHERE
SHARES OF MEMBERS UNKNOWN

911. Whether the section is applicable to income received by trustees on behalf of provident funds created exclusively for the benefit of employees

1. A reference is invited to paragraph 15.1 to 15.7 of the Explanatory Notes on the provisions relating to direct taxes in the Finance Act, 1981 [Circular No. 308, dated 29-6-1981] which explain the scope and ambit of section 167A, as inserted by the Finance Act, 1981.

2. A question has been raise whether the provisions of section 167A of the Income-tax Act which provide for charging of tax at the maximum marginal rate on the total income of an association of persons where the individual shares of members in the income of such association are indeterminate or unknown would also apply to income receivable by trustees on behalf of provident funds, superannuation funds, gratuity funds, pension funds, etc., created bona fide by persons carrying on business or profession exclusively for the benefit of the persons employed in such business. The Board have been advised that cases where income received by the trustees on behalf of a recognised provident fund, approved superannuation fund and approved gratuity fund is governed by section 10(25) of the Income-tax Act, the question of their being charged to tax does not arise. So far as cases where income is receivable by the trustees, on behalf of an unrecognized provident fund or an unapproved superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession are concerned, they will continue to be charged to tax in the manner prescribed by section 164(1)(iv) of the Income-tax Act, as hitherto. Similarly, in the cases of registered societies, trade and professional associations, social and sports clubs, charitable or religious trusts, etc., where the members or trustees are not entitled to any share in the income of the association of persons, the provisions of new section 167A will not be attracted and, accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate.

Judicial analysis

Explained in - In Asstt. CWT v. Club of Mahabaleshwar [1993] 44 ITD 520 (Pune - Trib.) it was observed that Circular No. 320, dated 11-1-1982, supports the view that assessee, a members club, is AOP and not an individual and hence is not an assessable entity liable to wealth-tax.

Explained in - In Lodge Hamilton 26 v. ITO [1998] 66 ITD 609 (Ahd.) it was observed that Circular No. 320, dated 11-1-1982, issued by the Board does not deviate from the provisions of law or in any manner override the provisions of section 167A.

 

 

Circular : No. 321 [F. No. 246/2/78-IT(A-II)], dated 15-1-1982.

Top of Form

Deductions from total income

SECTION 8O0C[`1] 1 l LIFE INSURANCE pREmiA, CONTRIBUTIONS TO PROVIDENT FUND, ETC. [SECTION 87 AS ORIGINALLY ENACTED/SECTION 80A BETWEEN 1-4-1965 to 31-3-1968]

488. Life insurance premium receipts annexed with income-tax return - Instructions regarding their return to assessees

The present procedure is that life insurance premium receipts which are produced by the assessees in support of their claim under section 80C are made a part of income-tax records. It has been suggested to the Board that policy-holders are frequently required by the LIC to show the original receipts towards proof of the payment of the premium. The question as to how to deal with the request for return of the life insurance premium receipts has been considered by the Board. It has been decided that wherever the assessees apply for return of life insurance premium receipts the same could be returned to them after recording a note (under the Income-tax Officer's signature with date) against the column provided for in the return claiming life insurance premium rebate, to the effect that "the claim has been verified with reference to the original receipts which have been returned to the assessee".

 

Circular : No. 322 [F. No. 186/47/81-IT(A-I)], dated 16-1-1982.

Top of Form

175. Requirement of investing funds of trust in modes specified in section 13(5) during previous year commencing on or after April 1, 1981 in terms of section 13(1)(d) - Whether, in cases where previous year is calendar year 1981, assessment year for invoking of section 13(1)(d) would be assessment year 1982-83 or 1983-84

1. Section 13(1)(d) provides that subject to the provision of section 13(1)(bb) a trust/institution for charitable or religious purposes will lose the exemption under section 11 for assessment year commencing from the assessment year 1982-83 if any funds of the trust or institution are invested or deposited or continue to remain invested or deposited for any period during any previous year commencing on or after April 1, 1981 in any of the forms or modes other than those specified in section 13(5). The Board has received references as to whether in cases where the previous year of the trust/institution is the calendar year 1981, the assessment year for invoking the provision of section 13(1)(d) would be the assessment year 1982-83 or 1983-84.

2. The Board desire to point out that if any previous year commences on or after April 1, 1981, the provision of section 13(1)(d) would be applicable from the very first assessment year relevant to the previous year beginning after April 1, 1981. However, where the previous year commences before April 1, 1981, the provision of section 13(1)(d) will not apply for the assessment year 1982-83 and the trust will not lose the exemption under section 11 merely by the application of section 13(1)(d). In such cases, renewal of recognition certificate under section 80G by the Commissioners would be in order. The Commissioner will, however, not be able to renew section 80G certificate where the previous year begins on or after April 1, 1981 and the trust has not complied with the provision of section 13(1)(d). This position will hold good for all previous years starting after April 1, 1981, irrespective of the assessment year involved.

3. The legal position may please be brought to the notice of all officers working in your charge particularly those assessing the cases of charitable and religious trusts.

 

Circular : No. 323 [F. No. 317/39/80-WT], dated 22-1-1982.

Top of Form

1370. Exemption of units under section 32(1)(ba) of Unit Trust of India Act[`2] 1 - Whether over and above and independent of exemption under clause (xxv) of sub-section (1)

1. A doubt has been raised in certain quarters as to the extent to which units of the Unit Trust of India are exempt for the purpose of wealth-tax assessment.

2. The exemption under clause (xxv) of sub-section (1) of section 5 is available subject to the limit of Rs. 1,50,000 laid down under sub-section (1A) of section 5 for the listed investments and also subject to the condition that the asset should have been owned by the assessee for a period of at least six months ending with the relevant valuation date as laid down in clause (b) of sub-section (3) of section 5.

3. The Unit Trust of India Act, as amended by the Trust Laws (Amendment) Act, 1975 and the Unit Trust of India (Amendment) Act, 1976 provides in clause (ba) of sub-section (1) of section 32 that notwithstanding anything contained in the Wealth-tax Act, wealth-tax will not be payable by an assessee, being an individual or a Hindu undivided family who is resident in India, in respect of, and there shall not be included in the net wealth of the assessee, units of the value not exceeding Rs. 25,000. Thus, the exemption under the aforesaid provision is not subject to the limitation and restriction provided under section 5(1A) or 5(3)(b).

4. In view of the position stated above, it is clarified that the exemption under section 32(1)(ba) of the Unit Trust of India Act, will be over and above and independent of the exemption provided under section 5(1)(xxv) read with sections 5(1A) and 5(3)(b).

 

Circular : No. 324 [F. No. 202/47/79-IT(A-II)], dated 3-2-1982.

Top of Form

254. Tea companies in whose cases only 40 per cent of income is liable to be taxed - Manner in which amount to be credited to investment allowance reserve account should be determined

1. Attention is invited to the provisions of section 32A, which provides for the grant of investment allowance in respect of new machinery and plant installed, inter alia, for the purpose of construction, manufacture or production of articles or things not included in Eleventh Schedule to the Income-tax Act. The allowance which is equal to 25 per cent of the cost of the machinery and plant is permissible in the year of installation or in the immediately succeeding year, if put to use in that year, if certain conditions are fulfilled. One such condition prescribed under section 32A(4)(ii) is that an amount equal to 75 per cent of the amount to be actually allowed as investment allowance is debited to the profit and loss account of the previous year in respect of which deduction is to be allowed, and credited to a reserve account.

2. A clarification has been sought from the Board regarding the manner in which the amount to be credited to the investment allowance reserve account should be determined in the case of tea companies in whose cases only 40 per cent of the income is liable to income-tax. A similar question was examined by the Board in the past with regard to the quantum of reserve to be created for the grant of development rebate in respect of new machinery and plant installed by tea companies. It was clarified by the Boards Circular Letter F. No. 1(8)-58-TPL, dated 1-11-1958 that in the case of a tea company, it would be sufficient compliance if the tea company created a reserve equal to 75 per cent of the amount of development rebate actually allowed in the assessment of the tea company.

3. Since the conditions regarding the creation of reserve for the grant of investment allowance under section 32A are identical to those prescribed with regard to the creation of reserve for claiming the grant of development rebate, it is clarified that the reserve required to be created for claiming investment allowance should be calculated at 75 per cent of the amount which is actually allowed by way of investment allowance, i.e., 75 per cent of 40 per cent of the investment allowance debited to the profit and loss account.

JUDICIAL ANALYSIS

Explained in - In CIT v. Suman Tea & Plywood Industries (P.) Ltd. [1993] 71 Taxman 622 (Cal.), it was observed that in CBDT Circular No. 27, dated 6-7-1955 as well as Circular No. 324, dated3-2-1982, it has been explained that in respect of tea companies investment allowance, development rebate, etc., are to be allowed only to the extent of 40 per cent of the amounts calculated at the prescribed rates.

 

Circular : No. 325 [F. No. 202/62/77-IT(A-II)], dated 3-2-1982.

 

Top of Form

SECTION 33A l DEVELOPMEnT ALLOWANCE[`3] *

280. Creation of reserve for claiming development allowance - Whether should be calculated at 75 per cent of 40 per cent of amount calculated on the basis of specified percentage of cost of planting tea bushes

1. Attention is invited to section 33A which provides for the grant of deduction by way of development allowance of a certain percentage of expenses incurred on planting of tea bushes on any land in India owned by an assessee who carries on business of growing and manufacturing tea. Sub-section (3) of section 33A stipulates certain conditions which must be fulfilled before the abovesaid deduction is allowed. One of the conditions is that a reserve of an amount equal to 75 per cent of the development allowance to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve amount to be utilised by the assessee during the period of eight years next following for the purpose of the business of the undertaking.

2. Clarifications have been sought from the Board regarding the manner in which the amount of reserve for claiming deduction on account of development allowance is to be calculated. In this connection, it is pointed out that provisions of law require that the reserve should be equal to 75 per cent of the development allowance actually to be allowed. It is argued that since only 40 per cent of the income of a tea company is chargeable to tax, the actual allowance on account of development allowance is only 40 per cent of the amount calculated on the basis of specified percentage of the cost of planting tea bushes.

3. A similar question had been examined with regard to the quantum of reserve to be created for claiming deduction on account of development rebate in the cases of tea companies. Vide Boards Circular Letter F. No. 1(8)-58-TPL, dated 1-11-1958, it was clarified that in the case of tea companies it would be sufficient compliance if the reserve created is equal to 75 per cent of the amount actually allowed as development rebate. Since the conditions regarding the creation of reserve for the grant of development allowance under section 33A are identical to those prescribed with regard to the creation of reserve for claiming deduction on account of development rebate, it is clarified that the reserve required to be created for claiming development allowance should be calculated at 75 per cent of the amount which is actually allowed by way of development allowance, i.e., 75 per cent of 40 per cent of the amount calculated on the basis of specified percentage of the cost of planting tea bushes.

 

Circular : No. 326 [F. No. 319/15/80-WT], dated 6-2-1982.

Top of Form

1388. Valuation of agricultural land comprised in tea, coffee, rubber and cardamom - Guidelines therefor

CLARIFICATION 1

1. Attention is invited to the Boards Circular No. 326, dated 6-2-1982 issued from File No. 319/15/80-WT [printed here as Clarification 3] on the above subject. In view of various practical difficulties in implementing this circular the Board makes the following broad guidelines for the valuation of lands comprised in coffee plantations in order to have some uniform procedure for speedy completion of the pending assessments as far as Karnataka charges are concerned.

2. The plantation land in the coffee plantations may be classified into the following three categories, namely :

  (a)  lands covered by plants which have started yielding;

  (b)  virgin land which is in the process of being developed and land covered by plants which have not started yielding;

  (c)  virgin land capable of being planted but which has not been planted and lands not falling in any of the above specified categories.

3. In valuing lands at 2(a) above, the value will be determined on the basis of yield per acre. As far as coffee plantations are concerned, the following yield/value pattern was considered reasonable:

Yield per acre in kg.

Valuation

 

Rs.

250 and below

5,000

251-350

6,000

351-450

7,000

451-550

9,000

551-650

11,000

651-750

13,000

751 and above

15,000

The average of six years production of the yielding area is to be arrived at on this basis. Where, however, six years data is not available, the average is to be worked out with reference to the number of years for which yield is available.

4. In respect of lands at 2(b) above, the value may be taken at Rs. 3,000 per acre with due consideration to peculiar factors in individual cases. With regard to value of lands at 2(c) above, no value need be taken as the value of such virgin lands may be negligible.

5. Regarding the stock of coffee, a value of the same may be separately determined on the basis of the average of the preceding three years dividends and added to the value of the land.

6. With regard to the other assets, such as land utilised for constructing roads, paths, farm houses, store houses, yards, buildings for processing, building for housing the coolies and the supervisory staff, etc., no separate addition need be made.

7. Pending wealth-tax assessments involving valuation of coffee plantations may be finalised on the above basis.

Circular : No. 357 [F. No. 319/9/83-WT], dated 26-5-1983.

Judicial analysis

Explained in - The above circular was commented upon in CWT v. Smt. Manorama Devi Birla [1993] 199 ITR 250 (Cal.), with the following observations :

So far as the question regarding the acceptance of the valuation on the basis of the circular is concerned, it is no doubt true that the circular is not binding on the assessee if it is not accepted by the assessee. The valuation can always be challenged by the assessee even if it is made on the basis of the circular unless it is consented to by the assessee. In this case, as we have indicated, the assessee asked the Wealth-tax Officer to accept the valuation made by the Registered Valuer. But since the Wealth-tax Officer was of the view that he was bound by the said circular, he did not consider the valuation report at all. It is not necessary for us to go into the question whether the circular is arbitrary or not. It is no doubt true that there has been linkage of the yield per acre and the valuation of the coffee estate. In our opinion, no valuation can be made in arithmetical precision. The circular purports to give a broad guideline as to how the valuation of coffee plantation has to be made. The Registered Valuer has also valued the plantation.... (p. 256)

CLARIFICATION 2

1. Circular No. 357 dated 26-3-1983 prescribing guidelines for valuation of land comprised in coffee plantation, was made applicable only to the Karnataka Charge.

2. The scope of this circular has since been reviewed and it is decided that the procedure laid down for the valuation of coffee plantations will apply in respect of coffee plantations all over country.

Circular: No. 608, dated 25-7-1991.

CLARIFICATION 3

1. Prior to the amendment made by the Finance Act, 1969, agricultural wealth was wholly exempt from wealth-tax. The Finance Act, 1969 extended the levy of wealth-tax to the value of agricultural property with effect from the assessment year 1970-71. The Finance (No. 2) Act, 1980 has excluded from the purview of wealth-tax, the value of agricultural property other than the value of agricultural land comprised in tea, coffee, rubber or cardamom plantations and trees standing on such plantations. This amendment has come into force with effect from 1-4-1981, and accordingly applies in relation to the assessment year 1981-82 and subsequent years. Therefore, agricultural lands comprised in tea, coffee, rubber and cardamom plantations are liable to wealth-tax from the assessment year 1970-71 onwards.[`4] 1

 

2. So far, no rules have been framed for the valuation of agricultural land or lands comprised in tea, coffee, rubber or cardamom plantations in particular. In order to have some uniform procedure for the valuation of agricultural land comprised in these plantations, the following broad guidelines have been laid down for the valuation of such lands.

3. The agricultural land in the specified plantations may be classified into the following three categories, namely :

  (a)  lands covered by plants which have started yielding;

  (b)  virgin land which is in the process of being developed and land covered by plants which have not started yielding;

  (c)  virgin land capable of being planted but which has not been planted and lands not falling in any of the specified categories.

4. The value of the lands at 3(a) above will be determined by employing the income capitalisation method. For this purpose, land utilised for constructing roads, paths, farm houses, store houses, yards, buildings for processing, buildings for housing the coolies and the supervisory staff will not be worked out separately, but will be deemed to be covered by the value of the land with reference to the yield.

The following procedure will be adopted :

1. The net annual income of the estate will be computed by taking the average of the aggregate gross income as per accounts for 6 years including the relevant accounting year as reduced by the average of aggregate expenditure for the same years.

2. If any expenditure for self-management is not debited to the accounts, the average aggregate expenditure will be increased by an amount equal to 5 per cent of the average of the gross income from the plantation as an allowance for self-management of the plantation.

3. In computing expenditure, the expenses will be allowed on commercial principles but will not include the following :

  (a)  interest on borrowals for preparation and development of the estate;

  (b)  provision for gratuity;

  (c)  expenses of personal nature;

  (d)  wealth-tax;

  (e)  depreciation on plant and machinery (excluding tools and implements);

   (f)  expenses of capital nature.

4. The net annual income as computed above will be reduced by an ad hoc deduction of 25 per cent of such net annual income.

5. The annual income as so arrived at will be capitalised by adopting a multiplier of 6.

5. The value of land at 3(b) above will be determined by adding the actual cost of the improvement to the market value of the virgin land.

6. The value of land at 3(c) above will be determined by the usual method of valuation, i.e., to ascertain the market value on the basis of what it would fetch if sold in the open market. While doing so, due regard may be given to the value of the land recommended by the Tea/Coffee/Rubber/Cardamom Board for the purpose of granting development loan relevant to the valuation date.

7. Pending wealth-tax assessments involving valuation of specified plantations may be finalised on the above basis.

Judicial analysis

ExplainEd in - The above circular was referred to in Smt. Aliamma Mani Chacko v. GTO [1983] 15 TTJ (Coch.) 428. The Tribunal observed :

2. The main ground of appeal in all these appeals that has been argued before us is regarding the valuation of the estate. It is urged that the value of Rs. 9,000 per acre estimated is not justified. It is submitted that the agricultural income was high only in one of the assessment years. It is also submitted that the assessee has only the leasehold rights and not Jenmom rights and, therefore, the value cannot be as high as Rs. 9,000 per acre. In the course of the hearing before us, the assessees representative pointed out a circular issued by the CBDT, viz., Circular No. 326 [F. No. 319/15/80WT dated 6-2-1982], wherein guidelines have been laid down for valuation of the agricultural lands. It is submitted that the lands in question come under the category (a) appearing in para 3 of the circular and, therefore, the valuation of the land should be made only in accordance with the guidelines given in para 4 of this circular. It is submitted that the value on this basis would be less than the value returned by the assessee.

3. The departmental representative pointed out that the valuation according to this circular which is only in respect of the wealth-tax assessments would be less than the value returned by the assessees here for gift-tax assessments. It is also submitted by the departmental representative that this circular issued for wealth-tax purposes may not be relevant for gift-tax assessments.

4. We consider that both for gift-tax and wealth-tax assessment proceedings it is the market value of the asset that has to be determined. The guidelines laid down in the circular referred to by the assessees representative are for the purpose of computation of the market value. Though the market value in respect of wealth-tax assessments, it cannot be said that this computation should not be taken for the purpose of gift-tax assessments. . . . (p. 429)

Explained in - CWT v. Smt. Suguna Mahendran [1994] 209 ITR 684 (Mad.). It was observed that circular was issued for the purpose of determining the value of the lands by following the income capitalisation method.

 

Circular : No. 327 [F. No. 200/54/81-IT(A-I)], dated 8-2-1982.

Top of Form

SECTION 80GG l PAYMENT OF RENT

540. Whether, for the purposes of computing deduction under the section, total income would be total income of assessee after allowing all deductions except deduction under this section

1. Section 80GG provides for grant of a deduction in respect of any expenditure incurred by an assessee in excess of 10 per cent of his total income towards payment of rent (by whatever name called), to the extent to which such excess expenditure does not exceed Rs. 300 p.m. or 15 per cent of the total income of the assessee for the year[`5] 1, whichever is less and subject to such other conditions as may be prescribed. Rule 11B of the Income-tax Rules prescribes the places in the country where the accommodation should be situated.

2. Two important conditions which should be satisfied before an assessee is entitled to deduction under section 80GG are :

   a.  the assessee should not be in receipt of any house rent allowance which may be entitled to exemption under section 10(13A); and

   b.  the assessee or his spouse or minor child or where the assessee is a member of a HUF, the HUF itself should not own any residential accommodation whatsoever.

3. The Explanation to section 80GG provides that the term total income should be taken to represent the assessees total income before allowing deduction for any expenditure under section 80GG itself.

4. The Board has been receiving a large number of references on the true meaning of the Explanation. In order to arrive at the base of the total income with reference to which the amount of admissible deduction is to be calculated, it is clarified that the total income would be the total income of the assessee after allowing all deductions except the one provided under section 80GG itself. To illustrate, if an assessee is a salaried employee, the total income for the purposes of section 80GG will be arrived at after allowing the standard deduction under section 16(i) and the deduction under section 80G, etc.

 

Circular : No. 328

 

Section 37 l Valuation of shares in private company

1543. Valuation of equity shares in a private limited company where alienation of shares is restricted - Guidelines therefor

Clarification 1

1. Section 37 deals with valuation of shares in a private company where alienation of shares is restricted. The section reads as under :

Where the articles of association of a private company contain restrictive provisions as to the alienation of shares, the value of the shares, if not ascertainable by reference to the value of the total assets of the company, shall be estimated to be what they would fetch if they could be sold in the open market on the terms of the purchaser being entitled to be registered as holder subject to the articles, but the fact that a special buyer would for his own special reasons give a higher price than the price in the open market shall be disregarded.

The Board in their letters dated 3-5-1965 and 5-7-1965 issued from F. No. 25A/3/65-ED [printed here as Clarifications 2 & 3] clarified the scope of this section. Briefly, the clarification runs as follows :

Section 37, which governs the mode of valuation of shares in a private limited company whose articles of association contain restrictive provisions as to the alienation of its shares, contemplates :

  (a) firstly, it should be seen whether the value of shares is ascertainable by reference to the value of the total assets of the company; and

  (b) if it is not so ascertainable, then it shall be estimated to be what it would fetch if sold in the open market on the terms of the purchaser being entitled to be registered as holder subject to the articles, disregarding any special price that might be paid by a special buyer.

If clause (a) applies the value of shares should be determined by break-up method taking the market value of the assets of the company and not the book value, if that does not happen to be their market value. If clause (b) applies then the Assessing Officer need not necessarily adopt the break-up method but may also adopt some other method of valuation based on the yield or profits, etc.

2. These instructions appeared to have been impliedly modified by Circular No. 1-D/ED of 1968 which extended the method of valuation prescribed by the Wealth-tax Rules to valuation of shares for purposes of the Estate Duty Act. On a reference from the Revenue Audit, the Board, after consultation with the Ministry of Law on the scope of section 37, issued Instruction No. 771 dated 29-10-1974 directing that contents of Circular No. 1-D/ED of 1968, dated 26-3-1968 will not apply to valuation of shares covered by section 37 but that the valuation of such shares will be governed by the Boards earlier letters dated 3-5-1965 and 5-7-1965 issued from F. No. 25A/3/65-ED [Clarifications 2 and 3]. Thus, the expression value of the total assets of the company in section 37 would mean market value of the assets and not the book value of the assets; further, the expression total assets of the company would include goodwill also, whether or not shown as such in the balance sheet.

3. An allied issue is valuation of shares in a case where two or more private companies hold shares of each other and valuation of such shares to be made by the break-up method. The Board are of the view that in such cases the value of the shares can be determined by framing and solving simple equations.

Instruction : No. 835 [F. No. 313/88/74-ED], dated 24-5-1975 [Source : 178th Report (1983-84) of the Public Accounts Committee, pp. 54-55].

Clarification 2

1. Attention is invited to the instructions on the valuation of shares, not quoted on the stock exchange, detailed in paragraph 1(c) of the Boards Circular No. 3-WT of 1957, dated 28-9-1957. According to these instructions, the value of such shares is to be determined on the basis of the value of assets, i.e., break-up value. The method of valuation of shares in the cases of investment companies for the purposes of Wealth-tax Act has been explained in Boards Circular No. 6-D(WT) of 1960, dated 8-8-1960.

12. Under the Estate Duty Act, section 37 governs the mode of valuation of shares in a private limited company where alienation is restricted. The Board desire that uniform practice should be followed by the officers on the estate duty side in this matter. In this connection, the Board would like to point out that for purposes of valuation of unquoted shares under section 37, the value to be taken into consideration should be based on the break-up value by taking the market value of the assets of the company and not the book value if that does not happen to be their market value.

Instruction : No. 25A/3/65-ED, dated 3-5-1965 [Source : 178th Report (1983-84) of the PAC].

Clarification 3

1. Section 37, which governs the mode of valuation of shares in a private limited company whose articles of association contain restrictive provisions as to the alienation of its shares contemplates :

  (a) firstly, it should be seen whether the value of shares is ascertainable by reference to the value of the total assets of the company; and

  (b) if it is not so ascertainable, then it shall be estimated to be what it would fetch if sold in the open market on the terms of the purchaser being entitled to be registered as holder subject to the articles, disregarding any special price that might be paid by a special buyer.

2. The instructions issued by the Board in their circular letter referred to in para 1 above were only with regard to the first part contemplated by section 37. They do not and were not intended to restrict the application of the second part of section 37 for which purpose it would be open to the Assessing Officer to adopt some other method of valuation based on the yield of profits, etc.

Instruction : No. 25A/3/65-ED, dated 5-7-1965.

 

 

Circular : No. 329 [F. No. 178/53/80-IT(A-I)], dated 22-2-1982.

SECTION 80J l PROFITS AND GAINS FROM NEWLYESTABLISHED UNDERTAKINGS

574. Undertakings engaged in extraction of timber and other forest produce by leasing out forests - Whether eligible for deduction under the section

1. A reference was made to the Board as to whether undertakings engaged in extraction of timber and other forest produce by leasing out forests would be entitled to deductions under sections 80HH and 80J.

2. The matter was considered by the Board in consultation with the Ministry of Law which had given an opinion [Annex] that the answer to the question posed would depend on the nature of the activity of the forest lessees; however, if the process involved is not merely conversion of standing trees into fire-wood but also manufacture of new saleable commodities, the benefit of deduction under sections 80J and 80HH would be available.

ANNEX - OPINiON OF MINISTRY OF LAW REFERRED TO IN CLARIFICATION

1. We have gone through the order passed by the Income-tax Appellate Tribunal on21-10-1981 in the appeal filed by the forest lessees of Jammu and Kashmir. Before the Tribunal, the assessee advanced arguments on the basis of a letter written by the Minister of State for Finance to a Member of Parliament wherein it is stated that if the process involved in the business of the members of the Jammu Forest Lessees Association is not merely conversion of standing trees into firewood but also manufacture of new commodity saleable as such, the benefit of section 80J/80HH of the Income-tax Act, 1961, will be available.

2. The Tribunal observed that it cannot be held that the assessee is manufacturing any new commodity as such.

3. If the process involved is merely conversion of standing trees into firewood or similar articles, it cannot be said that a new commodity saleable as such has come into existence. As pointed out in our previous opinion dated 25-11-1974, the transformation of wood into sleepers could be considered to be a change in the sense of a manufacture, since a new commodity saleable as such, namely, sleepers, is brought into existence by such process.

4. In other words, it is not merely the cuttings of trees and selling of firewood that would amount to manufacture. The process should involve the making of a different commodity having distinctive name, character or use. In the case of trees, the making of sleepers would amount to such a process as would amount to manufacture.

5. The result is that to the extent the Jammu forest lessees convert standing trees into sleepers, they would be entitled to the benefit of section 80J/80HH of the Income-tax Act.

judicial Analysis

Explained in - The above circular was considered in B.S. Bajaj & Sons v. CIT [1996] 222 ITR 418 (Punj. & Har.), and the court observed :

. . .Circular No. 329, dated February 22, 1982, issued by the Board does not override the provisions of the Act. It is clarificatory in nature. It is a benevolent circular issued in favour of the assessee providing administrative relief and says that if the process involved is not merely conversion of standing trees into firewood but also manufacture of new saleable commodities, the benefit of deduction under sections 80J and 80HH would be available. We have already held that even if the case of the assessee does not fall within the definition of the word manufacture, it certainly falls within the ambit and scope of the word produces an article. This circular is clarificatory in nature extending benefit to the assessee in consonance with the provisions of the Act and does not run counter to the same. In view of these findings, we need not examine the larger issue as to when the circular deviates from the provisions of the Act providing administrative relief to an assessee, has to be given effect to or not? Circular No. 329, dated February 22, 1982, issued by the Central Board of Direct Taxes reinforces the view taken by us and the assessee would be entitled to take benefit of the same. (pp. 431-432)

Explained in - The above circular was explained in Keshablal Hansraj Patel v. WTO [1985] 23 TTJ (Cal. - Trib.) 361, as follows :

It is clear that the Circular issued says that mere conversion of standing trees into firewood will not amount to manufacture. The circular is not concerned with the meaning of processing of goods as it refers to sections 80J and 80HH only. But this circular indirectly helps the case of the assessee because the assessee was not engaged merely in producing firewood and the case of the assessee was not that the firm, in which he was a partner, was a manufacturer . . . . (p. 363)

Explained in - B.S. Bajaj & Sons v. CIT [1996] 222 ITR 418 (Punj. & Har.) with the following observation :

Circular No. 329, dated February 22, 1982, issued by the Board does not override the provisions of the Act. It is clarificatory in nature. It is a benevolent circular issued in favour of the assessee providing administrative relief and says that if the process involved is not merely conversion of standing trees into firewood but also manufacture of new saleable commodities, the benefit of deduction under sections 80J and 80HH would be available.

 

Circular : No. 330

Section 6 l Property within disposing capacity

1517. Death grants given by Indian Air Force Benevolent Association to members of family of officer/airman - Whether form part of estate liable to estate duty

1. Clause 2(a) of the Memorandum of Association of the Indian Air Force Benevolent Association makes the following as one of the objects of the Association :

To relieve hardship or distress among all past and present ranks of the Indian Air Force and their dependants, especially those disabled by flying, provided that the past personnel and/or their dependants are domiciled in India.

2. It appears that under this clause certain grants known as death grants are given by the IAF Benevolent Association to the members of the family of an officer/airman of the Indian Air Force who dies whilst in service; that these grants are discretionary in nature that they accrue only in the event of death of an officer/airman whilst in service and not during his lifetime; and that these are made with a view to relieving hardship or distress to the dependants of the deceased officer/airman. Hence, claim to duty does not lie under any of the provisions of the Estate Duty Act. The death grants that could be received under the above clause from the IAF Benevolent Association do not form part of the estate of the deceased.

3. No attempt should, therefore, be made to levy estate duty in respect of death grants received by the widows and/or dependants of the Air Force personnel under the abovementioned clause.

Circular : No. 3, dated 11-5-1967.

Circular : No. 331 [F. No. 174/102/79-IT(A-I)], dated 22-3-1982.

 

section 89 l RELIEF WHEN SALARY ETC., IS
PAID IN ARREARS OR IN ADVANCE

623. Scope of relief under the section in five situations explained

1. Section 89(1) authorises grant of relief in a case where an employee receives salary in arrears or in advance or has received in any financial year salary for more than twelve months, a payment which under the provisions of section 17(3)(ii) is a profit in lieu of salary. The effect of such increase is that the income will be assessed at a higher rate than it otherwise would have been assessed and it is for this reason that section 89(1) authorises relief to be allowed. The relief is to be allowed in terms of rule 21A of the Income-tax Rules, 1962.

2. Rule 21A(1) enumerates the following five different situations wherein the assessees will be entitled to relief (four of these are specific situations while the fifth is a residuary one) :

   a.  salary being received in arrears or advance;

   b.  where the payment is in the nature of gratuity in respect of past services extending over a period of not less than five years is received;

   c.  where the payment is in the nature of compensation received by the employee from his employer or former employer at or in connection with termination of his employment after continuous service of not less than three years and where the unexpired portion of the term of employment is also not less than three years;

   d.  where the payment is in the nature of commutation of pension;

   e.  where the payment is not covered by the description given in (a) to (d) above.

The relief is to be worked out in the first four situations in accordance with the specific modes described in rule 21A (2)(a) to (d).

3. The authority to grant relief in the four specific cases is the Income-tax Officer assessing the employee. In the residuary case, it is Central Board of Direct Taxes.

4. The relief under section 89(1) is to be given in the assessment in which the extra payment by way of arrears, advance, etc., is taxed. The mode of granting relief spelt out in rule 21A(2) to 21A(5) would show that in all the four different cases the exercise of giving relief is initiated by bringing to tax the whole of the extra amount in the assessment for the assessment year relevant to the year of receipt. Basically, the relief under section 89(1) is arithmetical. It involves finding out of two rates of tax. The first is the rate of tax applicable to the total income including the extra amount in the year of receipt. The second is finding out the rate by adding the arrears to the total income of the years to which they relate. For this purpose the assessee should be asked for a true and authentic statement of the total income of the earlier years to which the arrears pertain There is no warrant for issuing a notice under section 148 or calling for returns of income of the earlier years.

 

Circular : No. 332A [F. No. 326/2/80-WT], dated 31-3-1982.

1389. Valuation of unquoted equity shares of investment companies, holding companies, etc. - Guidelines therefor

CLARIFICATION 1

1. Reference is invited to : (i) the Boards Circular No. 2 (WT) of 1967, dated 31-10-1967 [Clarification 3] for valuation of unquoted equity shares (a) of investment companies other than those which are substantially holding companies; and (b) of investment companies which are substantially holding companies; and (ii) the Boards Circular No. 118, dated 15-9-1973 [printed here as Clarification 2] (in partial modification of circular dated 31-10-1967) for valuation of unquoted equity shares of investment companies which have wholly-owned subsidiaries.

2. The question of valuation of unquoted equity shares of investment companies has been re-examined in the light of the Supreme Courts decision in the case of CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38. The Boards Circulars dated 31-10-1967 and 15-9-1973, therefore, stand modified as set out in the succeeding paragraphs.

3. In the light of the above-quoted Supreme Courts decision as also its earlier decision in CWT v. Mahadeo Jalan [1972] 86 ITR 621, the following guidelines are issued for the valuation of unquoted equity shares of investment companies referred to in paragraph 1 above.

1. The principle of combination of the two methods, i.e., the average of

  (a)  the break-up value of shares based on the book value of the assets and liabilities disclosed in the balance sheet; and

  (b)  the capitalised value arrived at by applying certain rate of yield of the maintainable profits,

has to be discarded.

2. In the case of a company which is a going concern and whose shares are not quoted on the stock exchange, the profits which the company has been making and should be capable of making or, in other words, the profit-earning capacity of the company would ordinarily determine the value of its shares.

3. In the case of a company which is ripe for winding up or if the situation is such that the fluctuations of profits and uncertainty of conditions on the date of valuation prevent any reasonable estimation of the profit-earning capacity of the company, the break-up value method will have to be adopted. The later decision of the Supreme Court also refers to its observations in the case of Mahadeo Jalan (supra) as under :

....The yield method is the generally applicable method while the break-up method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation.... (p. 634)

4. The question of application of the break-up value method will depend upon the facts and circumstances of the case. One of the cases of exceptional circumstances referred to in (3) above can be where the assets of the company comprise wholly or mainly of jewellery, precious stones, etc., and the company carries on business of hiring out such assets. In such a case if the income from hiring out of jewellery, gold ornaments, etc., is exceptionally low as compared to the normal return expected of these assets, the break-up value method would be more appropriate.

4. For the purpose of para 3(2) above, the following adjustments may be made for working out the maintainable profits :

1. The book profits of the company for the five years immediately preceding the valuation date will be ascertained.

2. Adjustments will be made to the book profits for each of the said five years for all non-recurring and extraordinary items of income and expenditure and losses.

3. Adjustments will be made for expenditure which is not of a revenue nature and is debited in the accounts and for receipts which are revenue receipts and are not accounted for in the profit and loss account.

4. The development rebate/investment allowance, in case it is debited in the books of account, will be added back.

5. The appropriate tax liability of the company on the book profits so determined will be deducted.

6. The profits required for paying dividends on shares with prior rights, i.e., preference shares, shall be excluded.

7. The average of the companys book profits, as adjusted above, will be determined. The rate of capitalisation may be taken at 10 per cent of the maintainable profits of the company in the case of investment companies other than those which derive the major part of their income from house property and 8.5 per cent in the case of investment companies which derive the major part of their income from house property.

5. In the case of unquoted equity shares of investment companies which are substantially but not wholly holding companies, the fair market of the shares will be determined by adding a premium of 10 per cent to the value of shares arrived at on the basis as set out in the preceding paragraph.

6. The valuation of unquoted equity shares of an investment company which has a wholly-owned subsidiary should be worked out on the basis that the parent investment company and wholly-owned subsidiary or subsidiaries were, in fact, one single company, on the same lines as laid down in circular dated 15-9-1973. The rates of yield to be applied would be 10 per cent and 8.5 per cent as mentioned in para 4 above.

7. The above may please be brought to the notice of all the Assessing Officers in your charge. These instructions will apply to all pending assessments and will hold the ground until rules for the valuation of above shares, which are under consideration of the Board, come into force.

Judicial analysis

Explained in - In Brij Mohan Thapar v. CWT [1993] 71 Taxman 167 (Cal.), it was observed that the features that the circular present are :

(i) The working of maintainable profit is to start with the book profits of the company.

(ii) The adjustments to be made in terms of the said circular are exhaustive. The para uses the expression following adjustments. The word following is significant. It clearly spells out that anything not mentioned in the said enumeration cannot be a subject-matter of adjustment by way of exclusion or inclusion.

From this, it is quite obvious that maintainable profits should represent commercial profits.

For the purpose of the valuation of unquoted shares of an investment company, in accordance with the Central Board of Direct Taxes Circular No. 332A, dated March 31, 1982, the net maintainable profits should be arrived at after deducting the provisions for pension and gratuity which had been valued actuarially.

Further the circular directly does not provide any answer whether the provision for doubtful debts should be deducted. Thus far, it is however, clear that the maintainable profit for the purpose of valuation was not the taxable profit.

Explained in - In CIT v. Karan Thapar [1997] 223 ITR 531 (Cal.) it was observed that the valuation date under the Wealth-tax Act, 1957, in relation to any year means the last day of the previous year as defined in section 3 of the Income-tax Act, 1961. Therefore, the year cannot be taken as completed on the valuation date and thus, where a reference is made to any year immediately preceding the valuation date, it is to be taken as a completed year. Therefore, while interpreting paragraph 4(i) of the circular dated March 31, 1982, of the Central Board of Direct Taxes, for purposes of computing the average book profits of a company in which the assessee holds shares, the profits of the year pertaining to the valuation date has to be necessarily excluded in the computation of the book profits of five years immediately preceding the valuation date.

CLARIFICATION 2

1. Reference is invited to the instructions contained in the Boards Circular No. 2 (WT) of 1967, dated 31-10-1967 [printed here as Clarification 3] regarding valuation of unquoted equity shares of investment companies, holding companies and managing agency companies.

2. In partial modification of the above circular, the directions and instructions of the Board with regard to the valuation of unquoted equity shares of investment companies which have wholly-owned subsidiaries (i.e., investment companies having one or more companies which are itself 100 per cent subsidiaries), are as follows :

1. In arriving at the estimated price which a share of such company would fetch if sold in open market on the relevant valuation date, its asset backing must be carefully computed in accordance with well settled principles, in other words, the valuation should take into account the complete enterprise (consisting of the parent investment company and its wholly-owned subsidiary or subsidiaries) as if they were only one company. In arriving at such computation the reserves of the subsidiary company must necessarily be taken into account.

2. Applying the above principles :

   (i)  The value of a share of the parent investment company would have first to be determined on the basis that the parent investment company and its wholly-owned subsidiary or subsidiaries were in fact one single company. This should be done by assimilating and consolidating the balance sheets of the subsidiary companies with the balance sheet of the parent investment company. Care must be taken to ensure that in such assimilation and consolidation, the inter-company balances are correctly adjusted.

  (ii)  Maintainable profits would have to be aggregated in respect of the parent investment company and its wholly-owned subsidiary or subsidiaries. The capitalised value should then be arrived at by applying a rate of yield of 9 per cent to the aggregated maintainable profits. The method of calculation of maintainable profits in respect of the parent investment company and its wholly-owned subsidiary or subsidiaries should be in accordance with the Boards Circular No. 2 (WT) of 1967, i.e., they should be determined separately in accordance with the said circular and then aggregated.

(iii)  The average of the values arrived at under (i) and (ii) above would determine the price which the share of the parent investment company would fetch if sold in the open market on the relevant valuation date.

3. It is clarified that para 3 of Circular No. 2 (WT) of 1967 [Clarification 3] will not apply in cases of valuation of shares of a parent investment company which has a wholly-owned subsidiary.

4. The above instructions, which are to be read in partial modification of Circular No. 2 (WT) of 1967 are to be followed and implemented in all matters with immediate effect including pending proceedings.

Circular : No. 118 [F. No. 319/16/73-WT], dated 15-9-1973.

CLARIFICATION 3

1. The method of valuation of unquoted equity shares of (i) investment companies, and (ii) holding companies has since been further examined and the following instructions regarding the valuation of unquoted equity shares of (i) investment companies, (ii) holding companies, and (iii) managing agency companies are issued in supersession of all the earlier instructions for the guidance of the Wealth-tax Officers.

2. Unquoted equity shares of investment companies other than those which are substantially holding companies - An investment company has been defined in rule 1A(g) of the Wealth-tax Rules, 1957, as a company whose total income consists mainly of income which, if it had been the income of an individual would be regarded as unearned income. Unearned income means all incomes other than earned income as defined in the Finance Act of the relevant year. Although the definition of investment company would not cover a banking/insurance company, but to avoid all doubts in the matter, it is clarified that banking and insurance companies will not be treated as investment companies. Their shares will be valued under rule 1D of the Wealth-tax Rules, 1957.

The average of (a) the break-up value of the shares bases on the book value of the assets and liabilities disclosed in the balance-sheet, and (b) the capitalised value arrived at by applying a rate of yield of 9 per cent of its maintainable profits will be taken to represent the fair market value of the shares of an investment company. Maintainable profits of a company should be calculated as under :

1. The book profits of the company for the five years immediately preceding the valuation date will be ascertained.

2. Adjustments will be made to the book profits of each of the said five years for all non-recurring and extraordinary items of income and expenditure and losses.

3. Adjustments will be made for expenditure which is not of a revenue nature and is debited in the accounts and for receipts which are revenue receipts and are not accounted for in the profit and loss account.

4. The development rebate, in case it is debited in the books of account, will be added back.

5. The appropriate tax liability of the company on the book profits so determined will be deducted.

6. The profits required for paying dividends on shares with prior rights, i.e., preference shares, shall be excluded.

7. The average of the companys book profits, as adjusted above, will be determined.

The maintainable profits thus arrived at will be capitalised, as stated above, by adopting 9 per cent rate of capitalisation.

3. Unquoted equity shares of investment companies which are substantially holding companies - An investment company whose assets to the extent of 50 per cent or more consist of shares in companies controlled by it, will be treated as a holding company. The fair market value of the shares of an investment company, which is also a holding company, will be determined by adding a premium of 10 per cent to the value of the shares arrived at on the basis set out in the preceding paragraph.

4. Unquoted equity shares of managing agency companies - A managing agency company has been defined in rule 1A(h) of the Wealth-tax Rules, 1957, as a company the entire income of which or any part thereof is derived by way of managing agency. In the case of companies whose income consists wholly or partly of managing agency commission, the higher of the value arrived at according to (a) the break-up value method based on the book value of assets and liabilities disclosed in the balance-sheet, and (b) capitalisation of income method is to be adopted as the fair market value of the shares. The capitalised value of managing agency commission income and non-commission income will be determined separately in the following manner :

The capitalised value of the managing agency commission will be taken as the present (that is, discounted) worth of the net income from this source for the unexpired term of the managing agency. From the maintainable managing agency commission (determined on the lines stated in para 2 above), the proportionate tax liability will be deducted and the net commission for the unexpired term of managing agency will be calculated. The present worth of this income will be determined with reference to a compound interest rate of 6 per cent per annum.

The maintainable non-commission income (determined on the lines stated in para 2 above) will be capitalised at 10 per cent of capitalisation. The aggregate of the capitalised value of non-commission income and the present worth of the net managing agency income will give the total value of the shares of the company. The value per share will be arrived at by dividing the total capitalised value by the number of shares.

Illustration

XYZ Ltd. is a managing agency company. Its capital consists of 1,000 shares of Rs. 1,000 each. The unexpired life of the managing agency is four years, commission income is Rs. 1 lakh and net non-commission income is Rs. 2 lakhs. Ascertain the value of the share according to capitalised value method.

 

Rs.

Maintainable commission income less expenses

1,00,000

Tax at 65%

65,000

Net maintainable managing agency commission

35,000

The unexpired life of the managing agency on the valuation date is 4 years

 

Present discounted value of Re. 1 per annum of managing agency @ 6% for 4 years

3,465

Capitalised value of the managing agency income 35,000 3,465

1,21,275(a)

Maintainable non-commission income less expenses

2,00,000

Less : Tax at 65%

1,30,000

Net maintainable non-commission income at 10% rate of capitalisation

7,00,000(b)

Total capitalised value of all the 1,000 shares (a + b)

8,21,275

Value of each share

8,21,275

 

The value determined above will be compared with the break-up value and the higher of the two will be adopted as the market value.

TABLE GIVING THE PRESENT WORTH OF RE. 1 @ 6%
RATE OF INTEREST FOR YEARS 1 TO 20
PRESENT VALUE OF RE. 1 PER ANNUM AT 6% INTEREST

 

Years

6% compound interest

Years

6% compound interest

 

1

0.943

11

7.887

 

2

1.833

12

8.384

 

3

2.673

13

8.853

 

4

3.465

14

9.295

 

5

4.212

15

9.712

 

6

4.917

16

10.106

 

7

5.582

17

10.477

 

8

6.210

18

10.828

 

9

6.802

19

11.158

 

10

7.360

20

11.470

Circular : No. 2 (WT) of 1967, dated 31-10-1967.

Judicial analysis

explained in - The above two circulars dated 15-9-1973 and 31-10-1967 were relied on in A. Sivasailam v. CWT [1997] 228 ITR 322 (Mad.), with the following observations:

. . . There is no dispute that the unquoted equity shares have to be valued in terms of the Boards Circular Nos. 2(WT) of 1967, dated October 31, 1967, and 118, dated September 15, 1973. In working out the value of the shares in terms of the circulars, there are two points on which there was difference between the assessee and the Wealth-tax Officer. As pointed out, both sides want Circular No. 2 (WT) of 1967, dated October 31, 1967, as modified by Circular No. 118 dated September 15, 1973, to be followed. These circulars require the value to be worked out by adding 10 per cent as premium to the average of (a) the break-up value of the shares based on the book value of the assets and liabilities disclosed in the balance-sheet, and (b) the capitalised value arrived at by applying a rate of yield of nine per cent of its maintainable profits. It was this resultant value that had to be taken as representing the fair market value of the shares of an investment company, which are substantially holding companies. The Tribunal agreed with the Department that they have to limit their consideration to the assets and liabilities disclosed and that the book value alone has to be reckoned, but the Tribunal was not prepared to accept the view that the mention of the liabilities as a note in the profit and loss account or a mention in the directors report has to be ignored. According to the Tribunal, the directors report is an integral part of the final accounts and so is the profit and loss account. It is more so in the case of a company incorporated under the Indian Companies Act. The Tribunal pointed out that the balance-sheet, the profit and loss account and the directors report always go together. According to the Tribunal, a prudent or an average investor would ask for all the three even if he were supplied only with the bare balance-sheet. Therefore, the Tribunal considered that the directors report and the profit and loss account as necessary adjuncts and, therefore, part of the balance-sheet in a more comprehensive and commercial sense. Therefore, the Tribunal held that the liabilities mentioned therein cannot be ignored. (p. 333)

. . . The correct picture of the creditworthiness of the company and the intrinsic value of the share can be seen only by seeing all the three abovesaid documents. By seeing merely the balance-sheet alone, one cannot vouchsafe the creditworthiness of the company and the approximate intrinsic value of the share. Considering all these aspects on the accountancy principles, we accept the finding of the Tribunal for the last two years that mentioning of the provisional estate duty liability in the directors report and the profit and loss account of the company can be taken as the liability as disclosed in the balance-sheet as per the abovesaid two circulars issued by the Board. (p. 336)

. . . in the present case, we are bound to ascertain the value of the unquoted equity shares as per the two circulars mentioned above. In the abovesaid circulars it is clearly stated that unless the liability is shown in the balance-sheet, it cannot be allowed as a deduction. In the present case, whatever might be the quantum of liability, there was no mention about the liability in the balance-sheet for the first year and only the provisional demand of estate duty was mentioned in the directors report and in the profit and loss account in the last two years. Therefore, in the present case, there is no possibility for allowing the entire estate duty liability determined much later after the valuation date in the wealth-tax assessment. . . . (p. 337)

u The above circulars were also referred to in Smt. Kalyani Sundaram v. IAC [1991] 37 ITD 76 (Mad.).

 

Circular : No. 333 [F. No. 506/42/81-FTD] dated 2-4-1982[`6] 2.

Top of Form

Double Taxation Relief & Transfer Pricing

SECTION 90 l AGREEMENT wiTH FoREiGN countries
[CORRESPONDING TO SECTION 40A OF THE 1922 ACT[`7] 1]

627. Specific provisions made in double taxation avoidance agreement -Whether it would prevail over general provisions contained in Income-tax Act

1. It has come to the notice of the Board that sometimes effect to the provisions of double taxation avoidance agreement is not given by the Assessing Officers when they find that the provisions of the agreement are not in conformity with the provisions of the Income-tax Act, 1961.

2. The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions contained in the Income-tax Act. In fact that the double taxation avoidance agreements which have been entered into by the Central Government under section 90 of the Income-tax Act, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective countries except where provisions to the contrary have been made in the agreement.

3. Thus, where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act, that will govern the taxation of income.

Judicial analysis

Explained in - The above circular was explained in ITO v. Degremont International [1985] 11 ITD 564 (Jp. - Trib.) with the following observations :

4. The ITO has assumed that the provisions of section 44C override the provisions of the articles in the Agreement. This assumption is contrary to a circular issued by the CBDT, i.e., Circular No. 333.

Now, it will be seen from the above that the ITO have been directed to compute the income according to the Agreement unless the Agreement clearly provides otherwise. The provisions of the Agreement will override the provisions of the Act. (p. 567)

Explained in - The above circular was explained in Elkem Spigerverket v. ITO [1988] 32 TTJ (Cal. - Trib.) 5, with the following observations :

. . . Circular No. 333 dated 2nd April, 1982 issued by the CBDT (see Taxmanns Direct Taxes Circular Vol. I, page 584) has clarified the legal position by saying that where a specific provision is made in the Double Taxation Avoidance Agreement that provision will prevail over the general provisions contained in the Income-tax Act. It further says that where a Double Taxation Avoidance Agreement provided for a particular mode of computation of income, the same should be followed, irrespective of the provisions of the Income-tax Act. Thus, even according to the aforesaid Circular, the provisions of the DTA Agreement will prevail over the general provisions contained in the Income-tax Act, 1961. . . (p. 10)

Explained in - The above circular was referred to in DCM Ltd. v. ITO [1989] Taxation 92(4)-16(Delhi - Trib.). The Tribunal observed :

6. The double taxation avoidance agreements are referable to sections 90 & 91. Where a specific provision is made in the double taxation avoidance agreement, that provision prevails over the general provisions contained in the Income-tax Act. The laws in force in either country continue to govern the assessment and taxation of the income in the respective countries except where provisions to the contrary have been made in the agreement. This position is not under dispute before us and was also clarified vide Circular No. 333, dated 2-4-1982. . . (pp. 19-20)

Explained in - The above circular was explained in CIT v. Davy Ashmore Ltd. [1991] 190 ITR 626 (Chd.), as follows:

In our view, the Circular reflected the correct legal position inasmuch as the Convention or Agreement is arrived at by the two contracting Governments in deviation from the general principles of taxation applicable to the Contracting States; otherwise, the double taxation avoidance agreement will have no meaning at all. (p. 632)

Explained in - The above circular was explained in Banque National De Paris v. IAC [1991] 94 CTR (Bom. - Trib.) 57, as follows :

4. We have heard the parties and considered their rival submissions. As a matter of principle, we agree with the learned counsel for the assessee that the provisions of DTAA would prevail over the provisions of the Income-tax Act, in view of the Boards Circular (supra) as also the judgment of the Andhra Pradesh High Court in 144 ITR 146 (supra). But that is when there is a conflict between the two; otherwise the assessments would be governed by the provisions of the respective laws of the country. . . (p. 60)

Explained in - The above circular was explained in CIT v. R.M. Muthiah [1993] 202 ITR 508 (Kar.) as follows:

The effect of an agreement entered into by virtue of section 90 of the Act would be : (i) If no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. No provision of the agreement can possibly fasten a tax liability where the liability is not imposed by this Act ; (ii) if a tax liability is imposed by this Act, the agreement may be resorted to for negativing or reducing it; (iii) in case of difference between the provisions of the Act and of the agreement, the provisions of the agreement prevail over the provisions of this Act and can be enforced by the appellate authorities and the court. To the same effect is the circular issued by the Central Board of Direct Taxes as per Circular No. 333, dated April 2, 1982... (pp. 512-513)

Explained in - The above circular was explained and applied in Agencia Geral (P.) Ltd. v. First ITO [1993] 45 ITD 243 (Pune - Trib.), as follows :

7. Para 3 of the above circular clearly clarifies that a particular mode of computation of income which for that matter includes the particular rate of tax payable on such computation of income should be followed irrespective of the provisions in the Income-tax Act. Therefore, it is clear that the provisions of Double Taxation Avoidance Agreement entered into with the Government of Singapore would prevail over the relevant provisions of the Income-tax Act, 1961. Consequently, the ITO ought to have applied the provisions of Double Taxation Avoidance Agreement, especially Article 9 thereof and ought to have subjected the relevant income at 50 per cent of the prescribed rate of tax. This position emerges from the consideration of all the relevant provisions of the Income-tax Act and Double Taxation Avoidance Agreement. (pp. 247-248)

Explained in - The above circular was explained in CIT v. VR.S.R.M. Firm [1994] 208 ITR 400 (Mad.), as follows :

Tax treaties are for that matter considered to be mini legislations containing themselves all the relevant aspects or features which are at variance with the general taxation laws of the respective countries. Such variations are in some cases in addition to the existing local tax laws and in other cases in lieu thereof. That being the legal position, the exposition of the said position also by the Central Board of Direct Taxes in their Circular No. 333, dated April 2, 1982, assumes significance and importance inasmuch as they can also be traceable to the powers of the Board under section 119 of the Act. Consequently, wherever the double taxation avoidance agreement provides for a particular mode of computation of income, the said method alone is required to be followed, irrespective of the provisions of the Income-tax Act, and it is only where there is no specific provision in the agreement to the contrary the basic tax law in force in the country will get attracted and govern the taxation of such income... (p. 420)

Explained in - The above circular was explained in CIT v. Hindustan Paper Corpn. Ltd. [1994] 77 Taxman 450 (Cal.), as follows :

. . . It is by now well-settled that wherever there is a conflict between a DTA and the specific provisions contained in the Income-tax Act, the provisions of DTA will prevail over the statutory provisions contained in the said Act. In this connection reference may be made to Circular No. 333, dated 2-4-1982. The CBDT made it quite clear that where a specific provision is made in the DTA, that provisions will prevail over the general provisions contained in the Act. In fact, the DTA which has been entered into by the Central Government under section 90 of the Act, also provides that the laws in force in a country will continue to govern the assessment and taxation of income in that country except where provisions to the contrary had been made in the agreement. Thus, where a DTA provides for a particular mode of computation of income, the same should be followed irrespective of the provisions in the Act. Where there is no specific provision in the agreement, it is the basic law, i.e., the Act, that will govern the taxation of income. (pp. 455-456).

See also the following cases :

n Wherever there is a conflict between a Double Taxation Avoidance Agreement (DTA) and specific provisions contained in Income-tax Act, provisions of DTA will prevail over statutory provisions contained in ActCIT v. Hindusthan Paper Corpn. Ltd. [1994] 77 Taxman 450 (Cal.).

n Provisions of the DTA Agreement will prevail over the general provisions contained in the 1961 ActElkem Spigerverket A/s. v. ITO [1988] 32 TTJ (Cal.) 5.

n In event of conflict between provisions of Double Taxation Agreement and National Tax Laws, former would prevailAEG Aktiengesselschaft v. IAC [1994] 48 ITD 359 (Bang.).

n Provisions of section 90 prevail over those of sections 4, 5 and 9CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (AP).

n In view of section 90(2) where a Double Taxation Avoidance Agreement exists such provisions of Income-tax Act which are against assessee, can never be made applicableCIT v. Hindusthan Paper Corpn. Ltd. [1994] 77 Taxman 450 (Cal.).

n The provisions of Double Taxation Agreement would constitute provisions of the Act for the purpose of determining the chargeability of income-tax for the purpose of deduction of tax at sourceGujarat Narmada Valley Fertilisers Co. Ltd. v. ITO [1982] 2 ITD 515 (Ahd.).

n There is no justification for holding that foreign nationals, having elected to be governed by double taxation treaty, cannot ask for application of any provision of the Income-tax Act even when such provision is beneficial to themForamer S.A. v Dy. CIT [1995] 52 ITD 115 (Delhi).

n Law in force on first day of assessment year will govern admissibility of double taxation reliefM.KR. Deivanayagam Pillai v. Second Addl. ITO [1959] 35 ITR 549 (Mad.).

n Section 90(a) can only supplement relief under section 80RRAITO v. Dr. B.K. Jain [1995] 52 ITD 367 (Jp.) (SMC).

n If assessee is entitled to relief under section 90 which it has not claimed during assessment, such relief can be claimed by filing a rectification applicationIndian Industrial Traders & Dealers Ltd. v. ITO [1989] 29 ITD 282 (Cal.).

n Relief is admissible on gross amount of foreign dividendsCIT v. Tata Chemicals Ltd. [1986] 162 ITR 662 (Bom.).

n Section 172 will not be applicable in case where there is a convention between the Government of India and the foreign countries as provided under section 90Arabian Express Line Ltd. of United Kingdom v. United of India [1994] 120 CTR (Guj.) 377.

 

Circular : No. 334 [F. No. 400/3/81-ITCC], dated 3-4-1982.

1211. Levy of interest under sub-section (2) when original assessment is set aside/cancelled

1. Doubts have been raised as to the quantum of interest chargeable under section 220(2) when the original assessment order passed by the Income-tax Officer is

  (a)  cancelled by him under section 146;

  (b)  set aside/cancelled by an appellate/revisional authority and such appellate/revisional order has become final ; or

  (c)  set aside by one appellate authority but, on further appeal, the order setting aside the assessment is varied by the second appellate authority and the demand gets finally determined.

2. These issues were comprehensively examined in consultation with the Ministry of Law and the Board has been advised :

1. Where an assessment order is cancelled under section 146 or cancelled/set aside by an appellate/revisional authority and the cancellation/setting aside becomes final (i.e., it is not varied as a result of further appeals/revisions), no interest under section 220(2) can be charged pursuant to the original demand notice. The necessary corollary of this position will be that even when the assessment is reframed, interest can be charged only after the expiry of 35 days from the date of service of demand notice pursuant to such fresh assessment order.

2. Where the assessment made originally by the Income-tax Officer is either varied or even set aside by one appellate authority but on further appeal, the original order of the Income-tax Officer is restored either in part or wholly, the interest payable under section 220(2) will be computed with reference to the due date reckoned from the original demand notice and with reference to the tax finally determined. The fact that during an intervening period, there was no tax payable by the assessee under any operative order would make no difference to this position.

3. The foregoing legal position will apply mutatis mutandis to the proceedings under other direct taxes also.

Judicial analysis

Explained in - In Vikrant Tyres v. First ITO [1993] 202 ITR 454 (Kar.), the above circular was explained with the following observations :

. . . The circular of the Board may not be binding on the assessee and the interpetation of the provision of law cannot depend upon the meaning given by the Board in all cases. The circular has been issued to facilitate the due administration of the Act by the authorities under the Act. The effect of section 220(2) has been duly clarified by the Board while issuing the circular. (p. 464)

Explained in - The Kerala High Court in ITO v. A.V. Thomas & Co. [1983] 160 ITR 816 held that this circular is not decisive of the issue explained therein and that interest is not payable under section 220(2) as there has been no non-compliance with the demand made under section 156.

Explained in - The above circular was referred to in Madhav Aluminium Conductors (P.) Ltd. v. ITO [1986] 15 ITD 671 (Mad.), with the following observations :

        As regards the arguments that under CBDTs Circular No. 334, dated 3-4-1982 levy of interest under section 220(2) was permissible when the original assessment is set aside, we can do no better than citing the decision of the Kerala High Court in CIT v. Malayala Manorama & Co. Ltd. [1983] 143 ITR 29 which expressed the following about the said circular:

                . . . The court will have to put its own construction upon the provisions of the Act regardless of the practice of the department and the directions for the guidance of the officials . . . (p. 29) (pp. 674-675)

referred to in - Citing reference to paragraph 2(ii) of the above circular, it was observed in M. N. Jadhav v. Fourth ITO [1986] 161 ITR 275 (Kar.) that Without any doubt, this circular correctly expounds the legal position which I have independently reached. (p. 278).

Explained in - Pitambardas v. Union of India [1998] 99 Taxman 408 (MP)/Mrs. R. Mani Goyal v. CIT [1996] 217 ITR 641 (All.) : The Circular issued by the CBDT in this regard appears to be well-founded.

Cited in - The aforesaid observations were also cited and relied upon in Hindustan Computers Ltd. v. DCIT [1995] 55 ITD 153 (Delhi - Trib.). The Tribunal observed, by following the aforesaid judgment of the Karnataka High Court as well as the judgment of the Kerala High Court in Mohammed Essa Moosa Sait v. GTO [1987] 167 ITR 338, that the facts contemplated by the circular are squarely present in the instant case and which became manifest by reference to the relevant dates and events set out in the beginning of the order. (p. 157)

 

Circular : No. 335 [F. No. 180/9/81-IT(A-I)], dated 13-4-1982.

SECTION 13 l DENIAL OF EXEMPTION

173. Requirements in sections 11(1)(a) and 13(1)(d) to be complied with before exemption can be availed under section 11

1. Section 11(1)(a) provides for grant of exemption from income-tax to income derived from property held under trust for charitable or religious purposes to the extent the income is applied for such purposes in India. Where any such income is accumulated or set apart for application to such purposes in India the extent to which the income is permitted to be accumulated or set apart is 25 per cent of the income. Therefore, under section 11(1)(a) income derived from property held under trust enjoys exemption when at least 75 per cent of the income is applied for charitable or religious purposes.

2. Section 13(1)(d) was introduced by the Taxation Laws (Amendment) Act, 1975. It provides for denial of exemption under section 11 for any assessment year commencing from 1982-83 if any funds of the trust or institution are invested or deposited or continue to remain invested or deposited for any period during any previous year commencing on or after April 1, 1981 in any form or mode other than those specified in section 13(5). The Finance Bill, 1982 contains a provision to extend this period to one year so that the requirements will be applicable from the assessment year 1983-84 for the previous year commencing on or after April 1, 1982.

3. The effect of the insertion of section 13(1)(d) or section 11(1)(a) has been examined. The exemption under section 11(1)(a) will be available only if at least 75 per cent of the income is applied for charitable or religious purposes in India during the year and the remaining amount is invested in the forms or modes specified under section 13(5). Thus, both the requirements will have to be fulfilled before the trust can claim and avail of the exemption under section 11(1)(a). An example to illustrate the position is given below :

A trust derives income from property held for charitable purposes to the extent of Rs. 40,000 in a year. Under section 11(1)(a) it has to spend at least Rs. 30,000 on charitable purpose. The balance of Rs. 10,000 will have to be invested in the forms or modes prescribed under section 13(5). It is only then that the entire income of the trust will get exemption under section 11(1)(a).

4. It may, however, be clarified that in regard to the accumulation of income permitted under section 11(2), the provisions of section 13(6) make it clear that the requirements of section l3(1)(d) read with section l3(5) will not apply. This is because the mode of investing moneys allowed to be accumulated under section 11(2) is specified in that section itself.

 

Circular : No. 337 [F. No. 178/51/82-IT(A-I)], dated 4-5-1982.

489. Contributions made under the Maharashtra State Government Employees' Group Insurance Scheme, 1982 - Whether eligible for relief under clause (a)(i) of sub-section (2)

1. Under the Maharashtra State Government Employees' Group Insurance Scheme, 1982 which is to be introduced with effect from May 1, 1982 under the authority of the Government of Maharashtra, a compulsory insurance scheme would be started in which all existing and future officers of the State Govermnent are required to contribute a certain amount monthly for a life cover.

2. A question has been raised whether the Government servant's monthly contributions under the scheme would be eligible for relief under section 80C(2)(a)(i). This question has been considered and it is clarified that the contributions to the Maharashtra State Government Employees' Group Insurance Scheme will be eligible for relief under section 80C, subject to the qualifying amounts prescribed in section 8OC(4).

 

Circular : No. 338 [F.No. 275/17/82-IT(B)], dated 4-5-1982.

FINANCIAL YEAR 1982-83

1746. Instructions for deduction of tax at source from winnings from lottery or crossword puzzle during financial year 1982-83 at the rates specified in Part II of First Schedule to Finance Bill, 1982

1. I am directed to invite a reference to the Boards Circular No. 303 [F. No. 275/6/81-IT(B)], dated 12-5-1981, wherein you were requested to issue necessary instructions for making deduction of income-tax at source from winnings from lottery or crossword puzzle at the rates given in Part II of the First Schedule to the Finance Bill, 1981.

2.The Finance Bill, 1982 does not propose any change in the rates of deduction of tax at source from such income for the financial year 1982-83 in Part II of the First Schedule thereof. However, some changes have been proposed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the said Financial Bill, a copy of which is annexed. [`8] 1 The tax should, therefore, continue to be deducted at source during the financial year 1982-83, at the rates intimated in the Boards Circular referred to in para 1 above except where the rates prescribed in Sub-Paragraph I of Part III of the First Schedule are applicable. The deduction of tax should be made in accordance with the annexed Sub-Paragraph I [`9] 1, wherever it is applicable.

3. These instructions are issued only with a view to helping the persons responsible for making deductions of tax under the provisions of the Income-tax Act. The Finance Act of the relevant year through which the changes in the tax structure are made should always be referred to for any difference of opinion.

 

Circular: No. 339 [F. No. 275/18/82-IT(B)], dated 6-5-1982.

FINANCIAL YEAR 1982-83

1762. Instructions for deduction of tax at source from winnings from horse races during financial year 1982-83 at the rates specified in Part II of First Schedule to Finance Act, 1982

1. I am directed to invite a reference to Boards Circular No. 301 [F. No. 275/11/81-IT(B)], dated 29-4-1981, on the above subject, wherein the rates at which deduction of tax under section 194BB to be made during the financial year 1981-82 from winnings from horse races were communicated.

2. The Finance Bill, 1982 does not propose any change in the rates for deduction of tax at source from such income for the financial year 1982-83 in Part II of the First Schedule thereof. However, some changes have been proposed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the said Finance Bill, a copy of which is annexed. [`10] 1 The tax should, therefore, continue to be deducted at source during the financial year 1982-83, at the rates intimated in the Boards Circular referred to in para 1 above except where the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule are applicable.

3. These instructions are issued only with a view to helping the persons responsible for making deductions of tax under this provision of the Income-tax Act. The Finance Act of the relevant year through which the changes in the tax structure are made should always be referred to for any difference of opinion.

 

Circular: No. 340 [F. No. 275/20/82-IT(B)], dated 6-5-1982.

Financial year 1982-83

1778. Instructions for deduction of tax at source from insurance commission during financial year 1982-83 at the rates specified in Part II of First Schedule to Finance Bill, 1982

1. I am directed to invite a reference to the Boards Circular No. 300 [F. No. 275/5/81-IT(B)], dated 27-4-1981 wherein the rates at which the deduction of income-tax was to be made during the financial year 1981-82 from payments of income by way of insurance commission under section 194D were intimated.

2. The Finance Bill, 1982 does not propose any change in the rates at which the deduction of income-tax is to be made during the financial year 1982-83 in Part II of the First Schedule to the said Bill from such income. However, some changes have been proposed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the said Bill. A copy of the proposed Sub-Paragraph I[`11] 1 is annexed. The deduction of tax may, therefore, continue to be made at the rates intimated in the circular referred to in para 1 above subject to the rates proposed to be prescribed in the annexed Sub-Paragraph, wherever the same are applicable.

3. These instructions may please be brought to the notice of all concerned. In case of any doubt the Income-tax Officer concerned and/or Public Relations Officer may be consulted.

 

Circular : No. 341 [F. No. 167/231/74-IT(A-I)], dated 10-5-1982.

600. Effect of decision of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120

Circular No. 341, dated 10-5-1982 (Annex) had been issued in the, wake of the Supreme Courts judgment in the case of Cloth Traders (P.) Ltd [1979] 118 ITR 243/1 Taxman 335. This decision was subsequently overruled by the Supreme Court in the case of Distributors (Baroda) (P.) Ltd v. Union of India [1985] 155 ITR 120/22 Taxman 49 which therefore gives the correct legal position. It is therefore clarified that Circular No. 341 ceases to have applicability for any assessment year consequent to the decision of Supreme Court in the case of Distributors (Baroda) (P.) Ltd (supra).

Circular : No. 691, dated 5-9-1994.

ANNEX

Reference is invited to the judgment of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243/[1979] 1 Taxman 335, where it was observed that the amount of deduction under section 80MM should be worked out with reference to gross income. Section 80AB, inserted by the Finance (No. 2) Act, 1980, provides that the deduction under section 80MM should be worked out with reference to net income. Section 80AB has been made effective from April 1, 1981, and not retrospectively. It is, therefore, clarified that the judgment of the Supreme Court applies to assessments up to and inclusive of the assessment year 1980-81.

Judicial analysis

Commented upon in - The above circular dated 10-5-1983 was commented upon in Industrial Consulting Bureau (P.) Ltd. v. CIT [1991] 189 ITR 346 (Bom.), with the following observations :

. . . Reliance placed by Shri Dilip Dwarkadas on the Boards Circular No. 341 dated May 10, 1982, reported in [1982] 137 ITR (St.) 4, is of no consequence as the said circular was issued on the basis of the Supreme Courts earlier decision in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 which now stands overruled by the Supreme Courts subsequent decision in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120. In that view of the matter, it has to be held that, on the basis of the interpretation of the language used in section 80MM, the relief is to be allowed on the net income and not on the gross income. (p. 348)

Applied in - The above circular dated 10-5-1983 was applied in Agrima Project Engg. & Consultancy Service Ltd. v. IAC [1990] 32 ITD 421 (Bom.), with the following observations :

8. The above circular, admittedly, is a beneficial and benevolent circular and de hors the decision of the Honble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. (supra), in our considered opinion, relief has to be allowed to the assessee on gross amount. (p. 431)

Note : This decision cannot be considered as good law in the light of the subsequent judgment of the High Court in Industrial Consulting Bureau case (supra).

 

 

Circular : No. 342 [F. No. 275/16/82-IT-(B)], dated 19-5-1982.

FINANCIAL YEAR 1982-83

1685. Instructions for deduction of tax at source from salary during financial year 1982-83 at the rates specified in Part III of First Schedule to Finance Bill, 1982

1. I am directed to invite a reference to this Ministrys Circular No. 298 [F. No. 275/3/81 - IT(B)], dated 15-4-1981 wherein the rates of income-tax deduction during the financial year 1981-82 from the payments of income chargeable under the head Salaries under section 192 were intimated.

2. Sub-section (1) of the said section provides that any person responsible for paying any income chargeable under the head Salary shall, at the time of making payment deduct income-tax on the amount payable at the average rate of income-tax, computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee for that financial year. The provisions of sub-section (3) are intended for making adjustments of excess or shortfalls of inadvertent nature and/or due to unforeseen circumstances. Thus, the aggregate tax calculated on the estimated income divided by twelve and rounded off the nearest rupee is required to be deducted from the monthly salary.

3. In the Finance Bill 1982, some modifications have been made. An extract of Sub-Paragraph 1 of Paragraph A of Part III of the First Schedule is at Annex I.

4. The substance of the main provisions of law insofar as they relate to income chargeable under the head Salaries, on which tax is to be deducted at source during the financial year 1982-83, is given hereunder :

(1) No tax will be deducible at source in any case unless the estimated salary income for the financial year exceeds Rs. 15,000. Some typical examples of calculation are at Annex II.

(2) The value of perquisites by way of free or concessional residential accommodation, or motor cars provided by employers to their employees, shall be determined under rule 3 of the Income-tax Rules, 1962. Further, the value of other benefits or amenities provided free of cost or at concessional rates to the employees, like supply of gas, electric energy, water or household consumption, educational facilities, etc., should also be taken into account, for the purpose of computing the estimated salary income of the employees during the current financial year (Example II at Annex II illustrates computation of some such perquisites.)

(3) A new clause (10AA) is proposed to be inserted in section 10 by the Finance Bill, 1982. This clause provides that the amount on account of the encashment of leave due to an employee on retirement would not form part of total income with effect from 1-4-1978. The proposed clause is reproduced below :

(10AA) (i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at time of his retirement on superannuation or otherwise;

(ii) any payment of the nature referred to in sub-clause (i) received by an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise as does not exceed six months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement on superannuation or otherwise, or thirty thousand rupees, whichever is less :

Provided that where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this sub-clause shall not exceed thirty thousand rupees :

Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of assessee of such previous year or years, the amount exempt from income-tax under this sub-clause shall not exceed thirty thousand rupees, as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years :

Provided also that Central Government may, having regard to the maximum amount which may for the time being be exempt under sub-clause (i), increase by notification in the Official Gazette, the limit of thirty thousand rupees, for all the three purposes for which it has been mentioned in the foregoing provisions of this sub-clause, up to such maximum amount :

Provided also that in relation to an employee retiring on superannuation or otherwise before the 1st day of January, 1982, the proviso immediately preceding this proviso shall not and the remaining provisions of this sub-clause shall have effect as if for the words thirty thousand rupees at the three places where they occur, the words twenty thousand five hundred rupees had been substituted.

Explanation : For the purpose of sub-clause (ii),

   (i)  the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired;

  (ii)  salary shall have the meaning assigned to it in clause (h) of rule 2 of part A of the Fourth Schedule;

(4) The amount repaid to an employee from the Additional Dearness Allowance Deposit Account under the provisions of the Additional Emoluments (Compulsory Deposit) Act, 1974, shall be liable to be included in his total income of the previous year in which it is repaid, as already explained in the Ministrys Circular No. 182 [F. No. 275/12/75-ITJ], dated 28-10-1975. The amount repaid will include an element of interest also. While the repayment of the principal sum will be regarded as salary paid during the relevant financial year and assessed to tax accordingly, the interest element will qualify for deduction in accordance with section 80L of the 1961 Act.

(5) The amount of deposit made by a taxpayer under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, is not allowable as deduction in computing his taxable income. Accordingly, such deposit has to be ignored for the purpose of determining the amount of income-tax deductible at source.

(6) Under section 16, the taxable salary is to be computed after providing for standard deduction. The standard deduction is to be allowed on an amount equal to 25 per cent of the salary subject to a maximum of Rs. 5,000. For this purpose, the term salary will include fees, commission, perquisites or profits in lieu of or in addition to salary, but will not include any payment received by the employees which are specifically exempt from tax under clauses (10), (10A), (10AA),(10B), (11), (12) and (13A) of section 10. Thus, house rent allowance to the extent exempt under section 10(13A), will not be taken into account for the purpose of computing the amount of the standard deduction. It is to be noted that standard deduction on the above basis if to be allowed irrespective of whether any expenditure incidental to employment is actually incurred by the employee or not. This deduction will be available also to persons drawing pension during the current financial year at the same rates and subject to the same ceiling as the employees in actual service. Further the standard deduction will be limited to Rs. 1,000 only in cases where the employee is provided with any motor car, motor cycle, scooter, or other moped by his employer (for use otherwise than wholly and exclusively in the performance of his duties), or where he is allowed the use of any one or more motor cars, (otherwise than wholly and exclusively in the performance of his duties) out of a pool of motor cars owned or hired by the employer at any time during the financial year. In this connection it may be noted that the use of a motor car by the employee for the purposes of going from his residence to the place where the duties of his employment are to be preformed or from such place back to his residence, will not be regarded as use of the motor car in the performance of his duties.

(7)(a)   Under section 80C, while computing the taxable income, the disbursing officers should allow a deduction of the whole of the first Rs. 6,000; 50 per cent of the next Rs. 6,000 and 40 per cent of the balance of the qualifying amount of payments towards life insurance premia, contributions to provident fund (including contribution to Public Provident Fund constituted under the Public Provident Fund Act, 1968), 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) Rule, 1959. The qualifying amount of payment of all these items will be limited to 30 per cent of the estimated salary [after allowance of standard deduction referred to in item 6 above] or Rs. 40,000, whichever is less.

  (b) In respect of contributions to recognised provident funds there is another monetary ceiling limit laid down in clause (d) of sub-section (2) of section 80C, in that the employees own contribution to his individual account in that fund will not exceed one-fifth of his salary during the financial year or Rs. 10,000, whichever, is less salary for this purpose would include dearness allowance, if the terms of employment so provide, but will exclude all other allowances or perquisites. The expression recognised provident fund has been defined in section 2(38), to mean 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 Funds Act, 1952".

  (c) The additional monetary ceiling of one-fifth of salary or Rs. 10,000, whichever is less, will not be applicable to the contributions to the provident funds referred to in sub-clauses (iii) and (iv) of clause (a) of sub-section (2) of section 80C. Such provident funds are :

   (i)  Government Provident Fund and Railway Provident Fund;

  (ii)  provident funds established by such local authorities and institutions as are mentioned in the Schedule to the Provident Fund Act, 1925, and those notified by the Government from time to time under section 8(3) of that Act; and

(iii)  any provident fund set up by the Central Government and notified by it in the Official Gazette - Public Provident Fund set up under the Public Provident Fund Act, 1968, is an example of such fund.

(8) Under section 10(13A), any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whichever name called), in respect of residential accommodation occupied by the assessee, is exempt from income-tax to the extent (not exceeding Rs. 400 p.m.) as may be prescribed having regard to the area or place in which such accommodation is situated and other relevant considerations. Rule 2A of the Income-tax Rules, 1962 (hereinafter referred to the Rules) prescribes the limits in respect of the amount which is not to be included in the total income of the assessee for the purpose of section 10(13A). It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee, subject to the limits laid down in rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house rent allowance from the taxable income of the employee.

However, the Honble Punjab and Haryana High Court has held in the case of CIT v. Justice S.C. Mittal [1980] 121 ITR 503 that even the case of an assessee occupying his own house, the house rent allowance received from the employer is not liable to tax subject to the limitations imposed under section 10(13A) and rule 2A. That judgment had not been accepted by the department and an appeal had been filed after special leave was granted by the Honble Supreme Court. The disbursing authorities may, however, allow exemption in respect of house rent allowance granted to every employee assessable/assessed to income-tax under the jurisdiction of the Honble Punjab and Haryana High Court and residing in the house/flat owned by him subject to the limits laid down in rule 2A in deference to the said Judgment. The actual rent paid for the purpose of the said rule would be deemed to be the actual letting value of the house/flat for which production of evidence in the form of a documents showing the annual letting value fixed by the Municipal Authority, etc., may be insisted upon before granting the exemption. In the annual salary return asterisk (*) against the name of each such employee may be given together with the following remarks at the end of return :

*Admissible exemption of HRA allowed in view of the judgment in Justice S.C. Mittals case.

(9) No deduction should be made from the salary income in respect of any donations for charitable purpose. The tax relief on such donations, as admissible under section 80G, will have to be claimed by the taxpayer separately at the time of the finalisation of the assessment. However, in cases where contributions, to the National Defence Fund, Jawaharlal Nehru Memorial Fund, the Prime Ministers Drought Relief Fund or the Prime Ministers National Relief Fund or the National Childrens Fund are made, 50 per cent of such contributions may be deducted in computing the taxable income of the employee. Deduction will not be admissible where the aggregate of all contributions for the year is less than Rs. 250.

(10) Under section 80GG, an assessee is entitled to a deduction in respect of house rent paid by him for his own residence at the places specified under rule 11B of the Rules. Such deduction is permissible subject to the following conditions :

        (a) The assessee has not been in receipt of any house rent allowance specifically granted to him which qualifies for exemption under section 10(13A).

        (b) He will be entitled to deduction in respect of house rent paid by him in excess of 10 per cent of his total income, subject to a ceiling of 15 per cent thereof, or Rs. 400 per month, whichever is less. The total income for working out these percentages will be computed before making any deduction under section 80GG.

        (c) The assessee does not own any house property himself anywhere nor does his spouse, minor child or the Hindu undivided family of which he is a member, own any house property anywhere.

        (d) The accommodation occupied by him for the purpose of his own residence is situated in any of the following places, namely :

   (i)  Agra, Ahmedabad, Allahabad, Amritsar, Banglore, Bhopal, Calcutta, Coimbatore, Delhi, Faridabad, Gwalior (Lashkar), Hyderabad, Indore, Jabalpur, Jaipur, Kanpur, Lucknow, Ludhiana City, Madurai, Nagpur, Patna, Pune (Poona), Srinagar, Surat, Vadodara (Baroda) or Varanasi (Banaras) or the urban agglomeration of each of such places; and

  (ii)  Bombay, Calicut, Cochin, Ghaziabad, Hubli-Dharwar, Madras, Sholapur, Trivandrum or Vishakhapatnam.

Explanation : Urban agglomeration, in relation to a place means the area for the time being included in the urban agglomeration of such place for the purpose of grant of house rent allowance by the Central Government to its employees under the orders issued by it from time to time in this regard.

The disbursing authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessee. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent.

(11) Section 10(14) provides for exemption from income-tax of any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of clause (2) of section 17, specially granted to the employee to meet the expenses actually incurred wholly, necessarily and exclusively in the performance of the duties of an office or employment of profit. In view of this provision, disbursing authorities have been authorised vide the Boards Circular No. 196 [F. No. 275/29/76/-ITJ], dated 31-3-1976 not to deduct tax at source from conveyance allowance granted to an employee, to the extent it is exempt under the said section. It has been stated therein that the employee in receipt of conveyance allowance would have to furnish the necessary certificate before the disbursing authority in support of the fact that the conveyance allowance is only a reimbursement of expenses laid out wholly, necessarily and exclusively in the performance of duties of an office or employment of profit. The satisfaction of the disbursing authorities would still be liable for scrutiny by the Income-tax Officer during regular assessment proceedings, before him. The disbursing authority is also required to endorse a certificate in terms of section 10(14) on the tax deduction certificate issued under section 203. In this connection, attention is invited to the Explanation to clause (14) of section 10 which clarifies that any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, shall not be regarded for purpose of that clause as special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties. This may be kept in view while deciding whether any expenditure from the special allowance has been actually incurred, and if so, the extent to which it has been incurred to meet the expenses wholly, necessarily and exclusively in the performance of duties of an office or employment of profit.

(12) Section 80RRA provides that where the gross total income of an individual, who is a citizen of India, includes any remuneration received by him in foreign currency from any employer (i.e., a foreign employer of an Indian concern) for any services rendered by him outside India, 50 per cent of such remuneration will be deducted in computing the taxable income. It also provides that where the assessee renders continuous service abroad for more than 36 months, the remuneration received by him for any period of service after the expiry of the said 36 months will not qualify for any deduction. In the case of employees of the Central Government or any State Government or a person who was immediately before taking up the service outside India, in the employment of the Central Government or any State Government the deduction will be allowed only if the service of the employee is sponsored by the Central Government. In the case of any other individual, the deduction will be allowed only if he is a technician and the terms and conditions of his service outside India are approved for the purposes of the said section by the Central Government or the prescribed authority. It is pertinent to note that the deduction is to be allowed with reference to the remuneration received by the individual in foreign currency for service rendered outside India. Thus, if the remuneration is paid to the Indian technician, etc., partly in Indian currency and partly in foreign currency, the amount paid in Indian currency will not be taken into account for purposes of the deduction under section 80RRA. Likewise if a part of the remuneration although paid in foreign currency, relates to services rendered in India, then such part of the remuneration will also not qualify for deduction under section 80RRA.

The expression foreign employer has been defined in Explanation(b) to section 80RRA to mean : (i) the Government of a foreign State; or (ii) a foreign enterprise; or (iii) any association or body established outside India.

While allowing the deduction under this section, documentary evidence should be obtained on the following points :

   (i)  in the case of an individual who is in the employment of the Central Government or any State Government, the fact of his service having been sponsored by the Central Government;

  (ii)  in the case of any other individual being a technician, the fact of the terms and conditions of his service outside India having been approved in this behalf by the Central Government (Ministry of Finance, Department of Revenue, Foreign Tax Division, New Delhi). [It should also be ensured that the deduction is allowed only with reference to the remuneration received in foreign currency in respect of the period of service outside India. The fact that the deduction is admissible only in relation to the first 36 months of continuous service outside India should also be kept in view.]

(13) Under section 80U in the case of every resident individual who is blind or suffers from permanent physical disability which substantially reduces his capacity to be engaged in gainful employment, deduction of Rs. 10,000 from the total income is allowable by the employer subject to the production of a certificate from the Income-tax Officer in favour of the employer as laid down in this Ministrys Circular No. 272, dated 27-5-1980. The certificate once issued will continue to be in force till it is withdrawn by the Income-tax Officer.

(14) 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 rupee.

(15) Section 201 provides :

(1) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax :

Provided that no penalty shall be charged under section 221 from such person, principal officer or company, unless the Income-tax Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.

(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per annum of the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.

(2) Where the tax has not been paid as aforesaid after it is deducted the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person or the company, as the case may be, referred to in sub-section (1)

(16) Attention is also invited to section 276B, where 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 of the Act, he shall be punishable

   (i)  in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; and

  (ii)  in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.

5. While making the payment of tax deducted at source to the credit of the Central Government, it may kindly be ensured that the correct amount of income-tax and surcharge is recorded in the relevant challan. It may also be ensured that the right type of challan is used. New colour band challans have been introduced with separate numbers. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with Blue Colour Band. Along with this colour band challan, old challan forms will also continue to be used. The old challan form number is ITNS 39. Wherever the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax and surcharge is reflected therein.

6. For the information of employees, the rates of compulsory deposit to be made during the financial year 1982-83 under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, are given at Annex III. The deposit has to be made by a person whose current income during the financial year exceeds Rs. 15,000. The last date for making the deposit in the case of a person who is not required to pay advance tax under the Act, is March 31 of the financial year in which the deposit is to be made and the deposit can be made in one or more instalments of his choice at any time during the financial year. A person who is required to pay advance tax, is liable to make the deposit (in one sum or in instalments of his choice) on or before the date on which the last instalment of advance tax is payable by him.

7. These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various relevant provisions. Wherever, there is a difference of opinion, a reference should always be made to the provisions of the Act, and the relevant Finance Act through which the changes in the tax structure are made.

 

Annex I - Extracts From Part III Of First Schedule to Finance Act, 1982

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 person 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.

Rates of Income-tax

(1)

where the income does not exceed Rs. 15,000

Nil;

(2)

where the total income exceeds Rs. 15,000 but does not exceed Rs. 25,000

30 per cent of the amount by which the total income exceeds Rs. 15,000;

(3)

where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000

Rs. 3,000 plus 34 per cent of the amount by which the total income exceeds Rs. 25,000;

(4)

where the total income exceeds Rs. 30,000 but does not exceed Rs. 50,000

Rs. 4,700 plus 40 per cent of the amount by which the total income exceeds Rs. 30,000;

(5)

where the total income exceeds Rs. 50,000 but does not exceed Rs.60,000

Rs. 12,700 plus 50 per cent of the amount which the total income exceeds Rs. 50,000;

(6)

where the total income exceeds Rs. 60,000 but does not exceed Rs. 70,000

Rs. 17,700 plus 52.5 per cent of the amount by which the total income exceeds Rs. 60,000;

(7)

where the total income exceeds Rs. 70,000 but does not exceed Rs. 85,000

Rs. 22,950 plus 55 per cent of the amount by which the total income exceeds Rs. 70,000;

(8)

where the total income exceeds Rs. 85,000 but does not exceed Rs. 1,00,000

Rs. 31,200 plus 57.5 per cent of the amount by which the total income exceeds Rs. 85,000;

(9)

where the total income exceeds Rs. 1,00,000

Rs. 39,825 plus 60 per cent of the amount by which the total income exceeds Rs.1,00,000

 

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 Union calculated at the rate of ten per cent of such income-tax.

 

Annex II - typical Examples of Income-tax Calculation

Example I

 

 

Rs.

Rs.

1.

Total salary income

 

25,000

2.

Contribution to Government Provident Fund

4,200

 

3.

Payments towards life insurance premia

1,000

 

4.

Contribution for participation in Unit-linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963

300

 

5.

Deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959

500

6,000

6.

Total salary income

 

25,000

7.

Deduct : Amount of standard deduction under section 16(i) of the Income-tax Act, 1961 at 25 per cent of the amount subject to maximum of Rs. 5,000

 

5,000

8.

Gross total income (67)

 

20,000

9.

Deduct : Amount on account of contribution towards G.P.F., life insurance premia, Unit-linked insurance plan and deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959. Total amount paid Rs. 6,000

 

6,000

10.

Taxable income

 

14,000

11.

Total tax payable

 

Nil

 

Example II

[Illustrating calculation of limits under section 80C and valuation of some perquisites
in case of an employee of a private company posted at Bombay]

 

 

Rs.

1.

Salary including dearness allowance

48,000

2.

Bonus

9,600

3.

Contribution to recognised, provident fund

11,000

4.

LIP

10,000

5.

Free gas, electricity, water, etc.(actual bill paid by the Company)

2,400

6.

Furniture at cost (including television set, radio set, refrigerator, other household appliances and an air-conditioner) belonging to the company

40,000

7.

(i) Furnished flat provided to the employee for which actual rent paid by the company (Actual rent assumed to be equal to the fair rental value)

24,000

 

(ii) Rent recovered from the employee

12,000

Computation of total income

 

 

Rs.

Rs.

1.

Salary

 

48,000

2.

Bonus

 

9,600

 

 

 

57,600

3.

Valuation of perquisites :

 

 

 

Furnished flat at concessional rent under section 17(2) read with clauses (a) and (b) of rule 3 of the Income-tax Rules, 1962.

 

 

 

Fair Rental Value (FRV) (assumed to be equal to actual rent) Rs. 24,000 : 10 per cent of salary including bonus

5,760

 

 

Add : Excess of FRV over 30 per cent of salary, including bonus of Rs. 57,600 (i.e. Rs. 24,000Rs. 17,280)

6,720

 

 

Add: Perquisite of the furniture (10 per cent of cost i.e., Rs. 40,000)

4,000

 

 

 

16,480

 

 

Less : Rent paid by the employee

12,000

4,480

 

 

 

62,080

4.

Free gas, electricity, etc.

 

2,400

 

 

 

64,480

5.

Less : Standard deduction under section 16(i) at 25 per cent subject to maximum of Rs. 5,000

 

5,000

6.

Gross total income

 

59,480

7.

Less : Deduction under section 80C :

 

 

 

PF paid Rs. 11,000 but restricted to 1/5th salary of Rs. 48,000 (excluding bonus) or Rs. 10,000, whichever is less

9,600

 

 

LIP contribution

10,000

 

 

 

19,600

 

 

Total of PF and LIP of Rs. 19,600 is to be further restricted to 30 per cent of the gross total income (i.e., 30 per cent of Rs. 59,480) or Rs. 40,000, whichever is less i.e., to Rs. 17,844

 

 

 

Deduction admissible on Rs. 17,844 :

 

 

 

- First Rs. 6,000 (100 per cent)

6,000

 

 

- Next Rs. 6,000 (50 per cent)

3,000

 

 

- On balance Rs. 5,844 (40 per cent)

2,338

11,338

8.

Taxable income

 

48,142

 

(Rounded off under section 288A)

 

48,140

9.

Tax payable thereon (Rs. 4,700+40 per cent of excess over Rs. 30,000)

 

11,956.00

10.

Surcharge at 10 per cent of income-tax payable

 

1,195.60

11.

Total tax payable

 

13,151.60

 

Rounded off under section 288B

 

13,152.00

[Rate at which monthly deduction from salary is required to be made works out to Rs. 1096]

Notes:

1. In the case of a Government servant the value of perquisite of unfurnished accommodation provided free is determined in accordance with the rules framed by the Government for allotment of residence to its employees. For determining the perquisite value of free furniture, it is taken, as in other cases, at 10 per cent annum of the original cost of the furniture, or if it is hired from a third party, the actual hire charges payable.

2. Where unfurnished accommodation is provided to its employees by the Reserve Bank of India or any other public sector body specified in sub-clause (2) of clause (a) of rule 3 of the Income-tax Rules, say a nationalised bank, State Trading Corporation, etc., it is taken at 10 per cent of the salary due to the employees and where the accommodation is furnished, as in other cases, an additional 10 per cent of the original cost of furniture, or if it is hired from a third party, the actual hire charges payable therefor.

3. In the example given above, the actual rent has been assumed to be equal to the fair rental value. Fair rental value can, however, be different from the actual rent. It is defined in Explanation 2 below clause (a) of rule 3 to mean, in the case of an accommodation which is unfurnished, the rent which a similar accommodation would realise in the same locality or the municipal valuation in respect of the accommodation, whichever is higher.

4. In case the accommodation is situated in Bombay, Calcutta, Delhi and Madras the excess of 30 per cent of salary over fair rental value, as against 20 per cent. In other cases, it is required to be added in determining the value of perquisite in view of Boards Circular No. 130, dated 16-3-1974.

Example III

[Illustrating limits of deduction under section 80C]

                                                                                               

 

 

Rs.

Rs.

1.

Total salary income (including Rs. 2,400 as conveyance allowance at Rs. 200 p.m. received from the employer)

 

30,000

2.

Contribution to Recognised Provident Fund

9,500

 

3.

Payment towards life insurance premia

1,000

 

4.

Contribution for participation in Unit-linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963

1,500

13,000

5.

Deposit in a 10-year account or 25 year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959

1,000

 

6.

Total salary income

 

30,000

7.

Deduct : Amount of standard deduction under section 16(i) of the Income-tax Act 1961, at 25 per cent of the amount subject to a maximum of Rs. 5,000

 

5,000

8.

Gross total income (67)

 

25,000

9.

Deduction under section 80C Contribution of Rs. 9,500 to PF under section 80C(2)(d) restricted to 1/5th of salary of Rs. 30,000 or Rs. 10,000, whichever is less, i.e.,

6,000

 

 

Life insurance premia

1,000

 

 

Contribution to participation in Unit-linked Insurance Plan, made under section 19(1)(cc) of the Unit Trust of India Act, 1963

1,500

 

 

Deposit in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959

1,000

 

 

 

9,500

 

 

Restricted to 30 per cent of the gross total income or Rs. 30,000, whichever is less (i.e., 30 per cent of Rs. 25,000)

7,500

 

 

Deduction admissible on Rs. 7,500 on the first Rs. 6,000 (100 per cent)

6,000

 

 

On the next Rs. 1,500 at 50 per cent

750

6,750

10.

Taxable income (89)

 

18,250.00

11.

Income-tax payable at Rs. 18,250

 

975.00

12.

Surcharge on income-tax at 10 per cent

 

97.50

13.

Total tax payable (11+12)

 

1,072.50

14.

Rounded off under section 288B

 

1,073.00

 

[Rate at which monthly deduction is required to be made works out to Rs. 89]

 

 

 

Example IV

[Illustrating calculation of house rent allowance under section 10(13A) in respect of residential accommodation situated at Delhi]

 

 

Rs.

Rs.

1.

Salary (exclusive of allowance and perquisites)

 

36,000

2.

House rent allowance received

 

8,400

3.

Actual rent paid

 

11,400

4.

Contribution to Recognised Provident Fund

 

6,000

5.

LIP

 

3,000

6.

Deposits in a 10-year account under the P.O. Savings Bank (Cumulative Time Deposits) Rule, 1959

 

1,000

Computation of total income

1.

Salary

 

36,000

2.

House rent allowance received

 

8,400

 

 

 

44,400

3.

Less : Allowance under section 10(13A)

 

 

 

Actual rent paid

11,400

 

 

Less : 10 per cent of salary

3,600

 

 

 

7,800

 

 

20 per cent of salary (accommodation being situated at Delhi)

7,200

 

 

Maximum allowable at Rs. 400 p.m.

4,800

4,800

 

 

 

39,600

4.

Less : Standard deduction under section 16(i) at 25 per cent subject to the maximum of Rs. 5,000

 

5,000

5.

Gross total income

 

34,600

6.

Less : Deduction under section 80C Total PF, LIP and CTD : Rs 10,000

 

 

 

These contributions being within the prescribed admissible limits, the deduction admissible on Rs. 10,000

 

 

 

- First Rs. 6,000 (100 per cent)

6,000

 

 

- Of balance Rs. 4,000 (50 per cent)

2,000

8,000

7.

Taxable income

 

26,600

8.

Tax payable thereon (Rs. 3,000 plus 34 per cent of the excess over Rs. 25,000 i.e., Rs. 1,600)

 

3,544.00

9.

Surcharge at 10 per cent of income-tax payable

 

354.40

10.

Total tax payable

 

3,898.40

 

[Rate at which monthly deduction from salary is required to be made works out to Rs. 325]

Annex III - Rates Of Compulsory Deposit

(1)

where the current income exceeds Rs. 15,000 but does not exceed Rs. 25,000

4.5 per cent of the current income;

(2)

where the current income exceeds Rs. 25,000 but does not exceed Rs. 35,000

Rs. 1,125 plus 11 per cent of the amount by which the current income exceeds Rs. 25,000;

(3)

where the current income exceeds Rs. 35,000 but does not exceed Rs. 50,000

Rs. 2,225 plus 12.15 per cent of the amount by which the current income exceeds Rs. 35,000;

(4)

where the current income exceeds Rs. 50,000 but does not exceed Rs. 70,000

Rs. 4,100 plus 15 per cent of the amount by which the current income exceeds Rs. 50,000;

(5)

where the current income exceeds Rs. 70,000

Rs. 7,100 plus 18 per cent of the amount by which the current income exceeds Rs. 70,000:

Provided that

  (a)  where the current income exceeds Rs. 15,000 but does not exceed Rs. 15,710, the compulsory deposit shall in no case exceed the amount by which the current income exceeds Rs. 15,000;

  (b)  where the amount of compulsory deposit calculated in accordance with the foregoing provisions is less than Rs. 100, it shall not be necessary for the taxpayer concerned to make such deposit.

 

CIRCULAR NO. 343

1538. Additional relief to any one building in occupation of de-recognised Ruler declared as his official residence - Notification issued under sub-section (2) granting full exemption from estate duty

Whereas relief under clause (i) of sub-section (1) of section 33 of the Estate Duty Act, 1953 (34 of 1953), in respect of any one building in the occupation of a Ruler declared by the Central Government as his official residence under paragraph 13 of the Merged States (Taxation Concessions) Order, 1949, or paragraph 15 of the Part B States (Taxation Concessions) Order, 1950, had ceased to be available consequent on de-recognition of Rulers of Indian States ;

And whereas the Central Government is of opinion that the circumstances of the de-recognised Rulers and their heirs are such that relief by way of exemption from estate duty should be granted in respect of any one building in the occupation of a de-recognised Ruler, being a building which immediately before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, was his official residence ;

Now, therefore, in exercise of the powers conferred by sub-section (2) of section 33 of the said Act, the Central Government hereby directs that no estate duty shall be payable in respect of any one building belonging to and in occupation of a Ruler as defined in sub-clause (b) of clause (2) of article 363 of the Constitution, which

   (i) was declared by the Central Government as his official residence under paragraph 13 of the Merged States (Taxation Concessions) Order, 1949 or paragraph 15 of the Part B States (Taxation Concessions) Order, 1950; and

  (ii) passes on his death.

Notification : No. GSR 461, dated 27-3-1973.

INCOME-TAX (AMENDMENT) ACT, 1981 - CIRCULAR NO. 344, DATED 22-6-1982

 

Top of Form

INCOME-TAX (SECOND AMENDMENT) ACT, 1981 - CIRCULAR NO. 345, DATED 28-6-1982

 

FINANCE ACT, 1982 - CIRCULAR NO. 346, DATED 30-6-1982

 

Circular: No. 347 [F. No. 166/4/81-IT(A-I)], dated 7-7-1982.

727. Book publishing company - Whether qualifies to be treated as company engaged in manufacture or processing of goods within the meaning of section 104(4)(a)

1. The Board has received representations that companies engaged in publishing of books should be treated as industrial companies for the purpose of section 104. Reference has been made in this connection to the decisions of the Madras and Calcutta High Courts in the cases of CIT v. Commercial Laws of India (P.) Ltd. [1977] 107 ITR 822 and Addl. CIT v. A. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718, respectively. In the Madras High Court decision it has been held that folding and stitching the printed sheets and converting them into parts or books, as the case may be, constituted processing of goods. In the Calcutta High Court decision it was held that it is wholly unnecessary for a publisher of books to be an owner of a printing press or to be himself a book-binder to be a manufacturer of books. A publisher may get the books printed from any printer, but the printer is a mere contractor and the publisher carries on the business of manufacturing and processing of goods.

2. The Board has been advised to accept these decisions. In view thereof, book publishing companies even though they may themselves not be engaged in the printing or binding of books qualify to be treated as industrial companies for the purpose of section 104 as well as for the concessional tax treatment given to industrial companies.

Judicial analysis

Explained in - In Rashron Heavy Engg. (P.) Ltd. v. ITO [1992] 43 ITD 355 (Ahd. - Trib.), it was observed that Circular No. 347 of CBDT, dated 7-7-1982, expressly lays down that the Board has accepted the view expressed in certain decisions to the effect that it is not necessary that the assessee itself should carry on the entire activities of manufacture and that it is enough if such activity is carried on with the aid of other units under the supervision of the assessee.

Explained in - In CIT v. Ackrow India Ltd. [1991] 188 ITR 485 (Bom.), the above circular was referred to with the following observations :

. . . While deciding this case, our High Court relied upon several judgments of the High Court of Calcutta referred to in this case and particularly its judgment in Addl. CIT v. A.M. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718 (Cal.). In the Calcutta case, the assessee-company carried on the business of publishing books. It was held by the High Court of Calcutta that the assessee was a manufacturing or industrial company although it did not own a printing press and it got the books printed somewhere else. By its Circular No. 347, dated July 7, 1982, the Central Board of Direct Taxes accepted the above-referred decision. In a given case, the assessee may exercise direct supervision over the process of manufacture by deputing its staff at the factory and paying their wages. In another case, the assessee may exercise similar supervision by issuing written instructions to the contractor and by supplying drawings and specifications and inspecting the manufacturing process from time to time. In substance, the relevant test is satisfied although the facts of one case are not identical with the facts of the above-referred case. (p. 489)

Explained in - The above circular was relied on in Rashron Heavy Engg. (P.) Ltd. v. ITO [1992] 43 ITD 355 (Ahd.), with the following observations :

. . . Circular of CBDT No. 347, dated 7-7-1982 expressly lays down that the Board had accepted the view expressed in certain decisions to the effect that it is not necessary that the assessee itself should carry on the entire activities of manufacture and that it is enough if such activity was carried on with the aid of other units under the supervision of the assessee. . . Considering the entire circumstances I hold that the fact that the main project was still under construction was irrelevant and that the activity of the assessee of manufacture of plate bending machine would entitle the assessee to claim the status of industrial company and claim benefit of concessional rate of tax. The assessee was also entitled to claim deduction under section 80-I if other conditions are fulfilled. . . . (p. 358)

Explained in - The above circular was referred to in Chillies Exports House Ltd. v. CIT [1997] 225 ITR 814 (SC). The Supreme Court observed :

On hearing the rival pleas urged before us, it is evident that the various aspects highlighted in the decisions adverted to hereinabove as also the circular of the Central Board of Direct Taxes were not available to the Madras High Court when it rendered its main decision in Addl. CIT v. Chillies Export House Ltd. [1978] 115 ITR 73. The ultimate conclusion as to whether the assessee was carrying on the business of processing of goods would depend upon the consideration of all relevant materials available in the case. . . . (p. 824)

Explained in - The above circular was referred to in Gulabchand Jain v. WTO [1983] 17 TTJ (Jab.) 489. The Tribunal observed :

2. Before us it has been submitted that the assessee was a publisher but he was not owning a press of his own. He was, however, organizing his own business by getting books printed by others. Reference was made to the case of Calcutta High Court in A. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718 (Cal.). In this case it was held that it was wholly unnecessary for a publisher of books to be an owner of a printing press or to be himself a book binder to be a manufacturer of books. A publisher may get books printed from any printer but the printer acts as a mere contractor and the publisher carries on business of manufacturing and processing of goods. This decision was accepted by the Board vide Circular No. 347 dated 7-7-1982. Though this was for treating a company as an industrial undertaking under the IT Act, the position would be the same under the WT Act. Similar view was taken by Spl. Bench in WTA Nos. 340-341 of 1977-78 (80 ITJP 296 (sic.) (p. 490)

 

Circular : No. 348 [F. No. 275/19/82-IT(B)], dated 16-8-1982.

 

FINANCIAL YEAR 1982-83

1722. Instructions for deduction of tax at source from interest on securities during financial year 1982-83 at the rates specified in Part III of First Schedule to Finance Act, 1982

1. I am directed to invite a reference to the Boards Circular No. 299 [F. No. 275/10/81-IT(B)], dated 24-4-1981, wherein you were requested to issue necessary instructions for making deduction of income-tax at source from Interest on Government securities as prescribed in the Finance Bill, 1981.

2. There is no change in the rates of deduction of tax at source from such income to be made for the financial year 1982-83, prescribed in Part II of the First Schedule to the Finance Act, 1982. However, some changes have been made in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the said Finance Act, 1982. The tax should, therefore, continue to be deducted at source during the financial year 1982-83, at the rates intimated in the Boards circular referred to in para 1 above except where the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule are applicable. The deduction of tax should be made in accordance with the annexed Sub-Paragraph I[`12] 1, wherever it is applicable.

Top of Form

ESTATE DUTY (AMENDMENT) ACT, 1982 - CIRCULAR NO. 349, DATED 30-8-1982

 

Circular : No. 350 [F. No. 208/16/81-IT(A-II)], dated 29-9-1982.

482. Whether certificate from specified authority is required only once for the year in which amalgamation has taken place or for every year in which benefit is claimed

1. In cases where the Central Government issues under section 72A(1), a declaration that the amalgamation of a company (which was not financially viable by reason of its liabilities, losses, etc.) with another company has been in the public interest, the accumulated losses and the unabsorbed depreciation of the amalgamating company for the year in which the amalgamation was effected and the amalgamated company is allowed to set-off and carry forward such loss, etc., accordingly. Such set-off and carry forward of loss, etc., is subject to the condition under section 72A(2)(ii) that the amalgamated company furnishes, along with its return of income for the said assessment year, a certificate from the specified authority to the effect that adequate steps have been taken by that company for the rehabilitation or revival of the business of the amalgamating company.

2. A doubt has been raised as to whether the certificate from the specified authority under section 72A(2)(ii) is required only once for the year in which the amalgamation has taken place or for every year in which the benefit under section 72A is claimed.

3. The issue has been examined and the Board have been advised that section 72A(2) of the Act provides that the accumulated loss shall not be set-off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless the two conditions specified therein are fulfilled. On a perusal of the two conditions, it would appear that the certificate from the specified authority should be required not only for the year of amalgamation but also for the subsequent years. Such certificates would be necessary for all the years during which the revival scheme is implemented. The certificate will also be required for all the assessment years in which the carry forward and set-off of unabsorbed loss, etc., of the amalgamating company is claimed by the amalgamated company. There is nothing in sub-section (2) of section 72A to indicate that the benefit of that section can be claimed only once, for the year of amalgamation.

 

Circular : No. 351 [F.No. 142(32)/82-TPL], dated 26-11-1982.

 

SECTION 197A l NO DEDUCTION OF TAX AT SOURCE TO BE MADE IN CERTAIN CASES

1175. Effect of non obstante clause in the section - Whether sections 193, 194 and 194A continue to be in force and facility provided in the section is in addition to facility under the said sections

1. The Finance Act, 1982 has inserted a new section 197A with effect from June 1, 1982. The section enables an individual who is resident in India and whose estimated total income of the previous year is less than the minimum liable to income-tax to receive interest on securities, dividends and other interest without deduction of tax at source under sections 193, 194 and 194A of the Act on furnishing a declaration, in duplicate, in the prescribed form and verified in the prescribed manner. Rule 29C and Form Nos. 15F, 15G and 15H have been inserted in the Income-tax Rules, 1962 by the Income-tax (Fifth Amendment) Rules, 1982 prescribing the forms for the purposes of section 197A and laying down the procedure for furnishing the declaration form.

2. The facility of claiming payments of interest on securities, dividends, etc., under section 197A is available only in the case of individuals who are resident in India within the meaning of section 6 of the Act. Accordingly, it is not permissible for Hindu undivided families and other categories of taxpayers to claim payments of interest on securities, dividends, etc., without deduction of tax at source on furnishing the declaration in Form No. 15F, 15G or 15H.

3. The declaration in Form No. 15F, Form No. 15G or, as the case may be, Form No. 15H is to be furnished by the declarant to the person responsible for paying any income of the nature referred to in section 193 or section 194 or, as the case may be, section 194A of the Act. As defined in section 204 of the Act, the expression person responsible for paying for the purposes of the aforesaid sections means (a) in the case of payments of income chargeable under the head Interest on securities (other than payments made by or on behalf of the Central Government or the Government of a State), the local authority, corporation or company, including the principal officer thereof; and (b) in the case of credit or payment of any other sum chargeable under the Income-tax Act, the payer himself, or if the payer is company, the company itself including principal officer thereof. Section 2(35) of the Act defines principal officer with reference to a local authority, a company, any other public body; or any association of persons or body of individuals, to mean (a) the secretary, treasurer, manager or agent of the authority, company, organization or body; or (b) any person connected with the management or administration of the local authority, company, association or body upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer thereof. Hence, in cases where the declaration in Form No. 15F, 15G or 15H is to be furnished for the purposes of receiving any interest on securities (other than any security of the Central Government or a State Government) dividends or interest other than interest on securities, payable by any person other than the Central Government or a State Government the declaration may be furnished to the local authority, corporation, company or the secretary, treasurer, manager or agent of the local authority, corporation or company. For the purposes of obtaining interest on any Government security without deduction of tax at source, the declaration in Form No. 15F may be furnished to the public debt officers and Treasury officers who are responsible for paying the interest on such securities.

4. The effect of non obstante clause in section 197A is that it supersedes the provisions of sections 193, 194 and 194A only insofar as these cast a legal obligation on the person responsible for paying the income of the nature referred to in the said sections to deduct tax at source. Thus, the provisions of sections 193, 194 and 194A, which provide a facility for receiving the income referred to therein without deduction of tax at source, continue to be in force and the facility provided in the new section 197A is in addition to the facility provided under the existing provisions in sections 193, 194 and 194A.

5. The declaration in Form No. 15F, 15G or 15H as explained above is to be furnished to the person responsible for paying the income which is sought to be received without deduction of tax at source. As the declarant has to state that his estimated total income of the previous year in which the income of the nature referred to in section 193, 194 or 194A is to be included in computing his total income is below the exemption limit, it will be sufficient if only one declaration is made in respect of the income each year before each person responsible for making the payment. Hence, where payments are to be made by the same person more than once in a year, the declaration in the relevant form may be furnished before the first payment in a year becomes due. It may also be noted that in the declaration in Form No. 15F, 15G or 15H particulars of only such securities, shares or, as the case may be, other deposits are to be furnished the income from which is payable by the person to whom the declaration is furnished. For example, in the declaration in Form No. 15G furnished to company A it is not necessary for the declarant to give particulars of the shares held by him in other companies.

 

Circular : No. 352

1540. Additional relief to property in respect of which gift-tax has been paid and estate duty has also been levied - Notification issued under sub-section (2) granting reduction in estate duty

Whereas the Central Government is of opinion that circumstances are such that relief should be given in respect of the following class of property, namely, any property in respect of which tax has been paid under the Gift-tax Act, 1958 (18 of 1958), before the commencement of the Estate Duty (Amendment) Act, 1958 (3 of 1958), and in respect of which estate duty has been levied under the Estate Duty Act, 1953 (34 of 1953) by virtue of the inclusion of that property in the estate of the donor concerned as property passing under the said Estate Duty Act ;

Now, therefore, in exercise of the powers conferred by sub-section (2) of section 33 of the said Estate Duty Act, the Central Government hereby directs that any estate duty so levied be reduced by an amount equal to the amount of gift-tax paid in respect of any such property under the Gift-tax Act.

 

Notification : No. GSR 657, dated 4-6-1960.

 

 

SPECIAL BEARER BONDS (IMMUNITIES AND EXEMPTIONS) ACT, 1981 - CIRCULAR NO. 318, DATED 1-1-1982

 [`1]1. Now omitted and replaced by section 88 with effect from 1-4-1991.

 [`2]1. Separate exemption has since been withdrawn by the Finance Act, 1984, w.e.f. 1-4-1985 by omitting clause (ba) of section 32(1) of Unit Trust of India Act, 1963.

 [`3]*Development allowances is not available for planting that has commenced after 1-4-1990.

 [`4]1. In view of amendment made by the Finance Act, 1982, w.e.f. 1-4-1983, agricultural lands comprised in tea, coffee, rubber and cardamom plantations are not liable to wealth-tax from the assessment year 1983-84 onwards.

 [`5]1. Now the limit is Rs. 2,000 p.m. or 25 pr cent of the total income, whichever is less.

 [`6]2. See CIT v. Davy Ashmore India Ltd. [1991] 190 1TR 626 (Cal.)/CIT v. R.M. Muthaiah [1993] 67 Taxman 222 (Kar.)/Agencia Geral (P.) Ltd. v. First ITO [1993] 45 ITD 243 (Pune - Trib.).

 [`7] 1. Notifications issued under the 1922 Act are deemed to have been issued under section 90 by virtue of section 297(2)(k) and they continue to be in force accordingly.

 [`8]       1.    Annex not printed here.

 [`9]       1.    Annex not printed here.

 [`10] 1. Annex not printed here.

 [`11]1. Not annexed here.

 [`12]1. Annex not printed.