Circular : No. 375 [F. No. 178/17/83-IT(A-I)], dated 2-1-1984.

SECTION 8OU l TOTALLY BLIND OR PHYSICALLY HANDICAPPED PERSONS

614. Deduction in the case of totally blind/physically handicapped persons under the section - Scope of expression permanent physical disability explained

CLARIFICATION 1

1. Circular No. 246 [F. No. 178/37/77-IT(A-I)], dated 20-9-1978 [Clarification 2] laid down certain guidelines for the purpose of grant of deduction in the case of totally blind or physically handicapped resident persons under section 80U.

2. A large number of references have been received by the Board on the ground that these guidelines laid in the circular do not provide situation for the cases of deaf and dumb persons and mentally retarded persons, etc.

3. The matter has been examined by the Board in consultation with the Ministry of Health and Family Welfare. The Board wish to point out that Circular No. 246 is only illustrative and there could be other situations or other categories of physically handicapped, such as, deafness, dumbness and mental retardation. The facts and circumstances of each case will have to be gone into in determining whether the requirements of section 80U are fully satisfied.

CLARIFICATION 2

1. The Board has been receiving numerous references from individual assessees and medical practitioners seeking clarification regarding the scope of deduction under section 80U.

2. Section 80U(ii) provides that in computing the total income of an individual being a resident, who as at the end of the previous year is subject to or suffers from a permanent physical disability (other than blindness) which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation, a deduction of Rs. 5,000 [`1] 1is allowed. This is subject to the condition that such individual produces before the Income-tax Officer in respect of the first assessment year for which the deduction is claimed in a case referred to in clause (ii) of section 80, a certificate as to the permanent physical disability from a registered medical practitioner.

3. The question under consideration is the scope of the expression permanent physical disability[`2] 2. The Board has in consultation with the Ministry of Health, evolved the following guidelines for the purposes of section 80U :

Section 80U providing a deduction of Rs. 5,000 in cases of assessees computing the total income of an individual should apply if a person suffers from the following permanent physical disabilities :

a. Bilateral paralysis of upper limb.

b. Paralysis of dominant upper limb.

c. Other paralysis of upper limb.

d. Bilateral paralysis of lower limb.

e. Other paralysis of lower limb.

f. Paralysis of upper and lower limbs on same side.

g. Paralysis of three limbs.

h. Paralysis of all four limbs.

i Other paralysis of limbs.

j. Other bilateral motor impairment of upper limb.

k Other motor impairment of dominant upper limb.

l. Other motor impairment of upper limb.

m. Other bilateral motor impairment of lower limb.

n. Other motor impairment of lower limb.

o. Other motor impairment of upper and lower limbs on same side.

p. Other motor impairment involving three or four limbs.

q. Other motor impairment of limbs.

r. Transverse deficiency of arm and shoulder.

s. Transverse deficiency of forearm.

t. Transverse deficiency of corpus and first metacarpal.

u. Transverse deficiency of thigh and pelvis.

v. Transverse deficiency of leg.

Essentially the transverse deficiency presents as an amputation like stump, and it may, therefore, arise, as a failure of formation of parts or as a result of surgical intervention.

Besides the above, the following other orthopaedic problems should also be added:

a Cerebralpalsy with athetosis.

b. Ankylosing spondylitis of both the hip joints.

c Rheumatoid arthritis involving upper limbs reducing the functional capacity to less than 30 per cent.

d. Malunited fractures resulting in the functional disability of above 50 per cent.

Circular : No. 246 [F. No. 178/37/77-IT(A-II)], dated 20-9-1978.

Judicial analysis

explained in - The above circular was referred to and explained in Anand Prakash Saxena v. ITO [1983] 3 ITD 32 (Indore - Trib.), with the following observations :

11. Para 3 of the circular issued by the CBDT only gave guidelines for the purposes of section 80U. The said guidelines are not exhaustive. At least the said circular letter nowhere says that if the assessee claims that he was subject to or suffers from a permanent physical disability which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation and in support of such a claim, a certificate, as referred to in clause (ii), was issued by a registered medical practitioner, in that case also the assessee would not be entitled to deduction under section 80U.

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15. We may state that if the assessee is entitled to deduction under proviso to section 80U(ii) itself, even if his case does not come within the ambit of circular letter issued by the CBDT, the claim under section 80U cannot be refused. (pp. 155-156)

explained in - The above circular was referred to and explained in Om Prakash v. ITO [1983] 33 CTR (Chd. - Trib.) 4 with the following observations :

A simple reading of the section shows that for purposes of claiming a deduction under this section, an individual who is resident at the end of the previous year in respect of an assessment year in which the deduction is claimed should produce a certificate from a registered medical practitioner as to the permanent physical disability referred to in the said clause. The section shows that once the terms of the sections are complied with by the assessee individual, the deduction is to be allowed under the mandate given by the Legislature because the words used are, there shall be allowed a deduction of a sum of five thousand rupees. There is no further condition for claiming the said deduction. The section also shows that the Legislature has not left anything to the Executive or for any subsidiary legislation so as to whittle down the relief granted by the Legislature. Therefore, even if a circular was issued by the CBDT, it could not be having any binding force on the authorities below as it was not a circular beneficial to the assessee. Moreover, on the very nature of these provisions, the circular could give only examples of cases which could be treated as physically handicapped. Such a list in its very nature could not be exhaustive and, therefore, if in the circular the type of physical disability suffered by the assessee was not sanctioned, it has no bearing upon the claim of the assessee and on that basis the authorities below could not refuse the claim of the assessee. (p. 6)

commented upon in - The above circular was referred to and commented upon in M.S. Choudhari v. ITO [1984] 41 CTR (Ind. - Trib.) 1, with the following observations :

. . . The Board Circular No. 246 dated 20-9-1978, in which instances of disability have been mentioned, is only illustrative and not exhaustive, so far as the disability is concerned. This apart, the said circular cannot be said to be binding as regards appellate authorities are concerned as per the ratio of the decision of Bombay High Court in [1974] 96 ITR 1 (Bom.) (supra). The loss of vision in one eye being a permanent disability, also finds support from the Workmens Compensation Act, 1923 vide Entry No. 25 in Sch. I, Part II at p. 1440 in Labour & Industrial Law by B.R. Dolia (1983 Edn.). I am, therefore, clearly of the view that the assessee is entitled to the requisite deduction under section 80U of the Income-tax Act and the ITO is directed to allow necessary relief to the assessee. (p. 6)

explained in - The above circular was explained in ITO v. Khemraj Jain [1985] 23 TTJ (Hyd. - Trib.) 346, with the following observations :

. . . The learned departmental representative drew my attention to Circular No. 246 dated 20-9-1978 wherein for guidance a list of certain diseases were mentioned for the purpose of section 80U. But this circular has been modified by a later Circular No. 375 dated 22-1-1984 wherein it has been held that the list of diseases mentioned in Circular 246 is only illustrative and not exhaustive and the facts and circumstances of each case will have to be gone into in determining whether the requirements of section 80U are fully satisfied. Thus no reliance can be placed on the Circular No. 246. . . . (p. 347)

explained in - The above circular was explained in Kanwar Narain Gupta v. ITO [1986] 24 TTJ (Asr. - Trib.) 558, with the following observations :

. . . Further the Boards Circular No. 375 shows that it has improved upon Circular No. 246 favourably for the assessee because vide it deafness, dumbness and mental retardation has been taken in the category of physical handicaps entitled under section 80U relief.

Besides, the Boards Circular No. 375 does not show that a permanent physical disability is the basis for the relief under section 80U of the Act, because Circular No. 375 has allowed relief under section 80U even to the individual, who are suffering from deafness, dumbness and mental retardation. Mental retardation and deafness are curable and there are instruments, which removes the deafness and an individual, who is suffering from deafness can hear by the use of hearing-aid. Therefore, if a victim is suffering from parkinsonism, who has lost power of speech and is belonging to legal profession, then such victim (advocate) is entitled to section 80U relief due to the effect of reducing substantially the capacity of the assessee (advocate) to engage in the gainful occupation. . . . (p. 561)

explained in - The above circular dated 20-9-1978 was explained in T. Raja Rama Mohana Rao v. ITO [1989] 28 ITD 534 (Hyd. - Trib.), with the following observations :

From the italicised portion of the circular extracted above, it will be obvious that if a person suffers from the kind of disability illustrated in the circular, the underlying assumption is that such a defect or deficiency has the effect of reducing the capacity of the person to engage in a gainful employment and no further proof is necessary except to prove such disability in the form of a medical certificate as provided for in the section. The learned Commissioner erred in assuming that the assessee has to further prove that his physical disability has in fact reduced his enhances of gainful employment. . . . (p. 539)

Circular : No. 377

1535. Additional relief to property bequeathed to Jawahar Lal Nehru Memorial Fund - Notification issued under sub-section (2) granting full exemption from estate duty

Whereas the Central Government is of opinion that circumstances are such that some relief in addition to the reliefs provided in sub-section (1) of section 33 of the Estate Duty Act, 1953 (34 of 1953) should be given in respect of the following class of property, whether movable or immovable, namely, any property of a deceased :

(i) bequeathed by the deceased to Jawahar Lal Nehru Memorial Fund being a fund notified under sub-clause (iv) of clause (23C) of section 10 of the Income-tax Act, 1961 (43 of 1961); and

(ii) which has actually been delivered, after the date of publication of this notification in the Official Gazette, to such fund

(a) within a period of two years from the date of such notification ; or

(b) within a period of three years after the death of the deceased ; or

(c) within a period of two years from the date on which probate is, or letters of administration (with a copy of Will annexed) are granted in respect of the estate of the deceased testator; and

(iii) on which estate duty has been levied and collected or is liable to be levied and collected under the Estate Duty Act, 1953 (34 of 1953) by virtue of the inclusion of such property in the estate of the deceased as property passing on his death ;

Now, therefore, in exercise of the powers conferred by sub-section (2) of section 33 of the Estate Duty Act, 1953 (34 of 1953), the Central Government hereby directs that no estate duty shall be payable in respect of such class of property.

Notification : No. GSR 165, dated 3-2-1984.

Circular : No. 378 [F. No. 178/227/83-IT (A-I)], dated 3-3-1984.

576. Whether deduction is to be reduced proportionately with reference to period for which business was not carried on during relevant previous year

1. Under section 80J a deduction at the rate of 6 per cent per annum of the capital employed is allowed from the profits of new industrial undertakings, ships and hotels which fulfil the prescribed conditions. In case of companies where the new industrial undertakings begin to manufacture after March 31, 1976 or ships are first brought into use after March 31, 1976 or the business of a hotel starts functioning after that date, the deduction is admissible at the rate of 7 per cent per annum. The question as to the meaning to be given to the phrase per annum has been considered by the Board.

2. The Karnataka High Court in the case of CIT v. Mysore Petrochemical Ltd. [1984] 145 ITR 416 has held that the relief under section 80J is admissible for the entire year irrespective of the period of operation of the new industrial undertaking in that year. A similar view has been expressed by the Madras High Court in the case of CIT v. Simpson & Co. [1980] 122 ITR 283. The Board have accepted the interpretation placed on the phrase per annum by the Karnataka High Court.

3. In view of the foregoing, the deduction under section 80J should not be reduced proportionately with reference to the period for which the business of the undertakings, ship or hotel was not carried on during the relevant previous year.

Circular : No. 379 [F. No. 225/105/83-IT (A-II)], dated 10-4-1984.

1239. Instructions to subordinate authorities - Authorisation regarding condonation of delay in filing refund claim

Clarification 1

1. I am directed to enclose a copy of the order under section 119(2)(b) from file of even number dated 12-10-1993 (See Annex) and also the Circular Number 670 of even date (Clarification 2) from the same file.

2. In this context, I have been directed to draw your attention to Instruction No. 1867, dated 30-11-1990 (See Annex) and to inform you that paras 2, 3 and 4 of the said Instruction shall continue to be applicable. The Chief Commissioner/Director General/ Commissioner of Income-tax/ Director of Income-tax should not only see that the conditions laid down by the various Circulars of the board are satisfied, but should also look further into the facts of the case and examine other aspects such as the source of income. Whether the income returned is reasonable considering the extent of profits disclosed, whether books of account had been maintained and whether there was any manipulation of accounts in the course of the delayed filing of the claim of refund, etc., for deciding the genuineness of the claims.

3. The powers delegated under section 119(2)(b) should be invoked only in suitable cases after scrutiny as suggested above and the claim should not be disposed of in a routine manner.

Order : [F. No. 225/208/93-IT (A-II)], dated 26-10-1993.

Annexure

1. In continuation of earlier orders dated 5-2-1988 and 17-8-1988 issued from F. No. 225/201/87-IT (A-II), the Central Board of Direct Taxes, in exercise of the powers conferred by clause (b) of sub-section (2) of section 119 of the Income-tax Act, 1961, hereby order that, in all cases where an otherwise valid refund claim under section 237 of the Income-tax Act, 1961, is filed by an assessee after the expiry of the statutory time limit prescribed under section 239 of the Act, the Assessing Officer, having jurisdiction over the case, may admit the said refund claim and dispose of the same on merits and in accordance with law provided the following conditions are satisfied :

(i) the Refund arises as a result of excess tax deducted at source, collected at source and payments of advance tax under the provisions of Chapter XVII-B, XVII-BB and XVII-C respectively and the amount of refund does not exceed Rs. 1 lakh for any assessment year;

(ii) the returned income is not a loss where the assessee claims the benefit of carry forward of the loss;

(iii) the refund claimed is not supplementary in nature, i.e., claim for additional amount of refund after the completion of the original assessment for the same assessment year; and

(iv) the income of the assessee is not assessable in the hands of any other person under any of the provisions of the Act.

Instruction : No. 1867, dated 30-11-1993.

1. Reference is invited to the earlier instructions/circulars issued by the Board (copies enclosed) regarding condonation of delays in claiming refunds, etc., by invoking the provisions of section 119(2)(b) of the Income-tax Act, specifically the following :

(i) Instruction No. 1795 dated 17th August, 1988 and letter No. 225/263/88-IT (A-II), dated 23rd January, 1989 stating that the Assessing Officer shall, before entertaining a belated refund claim, obtain the prior approval of the Commissioner of Income-tax where the refund claim does not exceed Rs. 1,000 and of the Chief Commissioner of Income-tax/Director General of Income-tax where the refund exceeds Rs. 1,000 but does not exceed Rs. 10,000; and

(ii) Order No. 225/201/87-IT(A-II), dated 5-12-1988 clarifying that the Board has delegated the power to condone the delay in case the refund does not exceed Rs. 10,000, provided the Chief Commissioner of Income-tax/Director General of Income-tax or the Commissioner of Income-tax, as the case may be, as the case may be, is satisfied that the conditions laid down in the various instructions/circulars on the subject are satisfied. However, such delegation was restricted to condonation of delay and not rejection thereof.

2. Some Chief Commissioners have recommended the cases of contractors and other persons engaged in business, who had make applications under section 119(2)(b) of the Income-tax Act for the purpose of claiming refunds of income-tax deducted at source from contract receipts, etc., for reception as they were not satisfied that the income returned by the said persons was full and true or even reasonable considering the extent of profit disclosed. It was also noticed that such persons were not maintaining any books of account and, therefore, the possibility of purposely delaying the filing of the returns so as to avoid scrutiny by the Department could not be ruled out. Needless to say that such cases were not found to be of genuine hardship.

3. The Board has been accepting such recommendations as it would be against public policy to condone such delays thereby giving an extended time to such assessees to manipulate their accounts so as to evade taxes.

4. The Board now desire that the Chief Commissioners/Directors General/Commissioners should not only see that the conditions laid down by the various Board circulars are satisfied, but also look further into the facts of the case and examine the source of income, whether the income has been reflected in other years or not, whether there is any scope for manipulation of accounts due to the delay in filing the claim of refund, etc., before applying the provisions of section 119(2)(b) of the Income-tax Act. It is desired that only genuine cases should be considered for the purpose of applying the provisions of section 119(2)(b) of the Act and the applications should not be disposed of in a routine manner.

Clarification 2

1. The Boards order under section 119(2)(b), dated 12th October, 1993 and Circular No. 670 dated 26th October, 1993 [F. No. 225/208/93/IT (A-II)] lay down procedure for condonation of delay in belated claims of refunds. These provide that CIT has power to condone delay in case of genuine hardship of refund claims up to Rs. 10,000 and CIT up to Rs. 1,00,000. The power of condonation in cases of refund claims of more than Rs. 1,00,000 as well as power of rejection in all cases lie with the Board.

2. Under the existing circular, apart from the conditions prescribed under earlier orders dated 5-2-1988 and 17-8-1988 issued from [F. No. 225/201/87/IT (A-II)], the following additional conditions are required to be fulfilled before the condonation of delay in filing belated refund claims can be considered :

(i) the refund arises as a result of excess tax deducted at source, collected at source and payments of advance tax under the provisions of Chapters XVII-B, XVII-BB and XVII-C, respectively and the amount of refund does not exceed Rs. 1 lakh for any assessment year;

(ii) the returned income is not a loss where the assessee claims the benefit of carry forward of the loss;

(iii) the refund claimed is not supplementary in nature, i.e., claim for additional amount of refund is made after the completion of the original assessment for the same assessment year; and

(iv) the income of the assessee is not assessable in the hands of any other person under any of the provisions of the Act.

3. Subsequently the Karnataka High Court in the case of Associated Electro Ceramics v. Chairman, Central Board of Direct Taxes [1993] 201 ITR 501 held that the Board have power to condone the delay in cases having claim of carry forward of losses. The department did not file special leave petition against this order. Subsequently the matter was taken up with the Ministry of Law who also agreed with the view that the Board have power to condone the delay in filing the return under section 119(2)(b) of the Income-tax Act, 1961, in a case having claim of carry forward of losses.

4. Hence, conditions at Serial No. (ii) of order under section 119(2)(b) dated 12th October, 1993 stipulating that the delay cannot be condoned in cases where returned income is a loss and assessee claims benefit of carry forward of the loss, is not legally tenable.

5. In view of the Board, hereby, clarify that delay in making refund claim as well as claim of carry forward of losses, both, can be condoned in cases where returned income is a loss, provided other conditions are satisfied. The monetary limits prescribed for condonation of delay in making refund claims, by different IT authorities, will apply to condonation of delay in cases of claim of carry forward of losses as well.

Circular : No. 8/2001, dated 16-5-2001.

Clarification 3

1. I am directed to forward herewith the order contained in F. No. 225/208/93/ITA-II, dated 12th October, 1993, passed by the CBDT in exercise of the powers conferred on it under section 119(2)(b) of the Income-tax Act. By virtue of this order the Assessing Officers can admit belated refund claims under section 237 of the Income-tax Act in cases where refunds may arise as a result of tax deducted/collected at source and advance tax payments where the amount of such refund does not exceed Rs. 1 lakh for any assessment year.

2. Board have also decided that in such cases

(i) where the refund does not exceed Rs. 10,000 for any assessment year the Assessing Officer shall obtain the prior approval of the CIT before entertaining a belated refund claim ; and

(ii) where the refund exceeds Rs. 10,000 but does not exceed Rs. 1,00,000 for any assessment year the Assessing Officer shall obtain the prior approval of CCIT of DGIT before entertaining a belated refund claim.

3. The CCIT/DGIT/CIT, as the case may be, shall ensure that the conditions laid down under Boards order under section 119(2)(b) referred to above are fulfilled.

4. Where a Chief Commissioner of Income-tax/Director General of Income-tax/Commissioner of Income-tax/Director of Income-tax finds that the four conditions laid down in the order under section 119(2)(b) dated 12-10-1993 are satisfied but still it is not a case of genuine hardship, he should refer the belated refund application to the Board for final decision.

5. This order is effective from 1-11-1993 and will apply to all claims of refund pending as on that date and also in respect of all refund claims filed on or after that date.

Circular : No. 670, dated 26-10-1993.

Clarification 4

1. Attention is invited to Boards order under section 119(2)(b) of the Income-tax Act [F.No. 225/201/87-IT(A-II), dated 17-8-1988 whereby the Board, in exercise of the powers conferred by clause (b) of sub-section (2) of section 119 of the Income-tax Act, 1961, have authorised the Income-tax Officer to admit belated refund claims under section 237 of the Income-tax Act, 1961 arising as a result of excess advance tax paid.

2. With a view to avoid genuine hardship to the taxpayers, Assessing Officers have now been authorised to admit belated refund claims in respect of amounts up to Rs. 10,000 provided the conditions laid down in the said order are fulfilled. These conditions are as follows :

(i) the refund arising as a result of excess advance tax payment in respect of assessment year under the provisions of section 208 of the Income-tax Act, does not exceed Rs. 10,000;

(ii) the returned income is not a loss, where the assessee claims the benefit of carry forward of the loss;

(iii) the refund claimed is not supplementary in nature i.e., a claim for additional amount of refund after the completion of the original assessment for the same assessment year; and

(iv) the income of the assessee is not assessable in the hands of any other person under any provisions of the Act.

3. This order will be effective from 1-8-1988.

Circular : No. 521, dated 17-8-1988.

Clarification 5

1. Attention is invited to the Boards Order under section 119(2)(b) [F. No. 225/201/87-IT(A-II)], dated 5-2-1988 whereby the Board, in exercise of the powers conferred by clause (b) of sub-section (2) of section 119, have raised the monetary limit of cases in which the ITO is authorised to admit belated refund claims under section 237.

2. With a view to avoid hardship to the taxpayers, the Income-tax Officers have now been authorised to admit belated refund claims in respect of amounts up to Rs. 10,000 provided the conditions laid down in the said order are fulfilled. These conditions are as follows :

(i) the refund arising as a result of tax deducted at source in respect of assessment year under the provisions of sections 192, 193, 194, 194A, 194B, 194C, 194D and 195 does not exceed Rs. 10,000;

(ii) the returned income is not a loss where the assessee claims the benefit of carry forward of the loss;

(iii) the refund claimed is not supplementary in nature, i.e., a claim for additional amount of refund after the completion of the original assessment for the same assessment year; and

(iv) the income of assessee is not assessable in the hands of any other person under any provisions of the Act.

3. This order will be effective from 10-2-1988.

Circular : No. 503 [F. No. 203/201/87-IT (A-II)], dated 6-2-1988.

Judicial analysis

Explained in - The above circular was relied on in Balram Kapoor v. ITO [1990] 38 TTJ (Nag.) 295, with the following observations :

In the present case, the refund arises on a proper assessment of total income and proper application of the provisions of the Act which require that the tax deducted at source should be adjusted against the finally determined tax liability. This is precisely what the Board had in mind when it issued the Circular dated 6th February, 1988. The conditions prescribed by the Board contained in para 2 of the said circular are as under :

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In the present case the refund arises as a result of tax deducted at source under section 194C of the Act. Further the refund does not exceed Rs. 10,000. Also the income returned is not a loss and the assessee is not claiming the benefit of carry forward of the loss. We also find that the refund claimed is not supplementary in nature, that is a claim for additional amount of refund after the completion of the original assessment of the same assessment year. Therefore, in our opinion, all the conditions prescribed in this circular are satisfied in the assessees case and although the circular is made effective from 10th February, 1988, we see no reason why this circular should not be taken into consideration for deciding the validity of the arguments advanced in the present case. (pp. 300-301).

Clarification 5

1. Attention is invited to Boards order under section 119(2)(b) [F. No. 225/105/83-IT (A-II)], dated 24-3-1984 [Annex] wherein the Board, in exercise of the powers conferred by clause (b) of sub-section (2) of section 119, have condoned the delay in filing returns of income in cases where an otherwise valid refund claim under section 237 is filed by the assessee after the expiry of the statutory time limit under section 239 and the Income-tax Officer, having jurisdiction over the case, has been empowered to admit the said claim and dispose of the same merits and in accordance with law provided the following conditions are satisfied :

(i) the refund arising as a result of tax deducted at source in respect of the assessment year under the provisions of sections 192, 193, 194, 194A, 194B, 194C, 194D and 195 does not exceed Rs. 1,000;

(ii) the refund income is not a loss where the assessee claims the benefit of carry forward of the loss;

(iii) the refund claimed is not supplementary in nature, e.g., a claim for additional amount of refund after the completion of the original assessment for the same assessment year; and

(iv) the income of the assessee if not assessable in the hands of any other person under any provisions of the Act.

2. This order has been made effective from April 2, 1984.

3. You are requested to bring to the contents of the aforesaid order, which has already been communicated to you vide the Boards endorsement of even number dated 24-3-1984 to the notice of all the officers working under you. It is also requested that this authorisation may be given wide publicity.

Annex - Order, Dated 24-3-1984 Referred to In Clarification

In exercise of the powers conferred by clause (b) of sub-section (2) of section 119 of the Income-tax Act, 1961, the Central Board of Direct Taxes hereby order that, in all cases an otherwise valid refund claim under section 237 of the Income-tax Act, 1961 is filed by an assessee after the expiry of the statutory time limit as prescribed under section 239 of the Act, the Income-tax Officer, having jurisdiction over the case, may admit the said refund claim and dispose of the same on merits and in accordance with law provided the following conditions are satisfied :

(i) the refund arising as a result of tax deducted at source in respect of the assessment year under the provisions of sections 192, 193, 194, 194A, 194B, 194D and 195 does not exceed Rs. 1,000;

(ii) the returned income is not a loss where the assessee claims the benefit of carry forward of the loss;

(iii) the refund claimed is not supplementary in nature, i.e., a claim for additional amount of refund after the completion of the original assessment for the same assessment year; and

(iv) the income of the assessee is not assessable in the hands of any other person under any provisions of the Act.

2. This order will be effective from April 2, 1984

1. Attention is invited to Boards Order F. No. 225/105/83-IT (A-II), dated 24-3-1984 whereby the Board, in exercise of the powers conferred by clause (b) of sub-section (2) of section 119 authorised the Income-tax Officers to admit belated refund claims under section 237 in respect of amount up to Rs. 1,000 in cases where refund arose as a result of tax deducted at source under sections 192 to 194, section 194A, and section 195 provided the conditions laid down in the said order were fulfilled. This order was effective from 2-4-1984. The order, however, did not cover cases where refunds arose as a result of tax deducted at source under section 194C, i.e., the cases of contractors and sub-contractors.

2. With a view to avoiding hardship to the taxpayers, the Board vide their Order F. No. 225/105/83-IT (A-II), dated 31-12-1985 have further authorised the ITOs to admit a belated application/claim for refund in cases where refund arises as a result of tax deducted at source under section 194C provided the following conditions are satisfied :

(i) the amount of refund arising as a result of tax deducted at source under the provisions of section 194C, in respect of the assessment year, does not exceed Rs. 1,000;

(ii) the returned income is not a loss where the assessee claims benefit of carry forward and set off of loss;

(iii) the refund claim is not supplementary in nature, e.g., a claim for additional amount of refund after the completion of the original assessment for the same assessment year; and

(iv) the income of the assessee is not assessable in the hands of any other person under any provisions of the Act.

3. This order will be effective from 1-1-1986.

Circular : No. 446 [F. No. 225/105/83-IT (A-II)], dated 31-12-1985.

Circular : No. 380 [F. No. 279/186/82-ITJ], dated 10-4-1984.

579. Decision of Bombay High Court in Indian Oil Corporations case - Whether equally applicable to sub-section (1A) inserted by Finance Act, 1980

1. Section 80J provides that in computing the taxable income of an assessee from a newly established industrial undertaking, ship or business of a hotel, a deduction shall be allowed at the rate of 6 per cent (with effect from 1-4-1976 at the rate of 7.5 per cent in the case of a company) of the capital employed in the industrial undertaking, ship or business of the hotel. Rule 19A of the Income-tax Rules, 1962 prescribed the manner of computation of the capital employed for this purpose. Sub-rule (2) of rule 19A provided that the aggregate of the amounts representing the value of the assets of the undertaking shall first be ascertained in the manner specified therein. Sub-rule (3) of rule 19A provided that from the amount ascertained under sub-rule (2), the aggregate of the borrowed moneys and debts due by the assessee shall be deducted. The Bombay High Court in the case of Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO [1973] 92 ITR 241, while interpreting rule 19A held that in respect of each undertaking the liabilities of the assessee in respect of that industrial undertaking only were to be deducted from the aggregate value of the assets of the same industrial undertaking. The Board considered this judgment and accepted the interpretation given by the High Court for harmonious working of rule 19A.

2. Section 80J(1A) was inserted by the Finance Act, 1980 adopting the provisions made in rule 19A. The language of section 80J(1A) is the same as in rule 19A. Hence, the Board is of the view that the judgment of the Bombay High Court is equally applicable to the provisions made in sub-section (1A) of section 80J.

Circular : No. 381

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.

Circular : No. 382 [F. No. 484/12/78-FTD], dated 4-5-1984.

45. Taxation of shares of Indian companies allotted to non-residents in consideration for the purchase of machinery and plant delivered abroad under clause (vi)/(vii) of sub-section (1)

1. Clauses (vi) and (vii) have been inserted in sub-section (1) of section 9 by the Finance Act, 1976, with effect from 1-6-1976. As a result, income by way of royalties and fees for technical services is deemed to accrue or arise in India in the cases specified under these provisions.

There are, however, two exceptions to the above general position. Firstly, lump sum consideration paid under approved agreements made before 1-4-1976 for the transfer outside India of, or the imparting of information outside India in respect of, any date, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark, or other similar property is not deemed to accrue or arise in India, and secondly, income by way of fees for technical services under approved agreements made before that date is not deemed to accrue or arise in India.

2. In this context, certain questions have been raised as to whether the clarifications contained in Public Circular No. 21 of 1969 would be applicable. In para 11 of this circular, it was stated that in a case where, shares are issued at the time of incorporation of an Indian company in consideration for the transfer abroad of technical know-how or services, or delivery abroad of machinery and plant, and the payment is not taxable under section 5(2)(b) as income accruing or arising or deemed to accrue or arise in India, no attempt should be made by the department to bring to tax the profits or gains on such transactions merely on the ground that the situs of the shares is in India.

3. As a result of the amendments brought about by the Finance Act, 1976, royalties or fees for technical services paid in pursuance of collaboration agreements entered into on or after April 1, 1976, are chargeable to tax under section 5(2)(b). The contents of para 11 of Circular No. 21 of 1969 would cover only cases where shares in Indian companies are allotted to a non-resident for delivery abroad of machinery and plant. Where shares in Indian companies are allotted in consideration for the machinery and plant, the income embedded in the payments would be received in India as the shares in the Indian companies are located in India and would accordingly attract liability to income-tax as income received in India.

4. In view of the legal position, the concessions in paragraph 11 of the said circular are in the nature of extra legal concessions and the Board have decided to withdraw the same. Paragraph 11 of the Public Circular No. 21[`3] 1, may, therefore, be treated as withdrawn with immediate effect.

Circular No. 383, dated 22-6-1984

250. Approval of Central Government required claiming initial depreciation on new buildings by a hotel

See Circular No. 383, dated 22-6-1984, under section 80J.

Circular: No. 384 [F.No. 319/8/84-WT], dated 6-7-1984.

1383. Whether valuation fixed in one assessment year cannot be disturbed for two succeeding years - Para III(b) of Circular 3(WT), dated 28-9-1957 superseded

Attention is invited to instructions contained in Para III(b) of the Boards Circular No. 3(WT) of 1957, dated 28-9-1957 wherein it was stated that the valuation fixed in one assessment year need not be disturbed for two succeeding assessment years except in certain circumstances. The said circular was withdrawn by the Boards Letter No. 319/12/74-WT, dated 5-4-1974. Certain references have been received in the Board to the effect that some assessees rely on Circular No. 3 to argue before Valuation Officers that there is no valid reason for enhancing the value adopted in an earlier assessment year by the Wealth-tax Officer in cases where there is no substantial improvement or extension to the property. The matter has been considered in the Board and it clarified that, in view of insertion of section 16A in the Wealth-tax Act, 1957, and the Boards Circular No. 96, which, inter alia, states as under:

Under this provision, the Wealth-tax Officer may refer the valuation of any capital asset to the Valuation Officer in a case where the assessee has got the asset valued by a registered valuer and the value returned is in accordance with the estimate made by the registered valuer if he is of the opinion that the value as estimated by the registered valuer is less than the fair market value of the asset. Other cases in which reference may be made to the Valuation Officer would be where the Wealth-tax Officer is of the opinion that the fair market value of the asset exceeds the value of the asset as returned by more than 331/3 per cent of the value returned or by more than Rs. 50,000, whichever is less, or where having regard to the nature of the asset and other relevant considerations, the Wealth-tax Officer considers it necessary to do so.

The instructions contained in para III(b) of the Boards Circular No. 3 of 1957 stand superseded. In view of what is stated above and particularly the Boards Letter No. 319/12/74-WT, dated 5-4-1974, it is obvious that para III(b) of Circular No. 3 WT of 1957 is no longer in force.

Circular : No. 385 [F.No. 316/35/81-WT], dated 3-7-1984.

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1338. Whether properties left in erstwhile East Pakistan after Indo-Pak conflict of 1965 and relief granted in the form of ex gratia grant and as such asset includible in net wealth

The Board have considered taxation under the Wealth-tax Act of assessees in India in respect of their properties left in erstwhile East Pakistan after Indo-Pak conflict of 1965 and the relief granted to them in respect of such properties in the form of ex gratia grant from the Consolidated Fund of India and have decided as under :

The value of the properties left behind in East Pakistan by persons who had migrated to India, and which vested in the Custodian of Enemy Property in Pakistan, cannot be assessed to wealth-tax in India in the hands of such persons.

The ad hoc interim relief granted by the Government of India in the form of ex gratia grant from the Consolidated Fund of India cannot be assessed to wealth-tax as there is no legally enforceable claim to such relief.

Judicial analysis

Explained in - The above circular was explained in Smt. Kamla Devi v. WTO [1986] 16 ITD 687 (Cal.), as follows :

8. The Boards Circular No. 385 dated 3-7-1984 clearly says that the ad hoc interim relief granted by the Government of India in the form of ex gratia grant from the Consolidated Fund of India cannot be assessed to wealth-tax as there is no legally or enforceable claim to such relief. This circular is not inconsistent with any provision of law and, therefore, the reliance placed on behalf of the department on the decision of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITD 102 (SC) is misplaced. In view of this circular also nothing is includible in the net wealth of the assessee in respect of the properties left in Pakistan or in respect of the alleged claim to receive relief from the Government of India under the aforesaid notice. (p. 692)

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FINANCE ACT, 1984 - CIRCULAR NO. 387, DATED 6-7-1984

• Amendments at a glance
• Rate structure
• Amendments to Income-tax Act
• Amendments to Wealth-tax Act
• Amendments to Unit Trust of India Act

Circular: No. 388 [F.No. 275/13/84-IT (B)], dated 16-7-1984.

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Financial year 1984-85

1683. Instructions for deduction of tax at source from salary during financial year 1984-85 at the rates specified in Part III of First Schedule to Finance Act, 1984

1. I am directed to invite a reference to this Ministrys Circular No. 362 [F.No. 275/21/83-IT(B)], dated 18-6-1983 wherein the rates of income-tax deduction during the financial year 1983-84, 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 the person responsible for paying any income chargeable under the head Salaries 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 to the nearest rupee is required to be deducted from the monthly salary.

3. In the Finance Act, 1984, some modifications have been made. An extract of Sub-Paragraph I 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 1984-85, is given hereunder :

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

(2) The value of perquisites by way of free or confessional 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 for 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].

¹[It may also be added that the Taxation Laws (Amendment) Act, 1984 has inserted a new sub-clause (vi) under clause (2) of section 17 with effect from 1-4-1985 which reads as under :

(vi) where the employer has advanced any loan to the employee for the purpose of building a house or purchasing a site or a house and a site or for purchasing a motor car, and either no interest is charged by the employer on the amount of such loan or interest is charged at a rate lower than the rate of interest which the Central Government may, having regard to the rate of interest charged by it from its employees on loans for such purpose granted to them specify in this behalf by notification in the Official Gazette, an amount equal to:

(a) in a case where such loan is advanced without charging any interest, the interest calculated in the prescribed manner on such loan at the rate so specified;

(b) in a case where such loan is advanced by charging interest at a rate lower than the rate so specified, the difference between the interest calculated in the prescribed manner on such loan at the rate so specified and the interest charged by the employer:

Provided that this sub-clause shall not apply in the case of

(1) an employee of the Central Government or any State Government; or

(2) an employee, not being an employee referred to in paragraph (a) or paragraph (b) of sub-clause (iii), whose income under the head Salaries, exclusive of the value of all benefits or amenities not provided for by way of monetary payment, does not exceed eighteen thousand repees.

(3) Exemptions in computing total income:

(a) Sub-clause (i) of clause (10) of section 10 provides exemption of death-cum-retirement gratuity from inclusion in computing total income. The maximum limit to which it can be excluded is Rs. 36,000.

(b) Sub-clause (i) of clause (10AA) of section 10 provides for exemption of any payment received by an employee as cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise.

(c) In the case of an employee other than an employee of the Central or State Government any payment of the nature referred to in sub-clause (i) of clause (10AA) of section 10 is to be excluded in computing the total income subject to the provisions of sub-clause (ii) of the said clause (10AA).

(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 principal sum will be regarded as salary paid during the relevant financial year and assessed to tax accordingly, the interest element qualifies for deduction in accordance with section 80L.

(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.

¹(6) Under section 10(13A), any special allowance specifically granted to an assessee by his employer to meet expenditure 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, prescribe 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 house rent allowance from the total 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 in 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 has 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 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 annual letting value of the house/flat for which production of evidence in the form of a document showing the annual letting value fixed by 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 remark at the end of the return :

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

(7) Under section 16, the taxable salary is to be computed after providing standard deduction. The standard deduction is to be allowed of an amount equal to 25 per cent of the salary subject to a maximum of Rs. 6,000. 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 payments 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 purposes of computing the amount of the standard deduction. It is to be noted that standard deduction on the above basis is to be allowed irrespective of whether any expenditure incidental to employment is actually incurred by the employee or not. This deduction will be available also to persons drawing pension during the current financial year at the same rates and subject to the same ceiling as to 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 purpose of going from his residence to the place where the duties of his employment are to be performed, or from such place back to his residence will not be regarded as use of the motor cars in the performance of his duties.

(8) (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 payment towards life insurance premia, contributions to provident fund (including contributions 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, deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, and subscription to the National Savings Certificates (VI Issue) and the National Savings Certificates (VII Issue). The qualifying amount of payments of all these items will be subject to a maximum of Rs. 40,000.

(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 the 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 to the Act 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 :

(A) Government provident fund and Railway provident fund.

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

(C) Any provident fund set up by the Central Government and notified by it in the Official GazettePublic Provident Fund set up under the Public Fund Act, 1968 is an example of such a fund.

(d) Clause (b) of sub-section (2) of section 80C has been substituted by a new clause with effect from 1st day of April, 1984, by the Finance Act, 1983. The new clause (b) is as under :

(b) where the assessee is a Hindu undivided family,

(i) any sums paid in the previous year by the assessee out of its income chargeable to tax

(1) to effect or to keep in force an insurance on the life of any member of the family ; or

(2) as a contribution to any provident fund referred to in sub-clause (iv) of clause (a), where such contribution is to an account standing in the name of any member of the family ; or

(ii) any sums deposited in the previous year by the assessee out of its income chargeable to tax in a ten-year account or a fifteen-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, as amended from time to time where such sums are deposited in an account standing in the name of any member of the family.

In the existing Explanation below this clause, for the word, brackets and letter clause (b), the words, brackets, figure and letter sub-clause (i) of clause (b), have been substituted.

(e) In sub-section (4) of section ibid., for clauses (i) to (iv), the following clauses have also been substituted :

(i) in the case of an individual being an author, playwright, artist, musician, actor or sportsman (including an athlete), sixty thousand rupees ;

(ii) in the case of any other individual or a Hindu undivided family or any such association of persons or a body of individual as is referred to in clause (g) of sub-section (2), forty thousand rupees.

These changes may be taken note of while allowing deductions under this section.

(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 finalisation of the assessment. However, in cases where contributions to the National Defence Fund, Jawaharlal Nehru Memorial Fund, the Prime Ministers Drought Relief Fund, 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 total 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 Income-tax 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 a 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 deductions under section 80GG.

(c) The assessee does not own

(i) any residential accommodation himself or by his spouse or minor child or where such assessee is a member of a Hindu undivided family, by such family, at the place where he ordinarily resides or performs duties of his office or carries on his business or profession ; or

(ii) at any other place, being accommodation in the occupation of the assessee, the value of which is to be determined under clause (i) or, as the case may be, clause (ii) of sub-section (2) of section 23.

(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, Bangalore, 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 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 herein 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 a only a reimbursement of expenses laid down 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 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 purposes of that clause, as a 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 employee 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 purpose 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 services 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 India currency will not be taken into account for purposes of 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 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 deduction is admissible only in relation to the first 36 months of continuous service outside India should also be kept in view.]

(13) Section 80U, as amended by the Finance Act, 1984, is reproduced below :

(1) In computing the total income of an individual, being a resident, who, as at the end of the previous year,

(i) is totally blind, or

(ii) is subject to or suffers from a permanent physical disability (other than blindness) being a permanent physical disability specified in the rules made in this behalf by the Board, and which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation,

there shall be allowed a deduction of a sum of ten thousand rupees :

Provided that such individual produces before the Income-tax Officer in respect of the first assessment year for which deduction is claimed under this section,

(a) in a case referred to in clause (i), a certificate as to his total blindness from a registered medical practitioner being an oculist; and

(b) in a case referred to in clause (ii), a certificate as to the permanent physical disability referred to in the said clause from a registered medical practitioner.

(2) The Board shall, in making any rules for specifying any disability for the purposes of clause (ii) of sub-section (1), have regard to the nature of such disability and the effect which such disability is likely to have on the capacity of a person subject thereto, or suffering therefrom, to engage in a gainful employment or occupation.

The deduction of Rs. 10,000 from the total income is allowed 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 reads as under :

(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 on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.

(2) Where the tax has not been paid as aforesaid after it is deducted the amount of 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 1961 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 the 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. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with Blue Colour Band. Where 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 1984-85 under the Compulsory Deposit (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 Income-tax Act, 1961, is the 31st March, 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 instalments 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 difference to opinion, a reference should also always be made to the provisions of the Income-tax Act, 1961, 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, 1984

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 total income does not exceed Rs. 15,000	Nil;
(2)	where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000	20 per cent of the amount which the total income exceeds Rs. 15,000 ;
(3)	where the total income exceeds Rs. 20,000 but does not exceed Rs. 25,000	Rs. 1,000 plus 25 per cent of the amount by which the total income exceeds Rs. 20,000 ;
(4)	where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000	Rs. 2,250 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000 ;
(5)	where the total income exceeds Rs. 30,000 but does not exceed Rs. 40,000	Rs. 3,750 plus 35 per cent of the amount by which the total income exceeds Rs. 30,000 ;
(6)	where the total income exceeds Rs. 40,000 but does not exceed Rs. 50,000	Rs. 7,250 plus 40 per cent of the amount by which the total income exceeds Rs. 40,000 ;
(7)	where the total income exceeds	Rs. 11,250 plus 45 per cent of the amount by
	Rs. 50,000 but does not exceed	which the total income exceeds Rs. 50,000 ;
	Rs. 70,000
(8)	where the total income exceeds Rs. 70,000 but does not exceed Rs. 1,00,000	Rs. 20,250 plus 50 per cent of the amount by which the total income exceeds Rs. 70,000 ;
(9)	where the total income exceeds Rs. 1,00,000	Rs. 35,250 plus 55 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 twelve and a half 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)	Payment towards LIP	1,000
(4)	Contribution for participation in the Unitlinked 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) @ 25% of the amount subject to maximum of Rs. 6,000		6,000
(8)	Gross total income (67)		19,000
(9)	Deduct : Amount on account of contributions 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 Saving Bank (Cumulative Time Deposits) Rules, 1959. The total amount paid Rs. 6,000		6,000
(10)	Total income (89)		13,000
(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)	Subscription to National Savings Certificates (VI and VII Issues)	5,400
(6)	Free gas, electricity, water, etc. (actual bills paid by the company)	2,400
(7)	Furniture at cost (including television set, radio set, refrigerator, other household appliances and an air-conditioner) belonging to the company	40,000
(8)	(i) Furnishing flat provided to the employee for which actual rent paid by the company (actual rent assumed to be equal to the fair rental value)	42,000
	(ii) Rent recovered from the employee	12,000

Computation of total income

			Rs.	Rs.
(1)	Salary			48,000
(2)	Bonus			9,600
(3)	Valuation of perquisites :			57,600
	(a)	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. 42,000) 10% of salary including bonus		5,760
	Add : Excess of FRV over 60% of salary including bonus, of Rs. 57,600 (i.e., Rs. 42,000Rs. 34,560)		7,440
	Add : Perquisite of the furniture (10% of cost, i.e., Rs. 40,000)		4,000
			17,200
	Less : Rent paid by the employee		12,000	5,200
				62,800
(4)	Free gas, electricity, etc.			2,400
				65,200
(5)	Less : Standard deduction under section 16(i) @ 25% subject to maximum of Rs. 6,000			6,000
(6)	Gross total income			59,200
(7)	Less : Deduction under section 80C :
	P.F. paid Rs. 11,000 but restricted to 1/5th of salary, Rs. 48,000 (excluding bonus) or Rs. 10,000, whichever is less		9,600
	LIP		10,000
	National Savings Certificates (VI & VII Issues)		5,400
	Total of P.F. and L.I.P. of Rs. 19,600 (maximum allowable up to Rs. 40,000)		25,000
	First Rs. 6,000 (100%)			6,000
	Next Rs. 6,000 (50%)			3,000
	On balance Rs. 13,000 (40%)			5,200
				14,200
(8)	Total income (67) (Rs. 59,200Rs. 14,200)			45,000
(9)	Tax payable thereon (Rs. 7,250 + 40% of excess over Rs. 40,000)			9,250
(10)	Surcharge @ 12% of income-tax payable			1,156.25
(11)	Total tax payable			10,406.25
(12)	Rounded off under section 288B			10,406.00

[Rate at which monthly deduction from salary is required to be made works out to Rs. 867]

Notes :

1. In the case of a Government servant, the value of perquisites of unfurnished accommodation provided fee 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 per 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 employee 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 as 10 per cent of the salary due to the employee and where the accommodation is furnished as in other cases, if an additional 10 per cent or 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 over 60 per cent of salary over fair rental value, as against 50 per cent in other cases, is required to be added in determining the value of perquisites in view of Boards Circular No. 374, dated 14-12-1983.

Example III

[Illustrating limits of deduction under section 80C]

		Rs.	Rs.
(1)	Total salary income (including Rs. 2,400 as conveyance allowance @ Rs. 200 p.m. received from the employer)		30,000
(2)	Contribution to recognised provident fund	9,500
(3)	Payment to life insurance premia	1,000
(4)	Contribution for participation in the Unit-linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963	1,500
(5)	Deposit in a 10-year account or 15-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) @ 25% of the amount subject to maximum of Rs. 6,000		6,000
(8)	Gross total income (67)		24,000
(9)	Deduction under section 80C :
	Contribution of Rs. 9,500 to P.F. 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 for participation in the Unit-linked insurance plan, made under section 19(1)(cc) of the Unit Trust of India Act, 1963	1,500
	Deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959	1,000
	Deduction admissible on Rs. 9,500
	- on the first Rs. 6,000 (100%)		6,000
	- on the balance Rs. 3,500 @ 50%		1,750
			7,750
(10)	Total income (89)		16,250
(11)	Income-tax payable at Rs. 16,250 (Rs. 16,250
	Rs. 15,000) @ 20%		250
(12)	Surcharge on income-tax @ 12%		31.25
(13)	Total tax payable (11 + 12)		281.25
(14)	Rounded off under section 288B
	[Rate at which monthly deduction is required to be made works out to Rs. 23.00]		281.00

Example IV

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

		Rs.
1.	Salary (exclusive of allowances 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) Rules, 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% of salary	3,600
		7,800
	20% of salary (accommodation being situated at Delhi)	7,200
	Maximum allowance @ Rs. 400 p.m.	4,800	4,800
			39,600
4.	Less : Standard deduction under section 16(i) @ 25% subject to the maximum of Rs. 6,000		6,000
5.	Gross total income		33,600
6.	Less : Deduction under section 80C :
	Total P.F., L.I.P. and C.T.D. Rs. 10,000. These contributions being within the prescribed admissible limits, the deduction is admissible on Rs. 10,000 :
	- first Rs. 6,000 (100%)	6,000
	- of balance Rs. 4,000 (50%)	2,000	8,000
7.	Total income		25,600
8.	Tax payable thereon [Rs. 2,250 + 30% of Rs. 600 (Rs. 25,600Rs. 25,000)]		2,430
9.	Surcharge @ 12% of income-tax payable		303.75
10.	Total tax payable (8 + 9)		2,733.75
11.	Rounded off under section 288B		2,734.00
	[Rate at which monthly deduction from salary is required to be made works out to Rs. 228.]

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 exceeds 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 12.5 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. 389 [F. No. 275/16/84-IT(B)], dated 4-8-1984.

FINANCIAL YEAR 1984-85

1760. Instructions for deduction of tax at source from winnings from horse races during financial year 1984-85 at the rates specified in Part II of First Schedule to Finance Act, 1984

1. I am directed to invite a reference to this Departments Circular No. 366 [F. No. 275/23/83-IT(B)], dated 20-7-1983, on the above subject, wherein the rates at which deduction of tax under section 194BB to be made during the financial year 1983-84 from winnings from horse races were communicated.

2. The Finance Act, 1984 prescribes the rates for deduction of tax at source for the financial year 1984-85 as specified in Part II of the First Schedule to the said Act. They are as below :

Rates of income-tax including surcharge

I. In the case of a person other than a company
(a) where the person is resident	33.75 per cent (IT 30 per cent + SC 3.75 per cent);
(b) where the person is not resident	33.75 per cent (IT 30 per cent + SC 3.75 per cent);
	or
	income-tax and surcharge on income-tax in respect of the income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1984, if such income had been the total income,
	whichever is higher.
II. In the case of a company
(a) where the company is a domestic company	22.575 per cent (IT 21.5 per cent + SC 1.075 per cent)
(b) where the company is not a domestic company	73.5 per cent (IT 70 per cent + SC 3.5 per cent).

3. The tax deducted should be paid to the credit of the Central Government by remitting it into the office of the Reserve Bank of India or the State Bank of India or any other authorised public sector bank within one week from the last day of the month in which the deduction is made. While making the payment of tax deducted at source to the credit of the Central Government, it may please 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. The relevant challan for making payment of tax deducted at source from payments by way of winnings from horse races made to company-assessees is No. 2 with Red Colour Band and in respect of payments made to non-company assessees is No. 8 with Blue Colour Band.

4. Attention is also invited to section 276B, wherein it is provided that if a person without reasonable cause or excuse fails to deduct, or after deducting fails to pay the tax as required under the provisions of Chapter XVII-B of the Income-tax Act, 1961, 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. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making deductions of tax under this section. Whenever there is a difference of opinion, a reference should always be made to the provisions of the Income-tax Act, 1961, and the relevant Finance Act through which the changes in the tax structure are made.

6. In case any assistance is required, the Income-tax Officer concerned or the local Public Relations Officer of the Income-tax Department may be approached for the same, who will, if necessary, obtain the orders of higher authorities in the matter.

Circular : No. 390 [F. No. 275/15/84-IT(B)], dated 8-8-1984.

Financial Year 1984-85

1744. Instructions for deduction of tax at source from winnings from lottery or crossword puzzle during financial year 1984-85 at the rates specified in Part II of First Schedule to Finance Act, 1984

1. I am directed to invite a reference to the Boards Circular No. 365 [F. No. 275/22/83-IT(B)], dated 20-7-1983, wherein you were requested to issue necessary instructions for making deduction of income-tax at source from the winnings from lottery or crossword puzzle, at the rates given in Part II of the First Schedule to the Finance Act, 1983.

2. You are aware that under section 194B every person responsible for paying to any person, whether resident or non-resident, any income by way of winnings from any lottery or crossword puzzle in any amount exceeding Rs. 1,000 is required to deduct income-tax thereon at the rates specified in this behalf in the Finance Act of the relevant year. The rates of deduction of income-tax at source for the financial year 1984-85 specified in Part II of the First Schedule to the Finance Act, 1984, are as follows :

Rates of income-tax including surcharge
(i) In the case of a person other than a company :
(a) where the person is resident in India	33.75 per cent (IT 30 per cent + SC 3.75 per cent);
(b) where the person is not resident	33.75 per cent (IT 30 per cent + SC 3.75 per cent);
	or
	income-tax and surcharge on income-tax in respect of the income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1984, if the winnings from lottery or crossword puzzle had been the total income,
	whichever is higher.
(ii) In the case of a company :
(a) where the company is a domestic company	22.575 per cent (IT 21.5 per cent + SC 1.075 per cent);
(b) where the company is not a domestic company	73.5 per cent (IT 70 per cent + SC 3.5 per cent).

3. The substance of the main provisions in the law insofar as they relate to deduction of income-tax at source from winnings from lotteries and crossword puzzles, is given hereunder :

(1) No tax will be deducted at source where the income by way of winnings from lottery or crossword puzzle is Rs. 1,000 or less.

(2) Where the prize is given partly in cash and partly in kind, income-tax will be deductible from each prize with reference to the aggregate amount of the cash prize and the value of the prize in kind. Where, however, the prize is given only in kind no income-tax will be required to be deducted.

(3) Where the lottery or crossword puzzle is paid in instalments, the deduction will be made at the time of actual payment of each instalment.

(4) Income-tax will be deductible from the amount of the prize money paid to the owner of the lucky ticket with reference to the amount paid to him. Income-tax is not deductible from the income by way of bonus or commission paid to the lottery agents or sellers of lottery tickets on the sale made by them.

(5) In view of section 288B, the amount of tax to be deducted at source should be rounded off to the nearest rupee by ignoring amounts less than fifty paise and increasing amounts of fifty paise or more to one rupee.

(6) Tax deducted on behalf of Government is required to be paid to the credit of the Central Government on the same day. In other cases, the tax deducted should be paid to the credit of the Central Government within one week from the date of deduction. The challans for paying income-tax in the Government account may be obtained from the Income-tax Officer concerned. The income-tax and surcharge should be shown separately in the challans and/or while sending Account head details to the Accountants General/Zonal Accounts Officers.

(7) The relevant forms in relation to the provisions for deduction of income-tax at source from winnings from lotteries and crossword puzzle prizes are prescribed by the Income-tax Rules, 1962. In this connection, the following instructions may please be noted :

(i) In the case of any person, other than a company, it is open to the recipient of the prize to make an application in Form No. 13B to the Income-tax Officer concerned and obtain from him a certificate authorising the payer to deduct tax at such lower rates or deduct no tax as may be appropriate to his case. Such a certificate will be valid for the period specified thereon unless it is cancelled by the Income-tax Officer earlier.

(ii) The person responsible for making any payment by way of winnings from lotteries or crossword puzzles should issue a certificate in Form No. 19B showing therein the amount of the prize, the amount of tax deducted at source and the date of payment in the Government account.

(iii) The person making deduction of tax in accordance with section 194B from income by way of winnings from lotteries or crossword puzzles should send to the Income-tax Officer having jurisdiction to assess him the statement in Form No. 26B quarterly on July 15, October 15, January 15 and April 15 in respect of deductions made by him during the immediately preceding quarter.

4. These instructions may please be brought to the notice of all concerned under the control of the State Government.

Circular: No. 391 [F. No. 275/17/84-IT(B)], dated 8-8-1984.

Financial year 1984-85

1776. Instructions for deduction of tax at source from insurance commission during financial year 1984-85 at the rates specified in Part II of First Schedule to Finance Act, 1984

1. I am directed to invite a reference to this Departments Circular No. 361 [F. No. 275/25/83-IT(B)], dated 10-6-1983, wherein the rates at which the deduction of income-tax was to be made during the financial year 1983-84 from payments of income by way of insurance commission under section 194D, were intimated. The Finance Act, 1984 prescribes in Part II of the First Schedule, the following rates for deduction of tax at source under section 194D during the financial year 1984-85 :

		Income-tax	Surcharge
I.	In the case of a person (other than a company), who is resident in India	10 per cent	Nil;
II.	In the case of a domestic company	21.5 per cent	1.075 per cent.

2. Though the provisions of section 194D apply only in relation to income by way of insurance commission paid to a resident, under the provisions of section 195 of the Act, income-tax is required to be deducted from payments (including payments of income by way of insurance commission) made to a non-corporate non-resident taxpayer and also a company which is neither an Indian company nor a company which has made the prescribed arrangements for declaration and payment within India of dividends in the manner prescribed under rule 27 of the Income-tax Rules, 1962. In the case of a person other than a company, who is not resident in India, the rate of deduction of tax at source as specified in Item 1(b)(i) of Part II of the First Schedule to the Finance Act, 1984, is 33.75 per cent (income-tax at 30 per cent plus surcharge at 3.75 per cent) of the income by way of insurance commission or income-tax and surcharge thereon at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the said Schedule is such income had been the total income of such person, whichever is higher. In the case of a company which is not a domestic company, tax on insurance commission is to be deducted at the rate of 73.5 per cent (income-tax 70 per cent plus surcharge 3.5 per cent.).

3. The substance of the main provisions in the law insofar as they relate to deduction of income-tax from insurance commission is given hereunder :

(1) For purposes of deduction of tax at source, insurance commission will mean an income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to continuance, renewal or reviving of policies of insurance).

(2) Deduction will be made at the time of the credit of the income to the account of, or the payment thereof (by whatever mode) to the payee, whichever is earlier.

(3) The tax deducted should be paid to the credit of the Central Government by remitting it into the Government Treasury or the office of the Reserve Bank of India or the State Bank of India or any other authorised public sector bank within one week from the last day of the month in which the deduction is made. In cases where the income by way of insurance commission is credited to the account of the payee as on the date up to which the accounts of the business of the payer are made, the tax deducted therefrom may be paid to the credit of the Central Government within two months of the expiration of the month in which the date, up to which the accounts are made, falls.

(4) Blank challans for making payment of the tax deducted at source can be obtained from the Income-tax Officers. For the convenience of taxpayers colour band challan forms have been prescribed. Each such challan form is also numbered on the top left-hand corner. The payment should be made on the appropriate challan accordingly as indicated below :

-	Deduction of tax from payment of insurance commission made to companies	Challan No. 2 (In red colour band)
-	Deduction of tax from payment of insurance commission made to non-companies, i.e.,individuals, etc.	Challan No. 8 (In blue colour band)

It is very necessary for correct accounting of tax payments in the Income-tax Department that the appropriate challan form is used for making the payments. Where the payment of tax includes any surcharge it should be shown separately in the challan, in the space provided for that purpose.

(5) The amount of tax to be deducted at source should be rounded off to the nearest rupee ignoring amounts less than 50 paise and increasing the amount of 50 paise or more to one rupee, as required under section 288B.

(6) At the time of deducting tax from the insurance commission credited to an agents account, adjustment for any debits made in his account in respect of excess commission credited or paid to him earlier is not permissible and income-tax must be deducted from the full amount of commission credited to his account.

(7) It will be open to the recipient of the commission, other than a company, to make an application in Form No. 13D to the Income-tax Officer concerned and obtain from him a certificate authorising the person responsible for paying the income by way of insurance commission to deduct tax at source at such rates, or deduct no tax, as may be appropriate to his case. Such a certificate will be valid for the period specified therein unless it is cancelled by the Income-tax Officer earlier.

(8) The person responsible for making the payments should issue a certificate to the payee in Form No. 19D showing therein the amount of income by way of insurance commission credited or paid, the amount of tax deducted at source, and the date of payment to the Government account.

(9) The person making deduction of tax in accordance with section 194D from income by way of insurance commission should send to the Income-tax Officer having jurisdiction to assess him

(a) a certificate in Form No. 26D quarterly on July 15, October 15, January 15 and April 15, in respect of deduction of tax made by him during the preceding quarter;

(b) a statement in Form No. 26E on or before 30th June each year containing details of amounts of insurance commission from which tax has been deducted by him during the immediately preceding financial year; and

(c) a statement in Form 26F on or before 30th day of June each year containing details of amount of insurance commission paid or credited during the immediately preceding financial year without deduction of tax.

4. These instructions may please be brought to the notice of all concerned. In case of doubt, the Income-tax Officer concerned may be consulted.

Circular : No. 392 [F. No. 321/78/75-WT], dated 24-8-1984.

Section 6 l Exclusion of assets/Debts outside India

1375. Location of assets - Instructions for general guidance

CLARIFICATION 1

1. Section 6 provides that in computing the net wealth of (a) an individual or a Hindu undivided family not resident in India or resident but not ordinarily resident in India, or (b) a company not resident in India, during the year ending on the valuation date, the value of assets and debts located outside India should be excluded. In the case of individuals and Hindu undivided families resident and ordinarily resident in India or companies resident in India, all assets (other than exempted assets), whether located in India or abroad have to be included in the net wealth, but certain concessions are provided elsewhere in the Act for resident and ordinarily resident persons which require the determination of the location of assets even in such cases. Under section 31(2), the wealth-tax chargeable on the assets situated in a foreign country, which prohibits or restricts the remittance of moneys, has to be held in abeyance, while under rule 4 of the Schedule, in the case of individuals and Hindu undivided families (but not companies) resident and ordinarily resident in India the wealth-tax on the value of assets located outside India has to be computed at half the average rate of tax applicable to the net wealth of the assessee.

2. The question as to where the asset is located is essentially one of fact and will have to be decided in the light of evidence. The following instructions are issued for general guidance :

(a) Tangible immovable property is situated in India if the property lies in India.

(b) Rights or interests in or over immovable property (otherwise than by way of security) or benefits arising out of immovable property are located in India if the immovable property to which the rights are attached or out of which the benefits arise lies in India.

(c) Rights or interests (otherwise than by way of security) in or over tangible movable property are located in India if such property is located in India, or if it is in transit to India.

([`4] 1d) Debts, secured or unsecured (other than those dealt with below) are located in India if they are contracted to be repaid in India or, if the debtor is residing in India.

(e) Moneys kept in a bank account in the form of deposits or otherwise are located in India if the branch of the bank at which the account is kept is situated in India.

(f) Securities issued by the Central Government or a State Government or a municipality or other local authority in India are located in India unless they are inscribed for payment outside India.

(g) Shares, stock, debentures or debenture stock in a company are located at the place where the company is incorporated.

(h) Ships or aircraft are located in India if they are registered in India.

(i) Copyright or licence to use any copyrighted material, patent, trade mark, or design is located in India if the rights arising therefrom are exercisable in India.

(j) Patents, trade marks and designs are located in India if they are registered in India.

(k) Rights or cause of action ex delicto not included in any of the items mentioned above are situated in India if they are enforceable in India. It is not possible to give an exhaustive list of assets and the principles to be applied in determining the location of all such assets. For assets which are not covered by the above items, the location has to be fixed having regard to the nature of the assets.

Circular : No. 3 (WT) of 1957 (relevant extracts), dated 28-9-1957.

CLARIFICATION 2

1. Attention is invited to the Boards Circular No. 3 of WT of 1957, dated 28-9-1957 [Clarification 1] on the subject of location of assets.

2. According to para 2(d) of the aforesaid circular the situs of debts is in India if they are contracted to be repaid in India. If the contract is silent about the place of repayment, the debts are located in India if the debtor is residing in India.

3. The Board are advised that the general principle of law is that the debts are situate where the debtor resides and a stipulation that the payment should be made in a country where the debtor is not residing does not affect the general rule. In view of this position para 2(d) of the aforesaid circular may please be substituted by the following :

2(d) Debts, secured or unsecured (other than those dealt with below) are located in India if they are contracted to be repaid in India or if the debtor is residing in India.

Circular : No. 393 [F. No. 275/14/84-IT(B)], dated 5-9-1984.

FINANCIAL YEAR 1984-85

1720. Instructions for deduction of tax at source from interest on securities during financial year 1984-85 at the rates specified in Part III of First Schedule to Finance Act, 1984

1. I am directed to invite a reference to the Boards Circular No. 368 [F. No. 275/24/83-IT(B)], dated 16-9-1983, wherein you were requested to issue necessary instructions for making deduction of income-tax at source from the payments of Interest on Government securities as prescribed in the Finance Act, 1983.

2. There is no change in the rates of tax at which deduction has to be made from the payments of interest on Government securities during the financial year 1984-85 except in Sub-Paragraph I of Paragraph A of Part III of First Schedule to Finance Act, 1984. I am, however, enclosing a copy of the draft circular letter setting out the rates at which income-tax and surcharge should be deducted from such payments after March 31, 1984. You may please issue a circular on the basis of this draft to all Treasury Officers and Sub-Treasury Officers under your control individually with a view to ensuring that the provisions of the Act are strictly adhered to by them.

DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS

1. I am to invite your attention to this office letter regarding deduction of income-tax and surcharge from interest on Government securities during the financial year 1983-84.

2. According to the Finance Act, 1984, except in the case of interest on securities payable to Life Insurance Corporation of India which is exempt from deduction of income-tax, income-tax is to be deducted during the financial year 1984-85, from the entire amount of interest on securities at the following rates, namely :

					Rate of	Rate of
					Income-tax	Surcharge
I.	In the case of a person other than a company :
	(i)	Where the person is resident in India on income by way of interest payable on any security (excluding interest payable on a tax-free security)			10 per cent	Nil
	(ii)	Where the person is not resident in India
	(1)		In the case of a non-resident Indian
	(A)			on investment income and long- term capital gains	20 per cent	2.5 per cent
	(B)			on income by way of interest payable on a tax-free security	15 per cent	1.875 per cent
	(C)			on the whole of the other income	income-tax at 30 per cent and surcharge at 3.75 per cent of the amount of the income,
					or
					income-tax and surcharge on income-tax in respect of the income at the rates prescribed in Sub-paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1984 [Annex I], if such income had been the total income,
					whichever is higher.
	(2)		In the case of any other person,
	(A)			on the whole of income(excluding interest payable on a tax-free security)	[As against 1(C) above]
	(B)			on income by way of interest on a tax-free security	15 per cent	1.875 per cent
II.	In the case of a company :
	(i)	Where the company is a domestic company on interest on securities (excluding interest payable on a tax-free security)			21.5 per cent	1.075 per cent
	(ii)	Where the company is not a domestic company
	(A)			on interest payable on a tax- free security	44 per cent	2.2 per cent
	(B)			on interest on other securities	70 per cent	3.5 per cent.

3. The term domestic company means an Indian company or any other company which, in respect of its income liable to income-tax under the Act for the assessment year commencing on the 1st day of April, 1984, has made the prescribed arrangements for the declaration and payment within India of the dividends (including dividends on preference shares) payable out of such income in accordance with the provisions of section 194.

4. In making payment or crediting interest on Government securities after 1st April, 1984, you are requested to deduct income-tax at the rates specified above, except in cases, where an exemption or abatement certificate granted by an Income-tax Officer under sub-section (1) of section 197 is produced. In this connection, the following points should be kept in view :

(1) Exemption or abatement certificates issued before 1st April, 1984, authorising deduction of tax at a particular rate expressed as percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on 31st March, 1985.

(2) Where a certificate is issued by the Income-tax Officer on or after 1st April, 1984, authorising deduction of tax at a specified rate in respect of any person, income-tax should be deducted at the rates specified therein.

(3) No tax should be deducted in cases in which, from a certificate issued by the Income-tax Officer or otherwise, you are satisfied that the payee is a person exempt from payment of income-tax under sections 10 to 13A.

(4) No tax should be deducted from interest payable on 7-year National Savings Certificates (IV Issue).

(5) No tax should be deducted from any interest payable on National Development Bonds.

(6) No tax should be deducted from any interest payable on any other security of the Central or State Government where the security is held by a resident individual, and the holder makes a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that his estimated total income of the previous year in which such income is to be included in computing his total income will be less than the minimum liable to income-tax as provided in section 197A(1). [A copy of declaration form prescribed under the provisions of section 197A is at Annex II.] A copy of such declaration should be forwarded by you on or before the seventh day of the month next following the month in which the declaration is furnished to you to the Commissioner concerned, as provided in rule 29C of the Income-tax Rules, 1962.

(7) No tax should be deducted from any sum payable in respect of any security owned by a corporation established by or under a Central Act which under any law for the time being in force is exempt from income-tax on its income.

(8) Under section 288B, fractions of one rupee contained in the amount of tax will have to be rounded off to the nearest rupee by ignoring amounts less than fifty paise and increasing amounts of fifty paise or more to one rupee. Hence, the amounts of tax to be deducted at source should be rounded off to the nearest rupee in accordance with the aforesaid provisions of the Act.

In case of any doubt, the Income-tax Officer or the local Public Relation Officer should be consulted before making deduction from interest on Government securities.

ANNEX I - EXTRACT FROM PART III OF FIRST SCHEDULE TO FINANCE ACT, 1984

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 total income does not exceed Rs. 15,000	Nil;
(2)	where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000	20 per cent of the amount by which the total income exceeds Rs. 15,000;
(3)	where the total income exceeds Rs. 20,000 but does not exceed Rs. 25,000	Rs. 1,000 plus 25 per cent of the amount by which the total income exceeds Rs. 20,000;
(4)	where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000	Rs. 2,250 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(5)	where the total income exceeds Rs. 30,000 but does not exceed Rs. 40,000	Rs. 3,750 plus 35 per cent of the amount by which the total income exceeds Rs. 30,000;
(6)	where the total income exceeds Rs. 40,000 but does not exceed Rs. 50,000	Rs. 7,250 plus 40 per cent of the amount by which the total income exceeds Rs. 40,000;
(7)	where the total income exceeds Rs. 50,000 but does not exceed Rs. 70,000	Rs. 11,250 plus 45 per cent of the amount by which the total income exceeds Rs. 50,000;
(8)	where the total income exceeds Rs. 70,000 but does not exceed Rs. 1,00,000	Rs. 20,250 plus 50 per cent of the amount by which the total income exceeds Rs. 70,000;
(9)	where the total income exceeds Rs. 1,00,000	Rs. 35,250 plus 55 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 twelve and a half per cent of such income-tax.

ANNEX II - DECLARATION UNDER SECTION 197A(1)

FORM NO. 15F

[See Rule 29C(1)]

Declaration under section 197A(1) of the Income-tax Act, 1961, to be made by an individual
claiming receipt of Interest on securities without deduction of tax

I, ...................., son/daughter/wife of ................... resident of @......................... do hereby declare

1. that the securities, particulars of which are given below, stand in my name and are beneficially owned by me, and the interest therefrom is not includible in the total income of any other person under sections 60 to 64 of the Income-tax Act, 1961 :

Description of securities

Number of securities

Dates of securities

Amount of securities

Date(s) on which the securities were acquired by the declarant

2. that my present occupation is.........................; that my estimated total income including the interest on securities referred to in Paragraph 1 above, computed in accordance with the provisions of the Income-tax Act, 1961, for the previous year ending on ................, relevant to the assessment year 19.....-19....., will be less than the minimum liable to income-tax;

or

3. *that I have not been assessed to income-tax at any time in the past but I fall within the jurisdiction of the Commissioner of Income-tax.......................;

or

4. that I was last assessed to income-tax for assessment year 19.....19...... by the Income-tax Officer......................... Circle/Ward/District and the permanent account number allotted to me is.............................;

5. that I am resident in India within the meaning of section 6 of the Income-tax Act, 1961.

......................................................

Signature of the declarant

Verification

I, ............, do hereby declare that to the best of my knowledge and belief what is stated above is correct, complete and is truly stated.

Verified today, the...........................................day of .......................19.......

Place ................	...............................................
	Signature of declarant

Notes :

1. @ Give complete postal address.

2. The declaration should be furnished in duplicate.

3. *Delete whichever is not applicable.

4. Before signing the verification, the declarant should satisfy himself that the information furnished in the declaration is true, correct and complete in all respects. Any person making a false statement in the declaration shall be liable to prosecution under section 277 of the Income-tax Act, 1961, and on conviction be punishable

(i) in a case where tax sought to be evaded exceeds one lakh rupees, with rigorous imprisonment which shall not be less than six months but which may extend to seven years and with fine;

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

[FOR USE BY THE PERSON TO WHOM THE DECLARATION IS FURNISHED]

1. Name and address of the person responsible for paying the interest on securities mentioned in Paragraph 1 of the declaration.

2. Date on which the declaration was furnished by the declarant.

3. Period for which interest is paid.

4. Amount of interest.

5. Date on which interest is paid.

Forwarded to the Commissioner of Income-tax................

Place........
Date.........	.............................................................................
	Signature of the person responsible
	for paying interest on securities.

TAXATION LAWS (AMENDMENT) ACT, 1984 - CIRCULAR NO. 394, DATED 14-9-1984 AND CIRCULAR NO. 397, DATED 16-10-1984

PART I

• Amendments at a glance
• Amendments to Income-tax Act
• Amendments to Wealth-tax Act
• Amendments to Gift-tax Act
• Amendments to Companies (Profits) Surtax Act
• Amendments to Compulsory Deposit Scheme (Income-tax Payers) Act
• Amendments to Interest-tax Act

PART II

• Amendments at a glance
• Amendments to Income-tax Act
• Amendments to Wealth-tax Act
• Amendments to Gift-tax Act

Circular : No. 395 [F. No. 181(5) 82/IT(A-I)], dated 24-9-1984.

SECTION 2(15) l charitable PURPOSE

10. Whether promotion of sports and games can be considered to be charitable purpose

1. The expression charitable purpose is defined in section 2(15) to include relief of the poor, education, medical relief and the advancement of any other object of general public utility.

2. The question whether promotion of sports and games can be considered as being a charitable purpose has been examined. The Board are advised that the advancement of any object beneficial to the public or section of the public as distinguished from an individual or group of individuals would be an object of general public utility. In view thereof, promotion of sports and games is considered to be a charitable purpose within the meaning of section 2(15). Therefore, an association or institution engaged in the promotion of sports and games can claim exemption under section 11 of the Act, even if it is not approved under section 10(23) relating to exemption from tax of sports associations and institutions having their objects as the promotion, control, regulation and, encouragement of specified sports and games.

Judicial analysis

Referred to in - This circular was referred to ITO v. Deccan Gymkhana (Oldest Trust) [1988] 71 CTR (Pune - Trib.) (TM) 11, with the following observations:

. . . the Circular relied upon by the assessees counsel does state that promotion of sports and games is considered to be a charitable purpose within the meaning of section 2(15). It also goes on to state that an institution engaged in this activity can claim exemption under section 11 even if it is not approved under section 10(23). Further the Andhra Pradesh High Court in CIT v. Andhra Pradesh Riding Club has stated that if an assessee is otherwise entitled to exemption under section 11, a separate provision under section 10(23) is not material.

The standing counsel submitted that sports and games were not of any utility because they were not a necessity. I am not inclined to accept this argument. In my view, utility first of all, means usefulness and not necessity. Secondly, it would be too narrow a view to take. For any community or society in general, sports and sportsmanship are definitely useful and are of great value. For these reasons I am of the view that the object of the assessee, i.e. promotion of sports, games, gymnastics and sportsmanship must be said to be an object of general and public utility i.e. a charitable purpose within the meaning of section 2(15). The learned Judicial Member has stated that in so far as amusement and recreation is provided by the games, they cannot be regarded as for charitable purposes. In my view, these objects have to be read as a whole i.e. the promotion of sports and sportsmanship, and it would not be fair to separate one particular item of games from the general activity of sports and games. Further, it has also considered whether the sports would promote physical fitness and well being. I am unable to agree with this criteria as stated above, sports and sportsmanship are of general public utility irrespective of the physical well being which they may promote. (p. 35).

Circular :No. 396

1539. Additional relief of gold, gold coin, gold ornament tendered within 6 months of the date of death of deceased as subscription for issue of Gold Bonds, 1977 - Notification issued under sub-section (2) granting reduction in principal value of estate

In exercise of the powers conferred by sub-section (2) of section 33 of the Estate Duty Act, 1953 (34 of 1953), the Central Government hereby directs that where any gold, gold coin or gold ornament, forming part of the estate of a deceased person, is tendered within six months of the date of the death of the deceased, as subscription for the issue of 6 per cent Gold Bonds, 1977, then the principal value of the estate of the deceased shall be reduced by the amount representing the difference between the market price, on the date of death of the deceased, of the gold, gold coin or gold ornament accepted as subscription for the Bonds issued and the market value of such Bonds on the date of their issue.

Notification : No. GSR 337, dated 22-2-1963.

Circular : No. 398 [F. No. 190/23/82-IT(A-I)], dated 17-10-1984.

SECTION 10(23)[`5] 1 l GAMES AND SPORTS BODIES

124. Conditions specified under clause (23) whether cumulative conditions and all of them have to be satisfied before approved association or institution is granted exemption

Section 10(23) provides for the grant of exemption from tax to any income of an association or institution established in India having as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may specify in this behalf from time to time by notification in the Official Gazette.

The exemption is subject to the fulfilment of three conditions as under :

(i) the association or institution applies its income, or accumulates it for application, solely to the objects for which it is established;

(ii) no part of the income of the association or institution is distributed in any manner to its members except as grants to any association or institution affiliated to it; and

(iii) the association or institution is, for the time being, approved for the purpose of this clause by the Central Government by general or special order.

The updated list of the games and sports notified under section 10(23) is enclosed [here printed at Sl. No. 126, p. 1.240].

2. The three conditions enumerated in the preceding paragraph are cumulative. Therefore, approval of the association or institution by the Central Government will amount to fulfilment of only one of the three conditions. The first two conditions will also have to be satisfied in order that the approved association or institution is eligible for exemption from tax under section 10(23). This requirement will have to be satisfied by filing copies of audited accounts before the Income-tax Officer.

ESTATE DUTY (AMENDMENT) ACT, 1984 - CIRCULAR NO. 399, DATED 17-10-1984

• Amendments at a glance
• Provisions explained

Circular : No. 400 [F. No. 194/10/81-IT(A-I)], dated 19-10-1984.

SECTION 10(21)[`6] 1 l INCOME OF APPROVED SCIENTIFIC RESEARCH ASSOCIATIONS

119. Requirements laid down in proviso inserted by Finance Act, 1983 with effect from 1-4-1984 to the clause - For their compliance whether it will be necessary that associations are issued notices under section 139(2) and returns are scrutinised for fulfilment of conditions in case returns are not filed voluntarily

1. Section 10(21) provides for grant of exemption to any income of a scientific research association approved for the time being for the purposes of section 35(1)(ii) which is applied solely to the purposes of that association.

2. The question whether the income of the scientific research association has to be spent in the relevant year itself so as to qualify for the exemption came up before the Orissa High Court in the case of Dalmia Institute of Scientific and Industrial Research v. ITO [1979] 118 ITR 575. The High Court has held that there is nothing in section 10(21) which requires that to qualify for exemption the income should be spent in the relevant year itself. The interpretation of section 10(21) given by the Orissa High Court has been accepted by the Board.

3. Section 10(21) has been amended by the Finance Act, 1983 so as to require the scientific research association

i. to invest or deposit after February 28, 1983 any sums by way of contributions in the forms and modes specified in section 11(5);

ii. to conform to the investment pattern prescribed by section 11(5) after November 30, 1983 in respect of any funds invested or deposited before March 1, 1983 in any other manner;

iii. not to have investments in any company other than Government company as defined in section 617 of the Companies Act, 1956 or any corporation established by or under a Central, State or Provincial Act after November 30,1983.

4. In order to ensure that scientific research associations approved for the time being under section 35(1)(ii) also satisfy the requirements of section 10(21) as amended, it will be necessary that notices under section 139(2) are issued to the associations and the returns scrutinised for fulfilment of the conditions prescribed in section 10(21) in case returns are not filed voluntarily under section 139(1).

Circular : No. 401 [F. No. 317/29/84-WT], dated 27-10-1984.

1372. Exemption of deposits under National Deposit Scheme under clause (xxva) of sub-section (1) - Condition regarding six months holding period laid down in sub-section (3) waived for assessment year 1985-86

1. Attention is invited to paragraph 35 of Circular No. 387, dated 6-7-1984, containing the Explanatory Notes on the provisions relating to Direct Taxes in the Finance Act, 1984.

2. It has been pointed out in paragraph 35.2 of the aforesaid circular that deposits under such National Deposit Scheme as may be framed by the Central Government and notified by it in this behalf in the Official Gazette would qualify for exemption under section 5 of the Wealth-tax Act. It has also been pointed out that, as in the case of other financial assets, exemption in respect of deposits under such National Deposit Scheme will be available only where such assets have been held by the assessee for a period of at least six months ending with the relevant valuation date.

3. The National Deposit Scheme opened for subscription by the public only from July 30, 1984. As the aforesaid requirement of continuous holding of the asset for a period of at least six months before the valuation date would result in the denial of the tax concession in many cases for the assessment year 1985-86, Government has decided, as a special case, that the condition regarding the six months holding period laid down in section 5(3) would be treated as satisfied if the deposit made by the taxpayer under the said Scheme is continuously held by him from the date of the deposits until the relevant valuation date, even though the said period of holding is less than six months.

4. Paragraph 35.2 of the Boards Circular No. 387, dated 6-7-1984 would stand modified to the extent indicated in the preceding paragraph.

Circular : No. 402 [F. No. 279/146/84-ITJ], dated 1-12-1984.

Revision By The Commissioner

Section 263 l Revision Of Orders Prejudicial To Revenue

1263. Orders under sub-section (2), inserted by Taxation Laws (Amendment) Act, 1984, are to be passed within two years of the date of orders sought to be revised in cases where order sought to be revised was passed before October 1, 1984

As a consequence of the amendment of section 263, by section 47 of the Taxation Laws (Amendment) Act, 1984, the limitation for passing an order under section 263 will, in view of general principles of interpretation of statutes, stand extended in cases where the period of limitation originally laid down in that section had not expired before October 1, 1984. However, with a view to avoiding controversy and litigation in the matter. It is desirable that orders under section 263 are passed, as far as possible, within two years of the date of the order sought to be revised in cases where the order sought to be revised was passed before October 1, 1984.

Judicial analysis

Explained in -The above circular was referred to in B. Vijayakumar v. IAC [1987] 20 ITD 254, with the following observations :

7. . . . In our opinion the assessees contention that the revision orders passed by the Commissioner were barred by time is not correct in view of the clear provisions of law contained in the amendment to section 25(3) and which has been clearly elucidated by the Board in the first part of Circular No. 402, dated 1-12-1984. . .

8. In these cases the assessment orders were passed by the WTO on 5-11-1983 and 25-10-1983 and, therefore, the old law of limitation, prior to amendment would expire on 4-11-1985 and 24-10-1985. Before these dates, the amendment had come into force with effect from 1-10-1984 and thereby the time limit for revision had been extended and, therefore, the revisionary orders passed by the Commissioner on 16-12-1985, 30-12-1985 and 7-1-1986 as the case may be, are clearly within the extended time limit provided by the amended law. Accordingly, they are valid and in accordance with law. (p. 258)

Explained in -The above circular was referred to and applied in Miss Shikha Gupta v. ITO [1987] 23 ITD 546 (Delhi). The Court observed :

9. It is not in dispute that limitation in the case of Miss Shikha Gupta had struck proceedings on 30th April, 1984 for the assessment year 1981-82. Similarly, in the case of Miss Savita Bansal for the assessment years 1979-80 to 1981-82 action under section 263 had become barred by 30th April, 1984. In the case of Miss Sahil Bansal for the assessment years 1979-80 to 1981-82 action under section 263(2) had become barred on 2-5-1984. Similarly, for the assessment year 1982-83 in the case of Sahil Bansal and Savita Bansal the action under section 263 was barred on 29-9-1984. All these dates fall prior to 1-10-1984 when the substituted present sub-section (2) which provides that no order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed, was brought on the statute book by the Taxation Laws (Amendment) Act, 1984 w.e.f. 1-10-1984 for the following :

(2) No order shall be made under sub-section (2) :

(a) to revise an order or assessment made under section 147, or

(b) after the expiry of two years from the date of order sought to be revised.

Thus, it is very clear that the CIT on the dates, he issued notice under section 263 to the assessee to show cause why an order under section 263 need not be passed was acting without lawful authority. The show cause notice issued and the subsequent proceedings culminating into an order under section 263 dated 27-3-1985 in each case was therefore without jurisdiction and ab initio void. It was non est in law. We hold it so.

10. The CBDT in the circular to which our attention has been invited has made this position abundantly clear. So much so, that the Board has even cautioned the officers, with a view to avoiding controversy and litigation in the matter, it is desirable that order under section 263 are passed, as far as possible, within two years of the date of the order sought to be revised in cases where the order sought to be revised was passed before October 1, 1984. Thus, there cannot be any manner of doubt that the impugned orders passed by the ld. CIT(A) are without jurisdiction. We have held them to be non est in law. However, even an order made in this manner unless challenged and removed from record can have its implications. We, therefore, cancel orders under section 263 made in each case. . . . (pp. 550 - 551)

Explained in -The above circular was referred to in Anand Sales Corporation v. ITO [1989] Taxation 94(4) - 46. The Tribunal observed :

On the legality of the jurisdiction, we feel that there is considerable merit in the argument advanced by the assessee. Though the words used are for removal of doubts in the Explanation to section 263, but the same being made effective only from 1-10-1984, it would be a difficult proposition to hold that it would enlarge the scope of section 263 to a period prior to 1-10-1984. The Courts have always held that all beneficial additions or explanations, intended to clarify the intentions of the section only could be held to be operative retrospectively, while any such explanation intended to enlarge the scope of authority of the administrator should always be operative prospectively. Perhaps the conclusion so arrived at was due to the fact of what could not have been done earlier due to absence of any enactment, could not be said to be permissible by a subsequent explanation even stating therein that it was only for clarification. The Board had issued a Circular No. 402, dated 1-11-1984, wherein also it was opined by them that However, with a view to avoiding controversy and litigation in the matter, it is desirable that orders under section 263 of the Income-tax Act, 1961, are passed, as far as possible, within two years of the date of the order sought to be revised in cases where the order sought to be revised was passed before 1st October, 1984. This also goes to indicate that even the Board seems doubtful as the retrospective application of the Explanation. . . . (p. 49)

Explained in - The above circular was explained in Gujarat Forging (P.) Ltd. v. ITO [1996] 56 ITD 208 (Ahd. - Trib.), with the following observations :

8.1 The learned counsel placed reliance on Circular No. 402, dated 1-11-1984, and the judgment of the Honble High Court in CIT v. International Computers Indian Mfr. Ltd. [1991] 187 ITR 580 (Bom.) (supra) in support of his contention that the limitation of time prescribed in the unamended provision should be applied. The said Circular clarifies that as a consequence of the amendment of section 263 with effect from 1-10-1984, the limitation for passing an order under section 263 will, in view of the general principles of interpretation of statute, stand extended in cases where the period of limitation originally laid down in that section had not expired before 1-10-1984. However, with a view to avoid controversy and litigation in the matter, they advised the CITs that as far as possible orders under section 263 should be made within two years of the date of the order sought to be revised in cases where the order sought to be revised was passed before 1-10-1984. The later part of the Circular is merely an advice given by the Board to the Officers as a measure of abundant caution and the same cannot be interpreted to mean that the Board gave a clarification of the aforesaid amendment in favour of the assessee.

Circular : No. 403 [F. No. 216/7/84-IT(A-II)], dated 5-12-1984.

315. Contribution to approved superannuation fund - Whether pension benefits can be provided to employees under rule 89 of Income-tax Rules in the form of annuity certain also

1. An assessee is entitled under section 36(1)(iv) of a deduction of any sum paid as an employer by way of contribution towards an approved superannuation fund subject to such limits as may be prescribed by the Board or such conditions as the Board may think fit to specify.

2. As per rule 89 of the Income-tax Rules, 1962, the trustees may either enter into a scheme of insurance with Life Insurance Corporation (LIC) or accumulate the contribution in respect of each beneficiary and purchase annuity from the LIC at the time of retirement or death of each employee or on his becoming incapacitated prior to retirement.

3. These annuities can be either annuity certain, i.e., an annuity payable for a fixed term of years and independent of any contingency, or it may be an annuity which depends upon a contingency for example dependent on human life.

4. A question has arisen as to whether pension benefits can be provided to the employees under rule 89 of the said Rules in the form of an annuity certain also. The question has been examined in consultation with the Ministry of Law. It is pointed out that rule 89 refers to the purchase of an annuity from the LIC at the time of retirement or death of each employee or on his becoming incapacitated prior to retirement and rule 90 lays down the condition that only one-third of such annuity can be commuted having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality. Rule 3(b) of Part B of the Fourth Schedule also clarifies that the sole purpose of such fund would be the provision of annuities for employees on their retirement or on their becoming incapacitated prior to such retirement, or for the widows, children or dependants of persons who are or have been such employees on the death of those persons. Rule 6 also provides for taxing the contributions paid to an employee during the lifetime in circumstances other than those referred to in section 10(13).

5. In view of all these provisions, the Board are advised that a superannuation fund, where rules provide for pension benefits in the form of annuity certain, is not entitled for approval as the same is not covered under rule 89 of the Income-tax Rules, 1962. It is desired that the cases of the funds already approved should also be reviewed and in case of funds where rules provide for pension benefits in the form of annuity certain, the trustees should be advised to make suitable amendments in the rules within a reasonable time, say, three months. The Commissioners of Income-tax may also consider the withdrawal of approval in cases where such necessary amendments are not effected in the rules.

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[`1]1. Now increased to Rs. 40,000.

[`2]2. See rule 11D.

[`3]1. See under section 28.

[`4]1. Submitted by Circular No. 392, dated 24-8-1984 printed here as Clarification 2.

[`5]1. Clause (23) was submitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990.

[`6]1. Clause (21) was submitted by the Direct Tax Law (Amendment) Act, 1989, w.e.f. 1-4-1990.