CHAPTER IV

COMPUTATION OF TOTAL INCOME

Heads of income

 

Heads of income.

 

14.       Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :—

           

A.—    Salaries.

B          51[R1] [***]

C.—    Income from house property.

D.—    Profits and gains of business or profession.

E.—     Capital gains.

F.—     Income from other sources.

 

A.—Salaries

Salaries.

 

52[R2] 15.          The following income shall be chargeable to income-tax under the head “Salaries”—

 

(a)        any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

 

(b)        any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;

 

(c)        any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employ­er, if not charged to income-tax for any earlier previous year.

 

Explanation 53-54[R3] [1].—For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.

 

55[R4] [Explanation 2.—Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.]

 

Deductions from salaries.

 

16.       The income chargeable under the head “Salaries” shall be computed after making the following deductions, namely:—

 

 

56[R5] [(i)          57[R6] [a deduction of] 58[R7] [59[R8] [a sum equal to thirty-three and one-third per cent of the salary or 59a[R9]  [twelve] thou­sand rupees, whichever is less]]:

           

            60[R10] [***]

 

61[R11] [Provided that in the case of an assessee, being a woman, whose total income before making any deduction under this clause does not exceed seventy-five thousand rupees, the provi­sions of this clause shall have effect as if for the words “61a[R12] [twelve] thousand rupees”, the words “61a[R13] [fifteen] thousand rupees” had been substituted.]

 

62[R14] [Explanation 63[R15] [***].—For the removal of doubts, it is hereby declared that where, in the case of an assessee, salary is due from, or paid or allowed by, more than one employer, the deduction under this clause shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and shall in no case exceed the amount specified under this clause;]

           

            64[R16] [***]

 

(ii)        65[R17] [a deduction] in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer—

 

(a)        in the case of an assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less; and

 

(b)        in the case of any other assessee who is in receipt of such entertainment allowance and has been continuously in receipt of such entertainment allowance regularly from his present em­ployer from a date before the 1st day of April, 1955, the amount of such entertainment allowance regularly received by the asses­see from his present employer in any previous year ending before the 1st day of April, 1955, or a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or seven thousand five hundred rupees, whichever is the least;

 

66[R18] [(iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (2) of article 27666a[R19] of the Constitution, leviable by or under any law.]

 

(iv)       67[R20] 

 

            [***]

 

(v)        68[R21] [***]

 

“Salary”, “perquisite” and “profits in lieu of salary” defined.

 

69[R22] 17.        For the purposes of sections 15 and 16 and of this section,—

 

(1)        “salary” includes—

 

(i)               Wages;

(ii)              any annuity or pension;

(iii)             any gratuity;

(iv)             any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;

(v)              any advance of salary;

70[R23] [(VA)    any payment received by an employee in respect of any period of leave not availed of by him;]

(vi)             the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and

(vii)            the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof;

 

71[R24] (2)         “Perquisite” includes—

 

72[R25] (i) the value of rent-free accommodation provided to the assessee by his employer;

(ii)        the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer;

(iii)       the value of any benefit of amenity granted or provided free of cost or at concessional rate in any of the fol­lowing cases:—

 

(a)        by a company to an employee who is a director thereof;

(b)        by a company to an employee being a person who has a substantial interest in the company;

(c)        by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income 73[R26] [under the head “salaries” (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds twenty-four thousand rupees.]

 

74[R27] [Explanation.—For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his resi­dence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause;]

 

(iv)       any sum paid by the employer in respect of any obliga­tion which, but for such payment, would have been payable by the assessee; and

 

(v)        any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund 75[R28] [or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952)], to effect an assurance on the life of the assessee or to effect a contract for an annuity:

           

            76[R29] [Provided that nothing in this clause shall apply to,—

 

(i)         the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer;

 

77[R30] [(ii)        any sum paid by the employer—

 

(a)        in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in any hospital maintained by the Government or any local authority or any other hospital approved77a[R31] by the Govern­ment for the purposes of medical treatment of its employees;

 

(b)        directly to a hospital, approved by the Chief Commis­sioner having regard to the prescribed guidelines for the purposes of medical treatment of the prescribed diseases or ailments, on account of such treatment of the employee or any member of his family;]

 

(iii)       any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insur­ance on the health of such 77b[R32] employee under any scheme approved by the Central Government for the purposes of clause (ib) of sub-section (1) of section 36;

 

(iv)       any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government for the purposes of section 80D;

 

(v)        any sum paid by the employer in respect of any expendi­ture actually incurred by the employee on his medical treatment or treatment of any member of his family [other than the treat­ment referred to in clauses (i) and (ii)]; so, however, that such sum does not exceed ten thousand rupees in the previous year;

 

(vi)       any expenditure incurred by the employer on—

 

(1)        medical treatment of the employee, or any member of the family of such employee, outside India;

(2)        travel 77c[R33] [and] stay abroad of the employee or any member of the family of such employee for medical treatment;

(3)        travel and stay abroad of one attendant who accompanies the patient in connection with such treatment,78[R34] [Subject to the condition that—

 

(A)       the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and

(B)       the expenditure on travel shall be excluded from per­quisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakh rupees;]

 

(vii)      any sum paid by the employer in respect of any expenditure actually incurred by the employee for any of the purposes specified in clause (vi) subject to the conditions specified in or under that clause.

           

            Explanation.—For the purposes of clause (2),—

 

(i)         “hospital” includes a dispensary or a clinic 79[R35] [or a nursing home];

(ii)        “family”, in relation to an individual, shall have the same meaning as in clause (5) of section 10; and

(iii)       “gross total income” shall have the same meaning as in clause (5) of section 80B;]

                                                            80[R36] [***]

 

81[R37] (3)         “profits in lieu of salary” includes—

 

(i)         the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;

(ii)        any payment (other than any payment referred to in clause (10) 82[R38] [, clause (10A)] 83[R39] [, clause (10B)], clause (11), 84[R40] [clause (12) or clause (13A)] of section 10, due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund), to the extent to which it does not consist of contribu­tions by the assessee or interest on such contribution.

85[R41] [***]

 

C.—Income from house property

 

Income from house property.

 

86[R42] 22. The annual value of property consisting of any buildings or lands appurtenant there to of which the assessee is the owner, other than such portions of such property as the may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be charge­able to income-tax under the head “Income from house property”.

 

Annual value how determined.

 

23. (1)        87[R43] [For the purposes of section 22, the annual value of any property shall be deemed to be—

 

(a)        the sum for which the property might reasonably be expected to let from year to year; or

(b)        where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receiva­ble:]

 

88[R44] [Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in deter­mining the annual value of the property of that previous year in which such taxes are actually paid by him:]

 

89[R45] [Provided further that the annual value as determined under this sub-section shall,—

 

(a)        in the case of a building comprising one or more resi­dential units, the erection of which is begun after the 1st day of April, 1961, and completed before the 1st day of April, 1970, for a period of three years from the date of completion of the building, be reduced by a sum equal to the aggregate of—

 

(i)         in respect of any residential unit whose annual value as so determined does not exceed six hundred rupees, the amount of such annual value;

(ii)        in respect of any residential unit whose annual value as so determined exceeds six hundred rupees, an amount of six hundred rupees;

 

(b)        in the case of a building comprising one or more resi­dential units, the erection of which is begun after the 1st day of April, 1961, and completed after the 31st day of March, 1970, 90[R46] [but before the 1st day of April, 1978,] for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of—

 

(i)         in respect of any residential unit whose annual value as so determined does not exceed one thousand two hundred rupees, the amount of such annual value;

(ii)        in respect of any residential unit whose annual value as so determined exceeds one thousand two hundred rupees, an amount of one thousand two hundred rupees;

 

91[R47] [(c)  in the case of a building comprising one or more residential units, the erection of which is 92[R48] [completed after the 31st day of March, 1978, but before the 1st day of April, 1982], for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of—

 

(i)         in respect of any residential unit whose annual value as so determined does not exceed two thousand four hundred rupees, the amount of such annual value;

(ii)        in respect of any residential unit whose annual value as so determined exceeds two thousand four hundred rupees, an amount of two thousand four hundred rupees;]

 

93[R49] [(d)  in the case of a building comprising one or more residential units, the erection of which is completed after the 31st day of March, 1982 94[R50] [but before the 1st day of April, 1992], for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of—

 

(i)         in respect of any residential unit whose annual value as so determined does not exceed three thousand six hundred rupees, the amount of such annual value;

(ii)        in respect of any residential unit whose annual value as so determined exceeds three thousand six hundred rupees, an amount of three thousand six hundred rupees.

95[R51] [***]]]

 

96[R52] [Explanation 97[R53] [1].—For the purposes of this sub-section, “annual rent” means—

 

(a)        in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year; and

(b)        in any other case, the amount which bears the same proportion to the amount of the actual rent received or receiva­ble by the owner for the period for which the property is let, as the period of twelve months bears to such period.]

 

98[R54] [Explanation 2.—For the removal of doubt, it is here by de­clared that where a deduction in respect of any taxes referred to in the first proviso to this sub-section is allowed in determin­ing the annual value of the property in respect of any previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any earlier assess­ment year), no deduction shall be allowed under the first proviso in determining the annual value of the property in respect of the previous year in which such taxes are actually paid by the owner.]

 

99[R55] [(2)  Where the property consists of—

 

(a)        a house or part of a house in the occupation of the owner for the purposes of his own residence,—

 

(i)         which is not actually let during any part of the previ­ous year and no other benefit there from is derived by the owner, the annual value of such house or part of the house shall be taken to be nil ;

(ii)        which is let during any part or parts of the previous year, that part of the annual value (annual value being deter­mined in the same in the manner as if the property had been let) which is proportionate to the period during which the property is in the occupation of the owner for the purposes of his own resi­dence, or, as the case may be, where such property is let out in parts, that portion of the annual value appropriate to any part which was occupied by the owner for his own residence, which is proportionate to the period during which such part is wholly occupied by him for his own residence shall be deducted in deter­mining the annual value.

 

Explanation.—The deduction under this sub-clause shall be made irrespective of whether the period during which the property or, as the case may be, part of the property was used for the resi­dence of the owner precedes or follows the period during which it is let;

 

(b)        more than one house in the occupation of the owner for the purposes of his own residence, the provisions of clause (a) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;

(c)        more than one house and such houses are in the occupa­tion of the owner for the purposes of his own residence, the annual value of the house or houses, other than the houses in respect of which the assessee has exercised an option under clause (b), shall be determined under sub-section (1) as if such house or houses had been let.

 

Explanation.—Where any such residential unit as is referred to in the second proviso to sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing con­tained in that proviso shall apply in computing the annual value of that residential unit.]

1[R56] [***]

 

2[R57] [(3)    Where the property referred to in sub-section (2) consists of one residential house only and it cannot actually be occupies by the owner by reason of the fact that owning to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house shall be taken to be nil:

           

            Provided that the following conditions are fulfilled, namely:—

 

(i)         such house is not actually let, and

(ii)        no other benefit there from is derived by the owner.]

 

Deductions from income from house property.

 

3[R58] [24. (1)    Income chargeable under the head “Income from house property” shall, subject to the provisions of sub-section (2), be computed after making the following deduction, namely:—

 

4[R59] [(i)           in respect of repairs of, and collection of rent from, the property, a sum equal to one-fifth of the annual value;]

(ii)        the amount of any premium paid to ensure the property against risk of damage or destruction;

(iii)       5[R60] [***]

(iv)       where the property is subject to an annual charge 6[R61] [(not being a charge created by the assessee voluntarily or a capital charge)], the amount of such charge;

(v)        where the property is subject to a ground rent, the amount of such ground rent;

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

 

7[R62] [Explanation.—Where the property has been acquired or con­structed with borrowed capital, the interest, if any, payable on such capital for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal instal­ments for the said previous year and for each of the four immedi­ately succeeding previous years;]

 

(vii)      any sums paid on account of land revenue 8[R63] [or any other tax levied by the State Government] in respect of the property;

(viii)      9[R64] [Omitted by the Finance Act, 1992 w.e.f. 1-4-1993.]

(ix)       where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportion­ate to the period during which such part is wholly unoccupied 10[R65] [***].

 

11[R66] [Explanation.—The deduction under this clause shall be made irrespective or whether the period during which the property or, as the case may be, part of the property was vacant precedes or follows the period during which it is let;]

 

12[R67] (x)         subject to such rules as may be made in this behalf, the amount in respect of rent from property let to a tenant which the assessee cannot realise.

 

13[R68] [(2)           No deduction shall be allowed under sub-section (1) in respect of property of the nature referred to in sub-clause (i) of clause (a) of sub-section (2), or sub-section (3) of section 23:

 

Provided that nothing in this sub-section shall apply to the allowance of a deduction under clause (vi) of sub-section (1) of an amount not exceeding five thousand rupees in respect of the property of the nature referred to in sub-clause (i) of clause (a) of sub-section (2) of section 23.

 

(3)           The total amount deductible under sub-section (1) in respect of property of the nature referred to in sub-clause (ii) of clause (a) of sub-section (2) of section 23 shall not exceed the annual value of the property as determined under that section.]

 

 

 

Amounts not deductible from income from house property.

 

 

25.       Notwithstanding anything contained in section 24, any annual charge or interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head “Income from house property”.

 

14[R69] [Special provision for cases where unrealised rent allowed as deduction is realised subsequently.

 

25A.    Where a deduction has been made under clause (x) of sub-section (1) of section 24 in the assessment for any year in respect of rent from property let to a tenant which the assessee cannot realise and subsequently during any previous year the assessee has realised any amount in respect of such rent, the amount so realised shall be deemed to be income chargeable under the head “Income from house property” and accordingly charged to income-tax (without making any deduction under section 23 or section 24) as the income of that previous year, whether the assessee is the owner of that property in that year or not.]

 

Property owned by co-owners.

 

15[R70] 26.        Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.

 

16[R71] [Explanation.—For the purposes of this section, in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.]

 

“Owner of house property”, “annual charge”, etc., defined.

 

27.       For the purposes of sections 22 to 26—

 

(i)               an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred;

(ii)              the holder of an importable estate shall be deemed to be the individual owner of all the properties comprised in the estate;

17[R72] [(iii) a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the socie­ty, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof;

(iiia)            a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Trans­fer of Property Act, 18[R73] 1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof;

(iiib)           a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof;]

(iv)             “annual charge” means a charge to secure an annual liability, but does not include any tax in respect of property or income from property imposed by a local authority, or the Central or a State Government;

(v)              “capital charge” means a charge to secure the discharge of a liability of a capital nature;

(vi)             taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property. D.—Profits and gains of business or profession

 

Profits and gains of business or profession.

 

19[R74] 28.        The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—

 

(i)         the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;

(ii)        any compensation or other payment due to or received by,—

 

(a)        any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto;

(b)        any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto;

(c)        any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relat­ing thereto;

20[R75] [(d)        any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business ;]

 

(iii)          income derived by a trade, professional or similar association from specific services performed for its members;

21[R76] [(iiia)         profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947);]

22[R77] [(iiib)        cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;]

23[R78] [(iiic)         any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 ;]

24[R79] [(iv)          the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.]

25[R80] [(v)           any interest, salary, bonus, commission or remu­neration, by whatever name called, due to, or received by, a partner of a firm from such firm:

 

Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted.]

 

Explanation 1.—26[R81] [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

 

Explanation 2.—Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as “speculation business”) shall be deemed to be distinct and separate from any other busi­ness.

 

Income from profits and gains of business or profession, how computed.

 

27[R82] 29.        The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 28[R83] [43D].

 

Rent, rates, taxes, repairs and insurance for buildings.

 

30.       In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed—

 

(a)        where the premises are occupied by the assessee—

 

(i)         as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs ;

(ii)        otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;

 

(b)        any sums paid on account of land revenue, local rates or municipal taxes;

(c)        the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.

 

Repairs and insurance of machinery, plant and furniture.

 

29[R84] 31.        In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed—

 

(i) the amount paid on account of current repairs thereto ;

(ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof.

 

Depreciation.

 

30[R85] 32.(1)    In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the pur­poses of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed—

 

(i)         31[R86] [***];

(ii)        32[R87] [in the case of any block of assets, such percentage on the written down value thereof as may be prescribed33[R88] ]:

 

34[R89] [Provided that where the actual cost of any machinery or plant does not exceed 35[R90] [five thousand] rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession :]

 

            36[R91] [Provided further that no deduction shall be allowed under this clause in respect of—

 

(a)        any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, unless it is used—

(i)         in a business of running it on hire for tourists; or

(ii)        outside India in his business or profession in another country; and

 

(b)        any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42:]

           

37[R92] [Provided also that where any asset falling within a block of assets is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this clause in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed under this clause in the case of block of assets comprising such asset:]

           

38[R93] [Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amend­ment) Act, 1991.]

 

            39[R94] [Explanation 1.—Where the business or profession of the asses­see is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.

 

            Explanation 2.—For the purposes of this clause “written down value of the block of assets” shall have the same meaning as in clause *[R95] (c) of sub-section (6)†[R96] of section 43.]

 

40[R97] (iia)        [* * *]

41[R98] (iii)         [* * *]

42[R99] (iv)        [* * *]

43[R100] (v)        [* * *]

44[R101] (vi)       [* * *]

45[R102] (1A)     [* * *]

 

(2)           Where, in the assessment of the assessee, 46[R103] [* * *] full effect cannot be given to any allowance 47[R104] [under clause (ii) of sub-section (1)] in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.

 

48[R105] [Investment allowance.49[R106] 

 

50[R107] 32A.(1)            In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the asses­see and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately suc­ceeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee :

 

51[R108] [Provided that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), this sub-section shall have effect as if for the words “twenty-five per cent”, the words “twenty per cent” had been substituted;]

 

Provided 51[R109] [further] that no deduction shall be allowed under this section in respect of—

 

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

(b)        any office appliances or road transport vehicles;

(c)        any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and

(d)        any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year.

 

51[R110] [Explanation.—For the purposes of this sub-section, “actual cost” means the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been met out of the amount released to the assessee under sub-section (6) of section 32AB.]

 

(2)        The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following,  namely :—

 

(a)        a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of opera­tion of ships or aircraft ;

(b)        any new machinery or plant installed after the 31st day of March, 1976,—

 

(i)         for the purposes of business of generation or distribu­tion of electricity or any other form of power; or

52[R111] [(ii)       in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or

(iii)       in any other industrial undertaking for the pur­poses of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule:]

 

53[R112] [Provided that nothing contained in clauses (a) and (b) shall apply in relation to,—

 

(i)         a new ship or new aircraft acquired, or

(ii)        any new machinery or plant installed,after the 31st day of March, 1987 but before the 1st day of April, 1988, unless such ship or aircraft is acquired or such machinery or plant is installed in the circumstances specified in clause (a) of sub-section (8B) and the assessee furnishes evi­dence to the satisfaction of the Assessing Officer as specified in that clause;]

 

54[R113] [(c)      any new machinery or plant installed after the 31st day of March, 1983, but before the 55[R114] [1st day of April, 1987], for the purposes of business of repairs to ocean-going vessels or other powered craft if the business is carried on by an Indian company and the business so carried on is for the time being approved for the purposes of this clause by the Central Government.]

 

Explanation.—For the purposes of this sub-section and 56[R115] [sub-sections (2B) 57[R116] [,(2C)] and (4)],—

 

58[R117] [(1)(a)  “new ship” or “new aircraft” includes a ship or air­craft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India;

(b)           “new machinery or plant” includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are ful­filled, namely :—

 

(i)         such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India;

(ii)        such machinery or plant is imported into India from any country outside India; and

(iii)       no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee,]

 

(2)        an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of the business of the undertaking 59[R118] [does not exceed,—

 

60[R119] [  (i)     in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees ;

(ii)  in a case where the previous year ends after the 31st day of July, 1980, but before the 18th day of March, 1985, twenty lakh rupees; and

(iii) in a case where the previous year ends after the 17th day of March, 1985, thirty-five lakh rupees,]]and for this purpose the value of any machinery or plant shall be,—

 

(a)        in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and

(b)        in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant.

 

61[R120] [(2A)   The deduction under sub-section (1) shall not be denied in respect of any machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule, by reason only that such machinery or plant is also used for the purposes of business of construction, manufacture or production of any arti­cle or thing specified in the said list.]

 

61[R121] [(2B)    Where any new machinery or plant is installed after the 30th day of June, 1977, but before the 1st day of April, 62[R122] [1987], for the purposes of business of manufacture or produc­tion of any article or thing and such article or thing—

 

(a)     is manufactured or produced by using any technology (including any process) or other know-how developed in, or

(b)     is an article or thing invented in,a laboratory owned or financed by the Government, or a laboratory owned by a public sector company or a University or by an insti­tution recognised in this behalf by the prescribed authority,63[R123] the provisions of sub-section (1) shall have effect in relation to such machinery or plant as if for the words “twenty-five per cent”, the words “thirty-five per cent” had been substituted, if the following conditions are fulfilled, namely :—

 

(i)         the right to use such technology (including any proc­ess) or other know-how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from such owner;

(ii)        the assessee furnishes, along with his return of income for the assessment year for which the deduction is claimed, a certificate from the prescribed authority63[R124]  to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such labo­ratory; and

(iii)       the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule.

           

Explanation.—For the purposes of this sub-section,—

 

(a)        “laboratory financed by the Government” means a labora­tory owned by any body [including a society registered under the Societies Registration Act, 1860 (21 of 1860)] and financed wholly or mainly by the Government;

(b)        64[R125] [* * *]

(c)        “University” means a University established or incorpo­rated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act.]

 

65[R126] [(2C)   Where any new machinery or plant, being machinery or plant which would assist in control of pollution or protection of environment and which has been notified66[R127]  in this behalf by the Central Government in the Official Gazette, is installed after the 31st day of May, 1983, 67[R128] [but before the 1st day of April, 1987], in any industrial undertaking referred to in sub-clause (i) or sub-clause (ii) or sub-clause (iii) of clause (b) of sub-section (2), the provisions of sub-section (1) shall have effect in relation to such machinery or plant as if for the words “twenty-five per cent”, the words “thirty-five per cent” had been substituted.]

 

(3)           Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year (the total income for this purpose being computed after deduction of the allowances under section 33 and section 33A, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A) is nil or is less than the full amount of the investment allowance,—

 

(i)      the sum to be allowed by way of investment allowance for that assessment year under sub-section (1) shall be only such amount as is sufficient to reduce the said total income to nil; and

(ii)     the amount of the investment allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, as the case may be, the immediately succeeding previous year.

 

Explanation.—Where for any assessment year, investment allowance is to be allowed in accordance with the provisions of this sub-section in respect of any ship or aircraft acquired or any ma­chinery or plant installed in more than one previous year, and the total income of the assessee assessable for that assessment year (the total income for this purpose being computed after deduction of the allowances under section 33 and section 33A, but without making any deduction under sub-section (1) of this sec­tion or any deduction under Chapter VI-A) is less than the aggre­gate of the amounts due to be allowed in respect of the assets aforesaid for that assessment year, the following procedure shall be followed, namely :—

 

(a)        the allowance under clause (ii) shall be made before any allowance under clause (i) is made; and

(b)        where an allowance has to be made under clause (ii) in respect of amounts carried forward from more than one assessment year, the amount carried forward from an earlier assessment year shall be allowed before any amount carried forward from a later assessment year.

 

(4)        The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:—

 

(i)         the particulars prescribed in this behalf have been furnished by the assessee in respect of the ship or aircraft or machinery or plant;

(ii)        an amount equal to seventy-five per cent of the investment allowance to be actually allowed is debited to the profit and loss account of 68[R129] [any previous year in respect of which the deduction is to be allowed under sub-section (3) or any earlier previous year (being a previous year not earlier than the year in which the ship or aircraft was acquired or the machinery or plant was installed or the ship, aircraft, machinery or plant was first put to use)] and credited to a reserve account (to be called the “Investment Allowance Reserve Account”) to be uti­lised—

 

(a)        for the purposes of acquiring, before the expiry of a period of ten years next following the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the 69[R130] [second] proviso to sub-section (1)] for the purposes of the business of the undertaking; and

(b)        until the acquisition of a new ship or a new aircraft or new machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India:

 

Provided that this clause shall have effect in respect of a ship as if for the word “seventy-five”, the word “fifty” had been substituted.

 

Explanation.—Where the amount debited to the profit and loss account and credited to the Investment Allowance Reserve Account under this sub-section is not less than the amount required to be so credited on the basis of the amount of deduction in respect of investment allowance claimed in the return made by the assessee under section 139, but a higher deduction in respect of the investment allowance is admissible on the basis of the total income as proposed to be computed by the 70[R131] [Assessing] Officer under section 143, the 70 [R132] [Assessing] Officer shall, by notice in writing in this behalf, allow the assessee an opportunity to credit within the time specified in the notice or within such further time as the 70 [R133] [Assessing] Officer may allow, a further amount to the Investment Allowance Reserve Account out of the profits and gains of the previous year in which such notice is served on the assessee or of the immediately preceding previous year, if the accounts for that year have not been made up; and, if the assessee credits any further amount to such account within the time aforesaid, the amount so credited shall be deemed to have been credited to the Investment Allowance Reserve Account of the previous year in which the deduction is admissible and such amount shall not be taken into account in determining the adequa­cy of the reserve required to be created by the assessee in respect of the previous year in which such further credit is made:

 

Provided that such opportunity shall not be allowed by the 70 [R134] [Assessing] Officer in a case where the difference in the total income as proposed to be computed by him and the total income as returned by the assessee arises out of the application of the proviso to sub-section (1) of section 145 or sub-section (2) of that section or the omission by the assessee to disclose his income fully and truly.

 

(5)        Any allowance made under this section in respect of any ship, aircraft, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act—

 

(a)        if the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed; or

(b)        if at any time before the expiry of ten years from the end of the previous year in which the ship or aircraft was ac­quired or the machinery or plant was installed, the assessee does not utilise the amount credited to the reserve account under sub-section (4) for the purposes of acquiring a new ship or a new aircraft or new machinery or plant [other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the 71[R135] [second] proviso to sub-section (1)] for the purposes of the business of the undertaking; or

(c)        if at any time before the expiry of the ten years aforesaid, the assessee utilises the amount credited to the reserve account under sub-section (4) for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any assets outside India or for any other purpose which is not a purpose of the business of the undertak­ing, and the provisions of sub-section (4A) of section 155 shall apply accordingly:

 

Provided that nothing in clause (a) shall apply—

 

(i)         where the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a 72[R136] Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); or

(ii)        where the sale or transfer of the ship, aircraft, machinery or plant is made in connection with the amalgamation or succession, referred to in sub-section (6) or sub-section (7).

 

(6)        Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any ship, aircraft, machinery or plant, in respect of which investment allowance has been allowed to the amalgamating company under sub-section (1),—

 

(a)        the amalgamated company shall continue to fulfill the conditions mentioned in sub-section (4) in respect of the reserve created by the amalgamating company and in respect of the period within which such ship, aircraft, machinery or plant shall not be sold or otherwise transferred and in default of any of these conditions, the provisions of sub-section (4A) of section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and

(b)        the balance of investment allowance, if any, still outstanding to the amalgamating company in respect of such ship, aircraft, machinery or plant, shall be allowed to the amalgamated company in accordance with the provisions of sub-section (3), so, however, that the total period for which the balance of invest­ment allowance shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified in sub-section (3) and the amalgamated company shall be treated as the assessee in respect of such ship, aircraft, machinery or plant for the purposes of this section.

 

(7)        Where a firm is succeeded to by a company in the business carried on by it as a result of which the firm sells or otherwise transfers to the company any ship, aircraft, machinery or plant, the provisions of clauses (a) and (b) of sub-section (6) shall, so far as may be, apply to the firm and the company.

           

            Explanation.—The provisions of this sub-section shall apply only where—

 

(i)         all the property of the firm relating to the business immediately before the succession becomes the property of the company;

(ii)        all the liabilities of the firm relating to the business immediately before the succession become the liabilities of the company; and

(iii)       all the shareholders of the company were partners of the firm immediately before the succession.

 

(8)              The Central Government, if it considers necessary or expedi­ent so to do, may, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed in respect of any ship or aircraft acquired or any machinery or plant installed after such date 73[R137] [* * *] as may be specified therein.

 

74[R138] [(8A)   The Central Government, if it considers necessary or expedient so to do, may, by notification in the Official Gazette, omit any article or thing from the list of articles or things specified in the Eleventh Schedule.]

 

75[R139] [(8B)    Notwithstanding anything contained in sub-section (8) or the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. GSR 870(E), dated the 12th June, 1986, issued there under, the provisions of this section shall apply in respect of,—

 

(a) (i)    a new ship or new aircraft acquired after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that he had, before the 12th day of June, 1986, entered into a contract for the purchase of such ship or aircraft with the builder or manufacturer or owner thereof, as the case may be;

(ii) any new machinery or plant installed after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that before the 12th day of June, 1986, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant :

 

Provided that nothing contained in sub-section (1) shall entitle the assessee to claim deduction in respect of a ship or aircraft or machinery or plant referred to in this clause in any previous year except the previous year relevant to the assessment year commencing on the 1st day of April, 1989;

 

(b)        a new ship or new aircraft acquired or any new machin­ery or plant installed after the 31st day of March, 1988, but before such date as the Central Government, if it considers necessary or expedient so to do, may, by notification76[R140]  in the Official Gazette, specify in this behalf.

 

(8C)        Subject to the provisions of clause (ii) of sub-section (3), where a deduction has been allowed to an assessee under sub-section (1) in any assessment year, no deduction shall be allowed to the assessee under section 32AB in the said assessment year (hereinafter referred to as the initial assessment year) and a block of further period of four years beginning with the assess­ment year immediately succeeding the initial assessment year.]

 

77[R141] (9)    [Omitted by the Finance Act, 1990, w.r.e.f. 1-4-1976.]

 

78[R142] [Investment deposit account.

 

32AB. (1)        Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head “Profits and gains of business or profession”, has, out of such income,—

(a)        deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or

(b)        utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in, a scheme 79[R143] (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the asses­see is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction 80[R144] [(such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72)] of—

 

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

(ii)     a sum equal to twenty per cent of the profits of 81[R145] [* * *] business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5),whichever is less :

 

81a[R146] [Provided that where such assessee is a firm, or any associa­tion of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member of such firm, association of persons or body of individuals:]

 

82[R147] [Provided further that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year.]

 

(2)        For the purposes of this section,—

                        83[R148] [* * *]

84[R149] [(ii)       “new ship” or “new aircraft” includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India;

(iii)       “new machinery or plant” includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely :—

 

(a)        such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India;

(b)        such machinery or plant is imported into India from any country outside India; and

(c)        no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee;

 

(iv)       “Tea Board” means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953).]

 

(3)        85[R150] [The profit of business or profession of an assessee for the purposes of sub-section (1) shall] be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the 86[R151] [Schedule VI] to the Companies Act87[R152] , 1956 (1 of 1956) 88[R153] [as increased by the aggre­gate of—

 

(i)         the amount of depreciation;

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

(iii)       the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964);

(iv)       the amounts carried to any reserves, by whatever name called;

(v)        the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities;

(vi)       the amount by way of provision for losses of subsidiary companies; and

(vii)      the amount or amounts of dividends paid or pro­posed,if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account; 89[R154] [* * *]]

            90[R155] [* * *]

 

(4)        No deduction under sub-section (1) shall be allowed in re­spect of any amount utilised for the purchase of—

 

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

(b)        any office appliances (not being computers);

(c)        any road transport vehicles;

(d)        any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year;

91[R156] [(e)      any new machinery or plant to be installed in an industrial undertaking, other than a small-scale industrial undertaking, as defined in section 80HHA, for the purposes of business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule.]

 

(5)        The deduction under sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnished, along with his return of income, the report of such audit in the prescribed form92[R157]  duly signed and verified by such accountant :

 

Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section.

 

93[R158] [(5A)   Any amount standing to the credit of the assessee in the deposit account shall not be allowed to be withdrawn before the expiry of a period of five years from the date of deposit except for the purposes specified in the scheme 94[R159] [or] in the circum­stances specified below :—

 

(a)        closure of business;

(b)        death of an assessee;

(c)        partition of a Hindu undivided family;

(d)        dissolution of a firm;

(e)        liquidation of a company.]

 

95[R160] [Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall affect the operation of the provisions of sub-section (5AA) or sub-section (6) in relation to any withdrawals made from the deposit account either before or after the expiry of a period of five years from the date of deposit.]

 

95[R161] [(5AA) Where any amount, standing to the credit of the assessee in the deposit account, is withdrawn during any previous year by the assessee in the circumstance specified in clause (a) or clause (d) of sub-section (5A), the whole of such amount shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year, as if the business had not closed or, as the case may be, the firm had not been dis­solved.]

 

96[R162] [(5B)    Where any amount standing to the credit of the assessee in the deposit account is utilised by the assessee for the pur­poses of any expenditure in connection with the 97[R163] [* * *] busi­ness or profession in accordance with the scheme, such expendi­ture shall not be allowed in computing the income chargeable under the head “Profits and gains of business or profession”.]

 

(6)              Where any amount, standing to the credit of the assessee in the deposit account, released during any previous year by the Development Bank for being utilised by the assessee for the purposes specified in the same or at the closure of the account 98[R164] [[in circumstances other than the circumstances specified in clauses (b), (c) and (e) of sub-section (5A)]], is not utilised in accordance with 99[R165] [, and within the time specified in,] the scheme, either wholly or in part, 1[R166] [* * *] the whole of such amount or, as the case may be, part thereof which is not so utilised shall be deemed to the profits and gains of business or profession of that previous year shall accordingly be chargeable to income-tax as the income of that previous year.

 

(7)              Where any asset acquired in accordance with the scheme is sold or otherwise transferred in any previous year by the asses­see to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired, such part of the cost of such asset as is relatable to the deduc­tions allowed under sub-section (1) shall be deemed to be the profits and gains of business or profession of the previous year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income-tax as the income of that previous year :

                       

            Provided that nothing in this sub-section shall apply—

 

(i)         where the asset is sold or otherwise transferred by the assessee to Government, a local authority, a corporation established by or under a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)2[R167] ; or

(ii)        where the sale or transfer of the asset is made in connection with the succession of a firm by a company in the business or profession carried on by the firm as a result of which the firm sells or otherwise transfers to the company any asset and the scheme continues to apply to the company in the manner applicable to the firm.

 

Explanation.—The provisions of clause (ii) of the proviso shall apply only where—

 

(i)         all the properties of the firm relating to the business or profession immediately before the succession become the properties of the company;

(ii)        all the liabilities of the firm relating to the busi­ness or profession immediately before the succession become the liabilities of the company; and

(iii)       all the shareholders of the company were partners of the firm immediately before the succession.

 

(8)              The Central Government may, if it considers necessary or expedient so to do, by notification in the Official Gazette, omit any article or thing from the list of articles or things speci­fied in the Eleventh Schedule.

 

(9)              The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette that the provisions of this section shall not apply to any class of assessees, with effect from such date as it may specify in the notification.

 

3[R168] [(10)            Where a deduction has been allowed to an assessee under this section in any assessment year, no deduction shall be al­lowed to the assessee under sub-section (1) of section 32A in the said assessment year (hereinafter referred to as the initial assessment year) and a block of further period of four years beginning with the assessment year immediately succeeding the initial assessment year].]

           

            Explanation.—In this section,—

 

(a) “Computers” does not include calculating machines and calculating devices;

(b)        “Development Bank” means—

 

(i)         in the case of an assessee carrying on business of growing and manufacturing tea in India, the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);

(ii)        in the case of other assessees, the Industrial Development Bank of India established under the Industrial Devel­opment Bank of India Act, 1964 (18 of 1964) and includes such bank or institution as may be specified in the scheme in this behalf.]

 

Development rebate.

 

33. 4[R169] [(1)(a)          In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the imme­diately succeeding previous year, then, in respect of that previ­ous year, a sum by way of development rebate as specified in clause (b).

 

(b)     The sum referred to in clause (a) shall be—

 

(A)       in the case of a ship, forty per cent of the actual cost thereof to the assessee;

(B)       in the case of machinery or plant,—

(i)         where the machinery or plant is installed for the purposes of business or construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule,—

(a)        thirty-five per cent of the actual cost of the machin­ery or plant to the assessee, where it is installed before the 1st day of April, 1970, and

(b)        twenty-five per cent of such cost, where it is in­stalled after the 31st day of March, 1970;

 

(ii)        where the machinery or plant is installed after the 31st day of March, 1967, by an assessee being an Indian company in premises used by it as a hotel and such hotel is for the time being approved in this behalf by the Central Government,—

 

(a)        thirty-five per cent of the actual cost of the machin­ery or plant to the assessee, where it is installed before the 1st day of April, 1970, and

(b)        twenty-five per cent of such cost, where it is in­stalled after the 31st day of March, 1970;

 

(iii)       where the machinery or plant is installed after the 31st day of March, 1967, being an asset representing expenditure of a capital nature on scientific research related to the business carried on by the assessee,—

 

(a)        thirty-five per cent of the actual cost of the machin­ery or plant to the assessee, where it is installed before the 1st day of April, 1970, and

(b)        twenty-five per cent of such cost, where it is in­stalled after the 31st day of March, 1970;

 

(iv)       in any other case,—

 

(a)        twenty per cent of the actual cost of the machinery or plant to the assessee, where it is installed before the 1st day of April, 1970, and

(b)        fifteen per cent of such cost, where it is installed after the 31st day of March, 1970.]

 

5[R170] [6[R171] (1A)(a)         An assessee who, after the 31st day of March, 1964, acquires any ship which before the date of acquisition by him was used by any other person shall, subject to the provisions of section 34, also be allowed as a deduction a sum by way of devel­opment rebate at such rate or rates as may be prescribed, provid­ed that the following conditions are fulfilled, namely :—

 

(i)         such ship was not previous to the date of such acquisi­tion owned at any time by any person resident in India;

(ii)        such ship is wholly used for the purposes of the busi­ness carried on by the assessee; and

(iii)       such other conditions as may be prescribed.

 

(b) An assessee who installs any machinery or plant (other than office appliances or road transport vehicles) which before such installation by the assessee was used outside India by any other person shall, subject to the provisions of section 34, also be allowed as a deduction a sum by way of development rebate at such rate or rates as may be prescribed, provided that the following conditions are fulfilled, namely :—

 

(i)         such machinery or plant was not used in India at any time previous to the date of such installation by the assessee;

(ii)        it is imported in India by the assessee from any coun­try outside India;

(iii)       no deduction on account of depreciation or devel­opment rebate in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian In­come-tax Act, 1922 (11 of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee;

(iv)       such machinery or plant is wholly used for the purposes of the business carried on by the assessee; and

(v)        such other conditions as may be prescribed.

 

(c) The development rebate under this sub-section shall be al­lowed as a deduction in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immedi­ately succeeding previous year, then, in respect of that previous year.]

 

(2)        In the case of a ship acquired or machinery or plant in­stalled after the 31st day of December, 1957, where the total income of the assessee assessable for the assessment year rele­vant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previ­ous year, as the case may be (the total income for this purpose being computed without making any allowance under sub-section (1) 7[R172] [or sub-section (1A)] 8[R173] [of this section or sub-section (1) of section 33A] 9[R174] [or any deduction under Chapter VI-A 10[R175] [* * *]]) is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under 11[R176] [sub-section (1) or sub-section (1A), as the case may be],—

 

(i)         the sum to be allowed by way of development rebate for that assessment year under sub-section (1) 7[R177] [or sub-section (1A)] shall be only such amount as is sufficient to reduce the said total income to nil; and

(ii)        the amount of the development rebate, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following assessment year and so on, so however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be.

 

Explanation.—Where for any assessment year development rebate is to be allowed in accordance with the provisions of sub-section (2) in respect of ships acquired or machinery or plant installed in more than one previous year, and the total income of the assessee assessable for that assessment year (the total income for this purpose being computed without making any allow­ance under sub-section (1) 12[R178] [or sub-section (1A)] 13[R179] [of this section or sub-section (1) of section 33A] 14[R180] [or any deduction under Chapter VI-A 15[R181] [* * *]]) is less than the aggregate of the amounts due to be allowed in respect of the assets aforesaid for that assessment year, the following procedure shall be followed, namely:—

 

(i)         the allowance under clause (ii) of sub-section (2) shall be made before any allowance under clause (i) of that sub-section is made; and

(ii)        where an allowance has to be made under clause (ii) of sub-section (2) in respect of amounts carried forward from more than one assessment year, the amount carried forward from an earlier assessment year shall be allowed before any amount car­ried forward from a later assessment year.

 

16[R182] [(3)      Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any ship, machinery or plant in respect of which development rebate has been allowed to the amalgamating company under sub-section (1) or sub-section (1A),—

 

(a)        the amalgamated company shall continue to fulfill the conditions mentioned in sub-section (3) of section 34 in respect of the reserve created by the amalgamating company and in respect of the period within which such ship, machinery or plant shall not be sold or otherwise transferred and in default of any of these conditions, the provisions of sub-section (5) of section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and

(b)        the balance of development rebate if any, still out­standing to the amalgamating company in respect of such ship, machinery or plant shall be allowed to the amalgamated company in accordance with the provisions of sub-section (2), so, however, that the total period for which the balance of development rebate shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified in sub-section (2) and the amalgamated company shall be treated as the assessee in respect of such ship, machinery or plant for the purposes of this section and section 34.]

 

(4)        Where a firm is succeeded to by a company in the business carried on by it as a result of which the firm sells or otherwise transfers to the company any ship, machinery or plant, the provisions of clauses (a) and (b) of sub-section (3) shall, so far as may be, apply to the firm and the company.

 

Explanation.—The provisions of this clause shall apply only where—

 

(i)         all the property of the firm relating to the business immediately before the succession becomes the property of the company;

(ii)        all the liabilities of the firm relating to the business immediately before the succession become the liabilities of the compa­ny; and

(iii)       all the shareholders of the company were partners of the firm immediately before the succession.

 

17[R183] [(5)      The Central Government, if it considers it necessary or expedient so to do, may, by notification18[R184]  in the Official Ga­zette, direct that the deduction allowable under this section shall not be allowed in respect of a ship acquired or machinery or plant installed after such date, not being earlier than three years from the date of such notification, as may be specified therein.]

 

19[R185] [(6)      Notwithstanding anything contained in the foregoing provi­sions of this section, no deduction by way of development rebate shall be allowed in respect of any machinery or plant installed after the 31st day of March, 1965, in any office premises or any residential accommodation, including any accommodation in the nature of a guest-house:]

 

20[R186] [Provided that the provisions of this sub-section shall not apply in the case of an assessee being an Indian company, in respect of any machinery or plant installed by it is premises used by it as a hotel, where the hotel is for the time being approved in this behalf by the Central Government.]

 

21[R187] [Development allowance.

 

22[R188] 33A. (1)           In respect of planting of tea bushes on any land in India owned by an assessee who carries on business of growing and manufacturing tea in India, a sum by way of development allowance equivalent to—

 

(i)         where tea bushes have been planted on any land not planted at any time with tea bushes or on any land which had been previously abandoned, 23[R189] [fifty] per cent of the actual cost of planting; and

(ii)        where tea bushes are planted in replacement of tea bushes that have died or have become permanently useless on any land already planted, 24[R190] [thirty] per cent of the actual cost of planting, shall, subject to the provisions of this section, be allowed as a deduction 25[R191] [in the manner specified hereunder, namely:—

 

(a)        the amount of the development allowance shall, in the first instance, be computed with reference to that portion of the actual cost of planting which is incurred during the previous year in which the land is prepared for planting or replanting, as the case may be, and in the previous year next following, and the amount so computed shall be allowed as a deduction in respect of such previous year next following; and

(b)        thereafter, the development allowance shall again be computed with reference to the actual cost of planting, and if the sum so computed exceeds the amount allowed as a deduction under clause (a), the amount of the excess shall be allowed as a deduction in respect of the third succeeding previous year next following the previous year in which the land has been prepared for planting or replanting, as the case may be:]

 

26[R192] [Provided that no deduction under clause (i) shall be allowed unless the planting has commenced after the 31st day of March, 1965, and been completed before the 1st day of April, 1990:

 

Provided further that no deduction shall be allowed under clause (ii) unless the planting has commenced after the 31st day of March, 1965, and been completed before the 1st day of April, 1970.]

 

(2)        Where the total income of the assessee assessable for the assessment year relevant to 27[R193] [the previous year in respect of which the deduction is required to be allowed under sub-section (1)] 28[R194] [(the total income for this purpose being computed after deduction of the allowance under sub-section (1) or sub-section (1A) or clause (ii) of sub-section (2) of section 33, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A 29[R195] [***])] is nil or is less than the full amount of the development allowance calculated at the rates 30[R196] [and in the manner] specified in sub-section (1)—

 

(i)         the sum to be allowed by way of development allowance for that assessment year under sub-section (1) shall be only such amount as is sufficient to reduce the said total income to nil; and

(ii)        the amount of the development allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the development allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year in which the deduction was first allowable.

 

Explanation.—Where for any assessment year development allowance is to be allowed in accordance with the provisions of sub-section (2) in respect of more than one previous year, and the total income of the assessee assessable for that assessment year 31[R197] [(the total income for this purpose being computed after deduc­tion of the allowance under sub-section (1) or sub-section (1A) or clause (ii) of sub-section (2) of section 33, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A 32[R198] [***])] is less than the amount of the development allowance due to be made in respect of that assessment year, the following producer shall be followed, name­ly:—

 

(i)         the allowance under clause (ii) of sub-section (2) of this section shall be made before any allowance under clause (i) of that sub-section is made; and

(ii)        where an allowance has to be made under clause (ii) of sub-section (2) of this section in respect of amounts carried forward from more than one assessment year, the amount carried forward from an earlier assessment year shall be allowed before any amount carried forward from a later assessment year.

 

33[R199] (3)       The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:—

 

(i)         the particulars prescribed in this behalf have been furnished by the assessee;

(ii)        an amount equal to seventy-five per cent of the devel­opment allowance to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purpose of the business of the undertaking, other than—

 

(a)        for distribution by way of dividends or profits; or

(b)        for remittance outside India as profits or for the creation of any asset outside India; and

 

(iii)       such other conditions as may be prescribed.

 

(4)        If any such land is sold or otherwise transferred by the assessee to any person at anytime before the expiry of eight years from the end of the previous year in which the deduction under sub-section (1) was allowed, any allowance under this section shall be deemed to have been wrongly made for the pur­poses of this Act, and the provisions of sub-section (5A) of section 155 shall apply accordingly:

           

Provided that this sub-section shall not apply—

 

(i)         where the land is sold or otherwise transferred by the assessee to the Government, a local authority a corporation established by a Central, State or Provincial Act, or a Govern­ment company as defined in section 617 of the Companies Act, 1956 (1 of 1956)34[R200] ; or

(ii)        where the sale or transfer of the land is made in connection with the amalgamation or succession referred to in sub-section (5) or sub-section (6).

 

35[R201] [(5)      Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any land in respect of which development allowance has been allowed to the amalgamating company under sub-section (1),—

 

(a)        the amalgamated company shall continue to fulfill the conditions mentioned in sub-section (3) in respect of the reserve created by the amalgamating company and in respect of the period within which such land shall not be sold or otherwise transferred and in default of any of these conditions, the provisions of sub-section (5A) of section 155 shall apply to the amalgamated compa­ny as they would have applied to the amalgamating company had it committed the default; and

(b)        the balance of development allowance, if any, still outstanding to the amalgamating company in respect of such land shall be allowed to the amalgamated company in accordance with the provisions of sub-section (2), so, however, that the total period for which the balance of development allowance shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified in sub-section (2) and the amalgamated company shall be treated as the assessee in respect of such land for the purposes of this section.]

 

(6)        Where a firm is succeeded to by a company in the business carried on by it as a result of which the firm sells or otherwise transfers to the company any land on which development allowance has been allowed, the provisions of clauses (a) and (b) of sub-section (5) shall, so far as may be, apply to the firm and the company.

 

Explanation.—The provisions of this sub-section shall apply if the conditions laid down in the Explanation to sub-section (4) of section 33 are fulfilled.

 

(7)        For the purposes of this section, “actual cost of planting” means the aggregate of—

 

(i)         the cost of preparing the land;

(ii)        the cost of seeds, cutting and nurseries;

(iii)       the cost of planting and replanting; and

(iv)       the cost of upkeep thereof for the previous year in which the land has been prepared and the three successive previ­ous years next following such previous year,reduced by that portion of the cost, if any, as has been met directly or indirectly by any other person or authority:

 

36[R202] [Provided that where such cost exceeds—

 

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

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

(iii)       thirty thousand rupees per hectare in any other area,then, the excess shall be ignored.

 

            Explanation.—For the purposes of this proviso, “district of Darjeeling” means the district of Darjeeling as on the 28th day of February, 1981, being the date of introduction of the Finance Bill, 1981, in the House of the People.]

 

(8)        The Board may, having regard to the elevation and topography, by general or special order, declare any areas to be 37[R203] hilly areas for the purposes of this section and such order shall not be questioned before any court of law or any other authority.

 

38[R204] [Explanation.—For the purposes of this section, an assessee having a leasehold or other right of occupancy in any land shall be deemed to own such land and where the assessee transfers such right, he shall be deemed to have sold or otherwise transferred such land.]

 

39[R205] [Tea development account.

 

33AB. (1)        Where an assessee carrying on business of growing and manufacturing tea in India has, before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier, deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board, the asses­see shall, subject to the provisions of this section, be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of—

 

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

(b)        a sum equal to twenty per cent of the profits of such business (computed under the head “Profits and gains of business or profession” before making any deduction under this section),whichever is less:

 

Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member of such firm, association of persons or body of individuals:

 

Provided further that where any deduction, in respect of any amount deposited in the special account, has been allowed under this sub-section in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.

 

(2)        The deduction under sub-section (1) shall not be admissible unless the accounts of such business of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as de­fined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form40[R206]  duly signed and verified by such accountant:

 

Provided that in a case where the assessee is required by or under any other law to get his accounts audited it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section.

 

(3)        Any amount standing to the credit of the assessee in the special account shall not be allowed to be withdrawn except for the purposes specified in the scheme or in the circumstances specified below:—

 

(a)        closure of business;

(b)        death of an assessee;

(c)        partition of a Hindu undivided family;

(d)        dissolution of a firm;

(e)        liquidation of a company.

 

(4)        Notwithstanding anything contained in sub-section (3), no deduction under sub-section (1) shall be allowed in respect of any amount utilised for the purchase of—

 

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

(b)        any office appliances (not being computers);

(c)        any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year;

(d)        any new machinery or plant to be installed in an indus­trial undertaking for the purposes of business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule.

 

(5)        Where any amount standing to the credit of the assessee in the special account, is withdrawn during any previous year by the assessee in the circumstances specified in clause (a) or clause (d) of sub-section (3), the whole of such amount shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year, as if the business had not closed or, as the case may be, the firm had not been dissolved.

 

(6)        Where any amount standing to the credit of the assessee in the special account is utilised by the assessee for the purposes of any expenditure in connection with such business in accordance with the scheme, such expenditure shall not be allowed in comput­ing the income chargeable under the head “Profits and gains of business or profession”.

 

(7)        Where any amount standing to the credit of the assessee in the special account, which is released during any previous year by the National Bank for being utilised by the assessee for the purposes of such business in accordance with the scheme is not so utilised, either wholly or in part, within that previous year, the whole of such amount or, as the case may be, part thereof which is not so utilised shall be deemed to be profits and gains of business and accordingly chargeable to income-tax as the income of that previous year:

 

Provided that this sub-section shall not apply in a case where such amount is released during any previous year at the closure of the account in circumstances specified in clauses (b), (c) and (e) of sub-section (3).

 

(8)        Where any asset acquired in accordance with the scheme is sold or otherwise transferred in any previous year by the asses­see to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired, such part of the cost of such asset as is relatable to the deduction allowed under sub-section (1) shall be deemed to be the profits and gains of business or profession of the previous year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income-tax as the income of that previous year:

           

            Provided that nothing in this sub-section shall apply—

 

(i)         where the asset is sold or otherwise transferred by the assessee to Government, a local authority, a corporation estab­lished by or under a Central, State or Provincial Act or a Gov­ernment company41[R207]  as defined in section 617 of the Companies Act, 1956 (1 of 1956); or

(ii)        where the sale or transfer of the asset is made in connection with the succession of a firm by a company in the business or profession carried on by the firm as a result of which the firm sells or otherwise transfers to the company any asset and the scheme continues to apply to the company in the manner applicable to the firm.

 

Explanation.—The provisions of clause (ii) of the proviso shall apply only where—

 

(i)         all the properties of the firm relating to the business or profession immediately before the succession become the properties of the company;

(ii)        all the liabilities of the firm relating to the busi­ness or profession immediately before the succession become the liabilities of the company; and

(iii)       all the shareholders of the company were partners of the firm immediately before the succession.

 

(9)        The Central Government, if it considers necessary or expedi­ent so to do, may, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed after such date as may be specified therein.

           

            Explanation.—In this section,—

 

(a)        “National Bank” means the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981).

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

 

42[R208] [eserves for shipping business.

 

33AC. (1)        In the case of an assessee, being 43[R209] [a Government company or] a public company formed and registered in India with the main object of carrying on the business of operation of ships, there shall, in accordance with and subject to the provi­sions of this section, be allowed a deduction of an amount, not exceeding the total income (computed before making any deduction under this section and Chapter VI-A), as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised in the manner laid down in sub-section (2):

 

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

 

(2)        The amount credited to the reserve account under sub-section (1) shall be utilised by the assessee before the expiry of a period of eight years next following the previous year in which the amount was credited—

 

(a)        for acquiring a new ship for the purposes of the busi­ness of the assessee; and

(b)        until the acquisition of a new ship, for the purposes of the business of the assessee other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India.

 

(3)        Where any amount credited to the reserve account under sub-section (1),—

 

(a)        has been utilised for any purpose other than that referred to in clause (a) or clause (b) of sub-section (2), the amount so utilised; or

(b)        has not been utilised for the purpose specified in clause (a) of sub-section (2), the amount not so utilised; or

(c)        has been utilised for the purpose of acquiring a new ship as specified in clause (a) of sub-section (2), but such ship is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired, the amount so utilised in acquiring the ship,shall be deemed to be the profits,—

 

(i)         in a case referred to in clause (a), in the year in which the amount was so utilised; or

(ii)        in a case referred to in clause (b), in the year imme­diately following the period of eight years specified in sub-section (2); or

(iii)       in a case referred to in clause (c), in the year in which the sale or transfer took place, and shall be charged to tax accordingly.

           

            Explanation.—For the purposes of this section,—

 

(a)        †[R210] “public company” shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);

44[R211] [(aa)     *[R212] “Government company” shall have the meaning assigned to it in section 617 of the Companies Act, 1956 (1 of 1956);]

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

 

45-46[R213] [ehabilitation allowance.

 

33B.     Where the business of any industrial undertaking carried on in India is discontinued in any previous year by reason of extensive damage to, or destruction of, any building, machinery, plant or furniture owned by the assessee and used for the pur­poses of such business as a direct result of—

 

(i)         flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or

(ii)        riot or civil disturbance; or

(iii)       accidental fire or explosion; or

(iv)       action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), and, thereafter, at any time before the expiry of three years from the end of such previous year, the business is re-established, reconstructed or revived by the assessee, he shall, in respect of the previous year in which the business is so re-established, reconstructed or revived, be allowed a deduction of a sum by way of rehabilitation allowance equivalent to sixty per cent of the amount of the deduction allowable to him under clause (iii) of sub-section (1) of section 32 in respect of the build­ing, machinery, plant or furniture so damaged or destroyed:

 

47[R214] [Provided that no deduction under this section shall be allowed in relation to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year.]

 

Explanation.—In this section, “industrial undertaking” means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining.]

 

 

Conditions for depreciation allowance and development rebate.

 

34. (1)        48[R215] [***]

(2)        49[R216] [***]

(3)(a)   The deduction referred to in section 33 shall not be al­lowed unless an amount equal to seventy-five per cent of the development rebate to be actually allowed is debited to the profit and loss account of 50[R217] [any previous year in respect of which the deduction is to be allowed under sub-section (2) of that section or any earlier previous year (being a previous year not earlier than the year in which the ship was acquired or the machinery or plant was installed or the ship, machinery or plant was first put to use)] and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than—

 

(i)         for distribution by way of dividends or profits; or

(ii)        for remittance outside India as profits or for the creation of any asset outside India:

 

Provided that this clause shall not apply where the assessee is a company, being a licensee within the meaning of the Electricity (Supply) Act, 1948 (54 of 1948), or where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958:

 

51[R218] [Provided further that where a ship has been acquired after the 28th day of February, 1966, this clause shall have effect in respect of such ship as if for the words “seventy-five”, the word “fifty” had been substituted.]

 

Explanation.—52[R219] [Omitted by the Finance Act, 1990, w.r.e.f. 1-4-1962. Earlier, it was inserted by the Finance Act, 1966, w.r.e.f. 1-4-1962.]

 

(b)     If any ship, machinery or plant is sold or otherwise trans­ferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub-section (5) of section 155 shall apply accordingly:

           

            Provided that this clause shall not apply—

 

(i)         where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958; or

(ii)        where the ship, machinery or plant is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Compa­nies Act, 195653[R220]  (1 of 1956); or

(iii)       where the sale or transfer of the ship, machinery or plant is made in connection with the amalgamation or succes­sion, referred to in sub-section (3) or sub-section (4) of sec­tion 33.

 

54[R221] [estriction on unabsorbed depreciation and unabsorbed invest­ment allowance for limited period in case of certain domestic companies.

 

34A.(1)            In computing the profits and gains of the business of a domestic company in relation to the previous year relevant to the assessment year commencing on the 1st day of April, 1992, where effect is to be given to the unabsorbed depreciation allowance or unabsorbed investment allowance or both in relation to any previ­ous years relevant to the assessment year commencing on or before the 1st day of April, 1991, the deduction shall be restricted to two-third of such allowance or allowances and the balance,—

 

(a)        where it relates to depreciation allowance be added to the depreciation allowance for the previous year relevant to the assessment year commencing on the 1st day of April, 1993 and be deemed to be part of that allowance or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year and so on for the succeeding previous years;

(b)        where it relates to investment allowance, be carried forward to the assessment year commencing on the 1st day of April, 1993 and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following as­sessment year and where the period of eight years has expired before the portion of such balance is adjusted, the said period shall be extended beyond eight years till such time the portion of the said balance is absorbed in the profits and gains of the business of the domestic company.

 

(2)           For the assessment year commencing on the 1st day of April, 1992, the provisions of sub-section (2) of section 32 and sub-section (3) of section 32A shall apply to the extent such provi­sions are not inconsistent with the provisions of the sub-section (1) of this section.

 

(3)           Nothing contained in sub-section (1) shall apply where the amount of unabsorbed depreciation allowance or of the unabsorbed investment allowance, as the case may be, or the aggregate amount of such allowance in the case of a domestic company is less than one lakh rupees.

 

(4)           Nothing contained in section 234B and 234C shall apply to any shortfall in the payment of any tax due on the assessed tax or, as the case may be, returned income where such shortfall in one account of restricting the amount of deprecation allowance or investment allowance under this section and the assessee has paid the amount of shortfall before furnishing the return of income under sub-section (1) of section 139.]

 

55[R222] [Expenditure on scientific research.

 

56[R223] 35.(1)  In respect of expenditure on scientific research, the following deductions shall be allowed—

 

(i)         any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business.

 

57[R224] [Explanation.—Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary (as defined in Explanation 2 below sub-section (5) of section 40A) to an employee engaged in such scientific research or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority58[R225]  to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous years in which the business is commenced;]

 

(ii)        any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research:

 

Provided that such association, university, college or institution is for the time being approved59[R226]  for the purposes of this clause by the prescribed59a[R227]  authority 60[R228] [by notification in the Official Gazette;]

 

61[R229] [(iii) any sum paid to a university, college or other institution to be used for research in social science or statis­tical research:

 

Provided that such university, college or institution is for the time being approved62[R230]  for the purposes of this clause by the prescribed63 [R231] authority by notification in the Official Gazette;]

 

(iv)       in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2):

 

64[R232] [Provided that the scientific research association, university, college or other institution referred to in clause (ii) or clause (iii) shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of approval, or continuance thereof, under clause (ii) or, as the case may be, clause (iii):

 

Provided further that the prescribed authority may, before grant­ing approval under clause (ii) or clause (iii), call for such documents (including audited annual accounts) or information from the scientific research association, university, college or other institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the scientific re­search association, university, college or other institution and that authority may also make such inquiries as it may deem neces­sary in this behalf:

 

Provided also that any notification issued by the prescribed authority under clause (ii) or clause (iii) shall, at any one time, have effect for such assessment year or years, not exceed­ing three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification.]

 

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

 

65[R233] [(i)       in a case where such capital expenditure is in­curred before the 1st day of April, 1967, one-fifth of the capi­tal expenditure incurred in any previous year shall be deducted for that previous year; and the balance of the expenditure shall be deducted in equal instalments for each of the four immediately succeeding previous years;

(ia)       in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year:]

 

66[R234] [Provided that no deduction shall be admissible under this clause in respect of any expenditure incurred on the acquisition of any land, whether the land is acquired as such or as part of any property, after the 29th day of February, 1984.]

 

Explanation 67[R235] [1].—Where any capital expenditure has been in­curred before the commencement of the business, the aggregate of the expenditure so incurred within the three years immediately preceding the commencement of the business shall be deemed to have been incurred in the previous year in which the business is commenced.

 

68[R236] [Explanation 2.—For the purposes of this clause,—

(a)        “land” includes any interest in land; and

(b)        the acquisition of any land shall be deemed to have been made by the assessee on the date on which the instrument of transfer of such land to him has been registered under the Regis­tration Act, 1908 (16 of 1908), or where he has taken or retained the possession of such land or any part thereof in part perform­ance of a contract of the nature referred to in section 53A* of the Transfer of Property Act, 1882 (4 of 1882), the date on which he has so taken or retained possession of such land or part;]

 

(ii)        notwithstanding anything contained in clause (i), where an asset representing expenditure of a capital nature 69[R237] [incurred before the 1st day of April, 1967,] ceases to be used in a previ­ous year for scientific research related to the business and the value of the asset at the time of the cessation, together with the aggregate of deductions already allowed under clause (i) falls short of the said expenditure, then—

 

(a)        there shall be allowed a deduction for that previous year of an amount equal to such deficiency, and

(b)        no deduction shall be allowed under that clause for that previous year or for any subsequent previous year;

 

(iii)       if the asset mentioned in clause (ii) is sold, without having been used for other purposes, in the year of cessation, the sale price shall be taken to be the value of the asset at the time of the cessation; and if the asset is sold, without having been used for other purposes, in a previous year subsequent to the year of cessation, and the sale price falls short of the value of the asset taken into account at the time of cessation, an amount equal to the deficiency shall be allowed as a deduction for the previous year in which the sale took place;

(iv)       where a deduction is allowed for any previous year under the section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under 70[R238] [clause (ii) of sub-section (1) of section 32 for the same 71[R239] [or any other] previous year in respect of that asset;

(v)        where the asset 72[R240] [mentioned in clause (ii)] is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under 73[R241] [clause (ii) of sub-section (1)] of section 32.

 

74[R242] [(2A)   75[R243] Where 76[R244] [, before the 1st day of March, 1984,] the assessee pays any sum 77[R245] [(being any sum paid with a specific direction that the sum shall not be used for the acquisition of any land or building or construction of any building)] to a scientific research association or university or college or other institution referred to in clause (ii) of sub-section (1) 78[R246] [or to a public sector company] to be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority79[R247]  having regard to the social, economic and industrial needs of India, then,—

 

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

(b) no deduction in respect of such sum shall be allowed under clause (ii) of sub-section (1) for the same or any other assessment year.]

 

78[R248] [Explanation: For the purposes of this sub-section, “public sector company” shall have the same meaning as in clause (b) of the Explanation below sub-section (2B) of section 32A.]

 

The following sub-section (2AA) shall be inserted by the Finance Act, 1993, w.e.f. 1-4-1994:

 

(2AA) Where the assessee pays any sum to a National Laboratory with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved in this behalf by the prescribed authority, then—

 

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

(b)        no deduction in respect of such sum shall be allowed under any other provision of the Income-tax Act:

 

Provided that even National Laboratory desirous of obtaining approval under this sub-section shall make an application in the prescribed form and manner to the prescribed authority:

 

Provided further that the prescribed authority may, before granting approval, call for such documents or information from the National Laboratory as it thinks necessary in order to satis­fy itself about the genuiness of the activities relating to scientific research of such Laboratory.

 

Explanation.—For the purposes of this sub-section, “National Laboratory” mean a scientific laboratory functioning at the national level under aegis of the Indian Council of Agricultural Research, the Indian Council of Medical Research or the Council of Scientific and Industrial Research and which is approved as a National Laboratory by the prescribed authority in such manner as may be prescribed.

 

80[R249] [(2B)(a)           Where 81[R250] [, before the 1st day of March, 1984,] an assessee has incurred any expenditure (not being in the nature of capital expenditure incurred on the acquisition of any land or building or construction of any building) on scientific research undertaken under a programme approved in this behalf by the prescribed authority81a[R251]  having regard to the social, economic and industrial needs of India, he shall, subject to the provisions of this sub-section, be allowed a deduction of a sum equal to one and one-fourth times the amount of the expenditure certified by the prescribed authority to have been so incurred during the previous year.

(b)        Where a deduction has been allowed under clause (a) for any previous year in respect of any expenditure, no deduction in respect of such expenditure shall be allowed under clause (i) of sub-section (1) or clause (ia) of sub-section (2) for the same or any other previous year.

(c)        Where a deduction is allowed for any previous year under this sub-section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed in respect of that asset under 82[R252] [clause (ii) of sub-section (1)] of section 32 for the same or any subsequent previous year.

(d)        Any deduction made under this sub-section in respect of any expenditure on scientific research in excess of the expenditure actually incurred shall be deemed to have been wrongly made for the purposes of this Act if the assessee fails to furnish within one year of the period allowed by the prescribed authority for completion of the programme, a certificate of its completion obtained from that authority, and the provisions of sub-section (5B) of section 155 shall apply accordingly.]

 

(3)        If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to the prescribed authority83[R253] , whose decision shall be final.

 

(4)        The provisions of sub-section (2) of section 32 shall apply in relation to deductions allowable under clause (iv) of sub-section (1) as they apply in relation to deductions allowable in respect, of depreciation.

 

84[R254] [(5)      Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company (being an India company) any asset representing expenditure of a capital nature or scientific research,—

 

(i)         the amalgamating company shall not be allowed the deduction under clause (ii) or clause (iii) of sub-section (2); and

(ii)        the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or other­wise transferred that asset.]]

 

 

85[R255] [Expenditure on acquisition of patent rights or copyrights.

 

35A. (1)           In respect of any expenditure of a capital nature in­curred after the 28th day of February,1966, on the acquisition of patent rights or copyrights (hereafter, in this section, referred to as rights) used for the purposes of the business, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expendi­ture.

           

Explanation.—For the purposes of this section,—

 

(i)         “relevant previous years” means the fourteen previous years beginning with the previous year in which such expenditure is incurred or, where such expenditure is incurred before the commencement of the business, the fourteen previous year begin­ning with the previous year in which the business commenced:

 

Provided that where the rights commenced, that is to say, became effective, in any year prior to the previous year in which expend­iture on the acquisition thereof was incurred by the assessee, this clause shall have effect with the substitution for the reference to fourteen years of a reference to fourteen years less the number of complete years which, when the rights are acquired by the assessee, have elapsed since the commencement thereof, and if fourteen years have elapsed as aforesaid, of a references to one year;

 

(ii)        “appropriate fraction” means the fraction the numerator of which is one and the denominator of which is the number of the relevant previous years.

 

(2)           Where the rights come to an end without being subsequently revived or where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) are not less than the cost of acquisition thereof remaining unallowed, no deduction under sub-section (1) shall be allowed in respect of the previous year in which the rights come to an end or, as the case may be, the whole or any part of the rights is sold or in respect of any subsequent previous year.

 

(3)           Where the rights either come to an end without being subse­quently revived or are sold in their entirety and the proceeds of the sale (so far as they consist of capital sums) are less than the cost of acquisition thereof remaining unallowed, a deduction equal to such cost remaining unallowed, or, as the case may be, such cost remaining unallowed as reduced by the proceeds of the sale, shall be allowed in respect of the previous year in which the rights come to an end, or, as the case may be, are sold.

 

(4)           Where the whole or any part of the rights is sold and the proceeds of the sale (so far as they consist of capital sums) exceed the amount of the cost of acquisition thereof remaining unallowed, so much of the excess as does not exceed the differ­ence between the cost of acquisition of the rights and the amount of such cost remaining unallowed shall be chargeable to income-tax as income of the business of the previous year in which the whole or any part of the rights is sold.

 

Explanation.—Where the whole or any part of the rights is sold in a previous year in which the business is no longer in exist­ence, the provisions of this sub-section shall apply as if the business is in existence in that previous year.

 

(5)           Where a part of the rights is sold and sub-section (4) does not apply, the amount of the deduction to be allowed under sub-section (1) shall be arrived at by—

 

(a)        subtracting the proceeds of the sale (so far as they consist of capital sums) from the amount of the cost of acquisi­tion of the rights remaining unallowed; and

(b)        dividing the remainder by the number of relevant previ­ous years which have not expired at the beginning of the previous year during which the rights are sold.]

 

86[R256] [(6)         Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers the rights to the amalgamat­ed company (being an Indian company),—

 

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

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

 

 

87[R257] [Expenditure on know-how.

 

 

35AB. (1)        Subject to the provisions of sub-section (2), where the assessee has paid in any previous year any lump sum consideration for acquiring any know-how for use for the purposes of his busi­ness, one-sixth of the amount so paid shall be deducted in com­puting the profits and gains of the business for that previous year, and the balance amount shall be deducted in equal instal­ments for each of the five immediately succeeding previous years.

 

(2)        Where the know-how referred to in sub-section (1) is de­veloped in a laboratory, university or institution referred to in sub-section (2b) of section 32A, one-third of the said lump sum consideration paid in the previous year by the assessee shall be deducted in computing the profits and gains of the business for that year, and the balance amount shall be deducted in equal instalments for each of the two immediately succeeding previous years.

 

Explanation.—For the purposes of this section, “know-how” means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto).]

 

88[R258] [Expenditure on eligible projects or schemes.*[R259] 

 

35AC. (1)        Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authori­ty or to an association or institution approved88a[R260]  by the Nation­al Committee for carrying out any eligible project or scheme, the assessee shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year :

 

Provided that a company may, for claiming the deduction under this sub-section, incur expenditure either by way of payment of any sums as aforesaid or directly on the eligible project or scheme.

 

(2)        The deduction under sub-section (1) shall not be allowed unless the assessee furnishes along with his return of income a certificate—

 

88b[R261] (a)      where the payment is to a public sector company or a local authority or an association or institution referred to in sub-section (1), from such public sector company or local author­ity or, as the case may be, association or institution;

88c [R262] (b)     in any other case, from an accountant, as defined in the Explanation below sub-section (2) of section 288,in such form, manner and containing such particulars (including particulars relating to the progress in the work relating to the eligible project or scheme during the previous year) as may be prescribed.89[R263] 

 

(3)        Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.

                       

                        Explanation.—For the purposes of this section,—

(a)        “National Committee” means the Committee constituted by the Central Government from amongst persons of eminence in public life, in accordance with the rules made under this Act;

(b)        “eligible project or scheme” means such project or scheme for promoting the social and economic welfare of, or the uplift of, the public as the Central Government may, by notifica­tion in Official Gazette, specify in this behalf on the recommen­dations of the National Committee.]

 

 

Export markets development allowance.

 

 

90[R264] 35B.    [Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35B was inserted by the Finance Act, 1968, w.e.f. 1-4-1968].

 

 

Agricultural development allowance.

 

 

91[R265] 35C.    [Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35C was inserted by the Finance Act, 1968, w.e.f. 1-4-1968].

 

Rural development allowance.

 

92[R266] 35CC. [Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35CC was inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977.]

 

93[R267] [Expenditure by way of payment to associations and institutions for carrying out rural development programmes.

 

35CCA.94[R268] [(1)     Where an assessee incurs any expenditure by way of payment of any sum—

 

(a)        to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the prescribed authority95[R269] ; or

(b)        to an association or institution, which has as its object the training of persons for implementing programmes of rural development; 96[R270] [or]

96[R271] [(c)      to a rural development fund set up and notified by the Central Government in this behalf,] the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.]

 

97[R272] [(2)            The deduction under clause (a) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution referred to in the said clause unless the assessee furnishes a certificate from such association or institution to the effect that—

 

(a)        the programme of rural development had been approved by the prescribed authority before the 1st day of March, 1983; and

(b)        where such payment is made after the 28th day of Febru­ary, 1983, such programme involves work by way of construction of any building or other structure (whether for use as a dispensary, school, training or welfare centre, workshop or for any other purpose) or the laying of any road or the construction or boring of a well or tube-well or the installation of any plant or ma­chinery, and such work has commenced before the 1st day of March, 1983.]

 

98[R273] [(2A)         The deduction under clause (b) of sub-section (1) shall not be allowed in respect of expenditure by way of payment of any sum to any association or institution unless the assessee fur­nishes a certificate from such association or institution to the effect that—

 

(a)           the prescribed authority had approved the association or institution before the 1st day of March, 1983; and

(b)        the training of persons for implementing any programme of rural development had been started by the association or institution before the 1st day of March, 1983.]

 

98[R274] [(2B)          No certificate of the nature referred to in sub-section (2) or sub-section (2A) shall be issued by any association or institution unless such association or institution has obtained from the prescribed authority authorisation in writing to issue certificates of such nature.]

 

Explanation.—For the purposes of this section, “programme of rural development” shall have the meaning assigned to it in the Explanation to sub-section (1) of section 35CC.

 

(3)              Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under section 35C or section 35CC or section 80G or any other provision of this Act for the same or any other assessment year.]

 

 

99[R275] [Expenditure by way of payment of associations and institutions for carrying out programmes of conservation of natural resources.

 

35CCB. 1[R276] [(1)      Where an assessee incurs any expenditure by way of payment of any sum—

 

(a)        to an association or institution, which has as its object the undertaking of any programme of conservation of natu­ral resources or of afforestation, to be used for carrying out any programme of conservation of natural resources or afforesta­tion approved2[R277]  by the prescribed authority3[R278] ; or

(b)        to such fund for afforestation as may be notified by the Central Government, the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expenditure incurred during the previous year.]

 

(2)              The deduction under 4[R279] [clause (a) of] sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such associa­tion or institution is for the time being approved in this behalf by the prescribed authority5[R280]  :

 

Provided that the prescribed authority shall not grant such approval for more than three years at a time.

 

(3)              Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.]

 

 

6[R281] [Amortisation of certain preliminary expenses.

 

 

35D. (1)           Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),—

 

(i)         before the commencement of his business, or

(ii)        after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit,the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten suc­cessive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation.

 

(2)           The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :—

 

7[R282] (a)          expenditure in connection with—

(i)         preparation of feasibility report;

(ii)        preparation of project report;

(iii)       conducting market survey or any other survey necessary for the business of the assessee;

(iv)       engineering services relating to the business of the assessee :

 

Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services referred to in this clause is carried out by the assessee himself or by a concern which is for the time being approved in this behalf by the Board;

 

(b)        legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business of the assessee;

(c)        where the assessee is a company, also expenditure—

 

(i)         by way of legal charges for drafting the Memorandum and articles of Association of the company;

(ii)        on printing of the Memorandum and Articles of Associa­tion;

(iii)       by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956);

(iv)       in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus;

 

(d)        such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed.

 

(3)           Where the aggregate amount of the expenditure referred to in sub-section (2) exceeds an amount calculated at two and one-half per cent—

 

(a)        of the cost of the project, or

(b)        where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company,the excess shall be ignored for the purpose of computing the deduction allowable under sub-section (1).

                       

                        Explanation—In this sub-section—

 

(a)        “cost of the project” means—

 

(i)         in a case referred to in clause (i) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and build­ings), which are shown in the books of the assessee as on the last day of the previous year in which the business of the asses­see commences;

(ii)        in a case referred to in clause (ii) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and build­ings), which are shown in the books of the assessee as on the last day of the previous year in which the extension of the industrial undertaking is completed or, as the case may be, the new industrial unit commences production or operation, in so far as such fixed assets have been acquired or developed in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the assessee;

 

(b)        “capital employed in the business of the company” means—

 

(i)         in a case referred to in clause (i) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the business of the company commences;

(ii)        in a case referred to in clause (ii) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the extension of the industrial undertaking is completed, or, as the case may be, the new industrial unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the company;

 

(c)        “long-term borrowings” means—

 

(i)         any moneys borrowed by the company from Government or the Industrial Finance Corporation of India or the Industrial Credit and Investment Corporation of India or any other financial institution which is for the time being approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36 or any banking institution (not being a financial institution referred to above), or

(ii)        any money borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of capital plant and machinery, where the terms under which such moneys are borrowed or the debt is incurred provide for the repayment there­of during a period of not less than seven years.

 

8[R283] (4)            Where the assessee is a person other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the asses­see furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

 

(5)           Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation,—

 

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

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

 

(6)           Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year.]

 

9[R284] [Deduction for expenditure on prospecting, etc., for certain minerals.

 

35E. (1)           Where an assessee, being an Indian company or a person (other than a company) who is resident in India, is engaged in any operations relating to prospecting for, or extraction or production of, any mineral and incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each one of the relevant previous years a deduction of an amount equal to one-tenth of the amount of such expenditure.

 

(2)           The expenditure referred to in sub-section (1) is that incurred by the assessee after the date specified in that sub-section at any time during the year of commercial production and any one or more of the four years immediately preceding that year, wholly and exclusively on any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals :

 

Provided that there shall be excluded from such expenditure any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insur­ance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure.

 

(3)           Any expenditure—

 

(i)         on the acquisition of the site of the source of any mineral or group of associated minerals referred to in sub-section (2) or of any rights in or over such site;

(ii)        on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or

(iii)       of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 32, shall not be deemed to be expenditure incurred by the assessee for any of the purposes specified in sub-section (2).

 

(4)           The deduction to be allowed under sub-section (1) for any relevant previous year shall be—

 

(a)        an amount equal to one-tenth of the expenditure speci­fied in sub-section (2) (such one-tenth being hereafter in this sub-section referred to as the instalment); or

(b)        such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this sec­tion) of that previous year arising from the commercial exploitation [whether or not such commercial exploitation is as a result of the operations or development referred to in sub-section (2)] of any mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals as aforesaid in respect of which the expenditure was incurred,whichever amount is less :

 

Provided that the amount of the instalment relating to any relevant previous year, to the extent to which it remains unal­lowed, shall be carried forward and added to the instalment relating to the previous year next following and deemed to be part of that instalment, and so on, for succeeding previous years, so, however, that no part of any instalment shall be carried forward beyond the tenth previous year as reckoned from the year of commercial production.

 

(5)           For the purposes of this section,—

(a)        “operation relating to prospecting” means any operation undertaken for the purposes of exploring locality or proving deposits of any mineral, and includes any such operation which proves to be in fructuous or abortive;

(b)        “year of commercial production” means the previous year in which as a result of any operation relating to prospecting, commercial production of any mineral or any one or more of the minerals in a group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule, commences;

(c)        “relevant previous years” means the ten previous years beginning with the year of commercial production.

 

10[R285] (6)          Where the assessee is a person other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the asses­see furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

 

(7)        Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation—

 

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

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

 

(8)        Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other assessment year.]

 

 

Other deductions.

 

 

11[R286] 36.(1)  The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—

 

(i)         the amount of any premium paid in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of the business or profession;

12[R287] [(ia)      the amount of any premium paid by a federal milk co-operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of co-operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co-operative society;]

13[R288] [(ib)     the amount of any premium paid by cheque by the assessee as an employer to effect or to keep in force an insur­ance on the health of his employees under a scheme framed in this behalf by the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government;]

 

(ii)        any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission;

                                    14[R289] [* * * ]

                                    15[R290] [* * * ]

 

16[R291] [(iia)     a sum equal to one and one-third times the amount of the expenditure incurred on payment of any salary 17[R292] [for any period of employment before the 1st day of March, 1984] to an employee who, as at the end of the previous year,—

 

(a)        is totally blind, or

(b)        is subject to or suffers from a permanent physical disability (other than blindness) which has the effect of reduc­ing substantially his capacity to engage in a gainful employment or occupation :

           

            Provided that the assessee produces before the 18[R293] [Assessing] Officer, in respect of the first assessment year for which deduc­tion is claimed in relation to each such employee under this clause,—

 

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

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

 

Provided further that noting contained in this clause shall apply in the case of an employee whose income in the previous year chargeable under the head “Salaries” exceeds twenty thousand rupees.

 

Explanation 1.—In this clause, “salary” includes the pay, allow­ances, bonus or commission payable monthly or otherwise.

 

Explanation 2.—For the removal of doubts, it is hereby declared that where a deduction under this clause is allowed for any assessment year in respect of any expenditure, deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same from any other assessment year;]

 

(iii)       the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession.

           

            Explanation.—Recurring subscriptions paid periodically by share­holders, or subscribers in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;

19[R294] (iv)       any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an ap­proved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, as the case may be; and sub­ject to such 20[R295] conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amount or annual contributions fixed on some definite basis by reference to the income chargeable under the head “Salaries” or to the contributions or to the number of members of the fund;

21[R296] (v)        any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust;

22[R297] [(va)     any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date.

 

            Explanation.—For the purposes of this clause, “due date” means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued there under or under any standing order, award, contract of serv­ice or otherwise;]

 

(vi)       in respect of animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals;

(vii)      subject to the provisions of sub-section (2), the amount of 23[R298] [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year] :

 

            24[R299] [Provided that in the case of a bank to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause;

 

25[R300] (viia)    26[R301] [27[R302] in respect of any provision for bad and doubtful debts made by—

(a)        a scheduled bank [not being a bank approved by the Central Government for the purposes of clause (viiia) or a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding the 27a[R303] [two] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner;

(b)        a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A);]

28[R304] [(c)      a public financial institution or a State finan­cial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A).]

           

            Explanation.—For the purposes of this clause,—

 

29[R305] [(i)       “non-scheduled bank” means a 30[R306] banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank;]

31[R307] [(ia)]    “rural branch” means a branch of a scheduled bank 32[R308] [or a non-scheduled bank] situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been pub­lished before the first day of the previous year;

33[R309] [(ii)       “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidi­ary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank;]

34[R310] [(iii)      35[R311] "public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

(iv)       “State financial corporation” means a financial corpo­ration established under section 3 or section 3A or an institu­tion notified under section 46 of the State Financial Corpora­tions Act, 1951 (63 of 1951);

(v)        “State industrial investment corporation” means a 36[R312] Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and approved by the Central Government under clause (viii) of this sub-section;]

(viii)      37[R313] [in respect of any special reserve created by a financial corporation which is engaged in providing long-term finance for industrial or 38[R314] [agricultural development in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the total income (computed before making any deduction under 39[R315] [this clause and] Chapter VI-A) carried to such reserve account :]]

 

            Provided that the corporation 40[R316] [or, as the case may be, the company] is for the time being approved41[R317]  by the Central Govern­ment for the purposes of this clause :

           

            Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds 42[R318] [twice the amount of] the paid-up share capital (excluding the amounts capitalised from reserves) of the corporation 40 [R319] [or, as the case may be, the company], no allowance under this clause shall be made in respect of such excess.

            43[R320] [Explanation.—In this clause,—

(a) “Financial Corporation” shall include a public company and a Government company;

(b)        44[R321] "public company” shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956);

(c) “Government company” shall have the meaning assigned to it in section 617 of the Companies Act, 195645[R322]  (1 of 1956);]

46[R323] [(viiia)        in respect of any special reserve created by a scheduled bank (other than a bank incorporated by or under the laws of a country outside India) which is engaged in banking operations outside India, an amount not exceeding forty per cent of the total income (computed before making any deduction under 47[R324] [this clause and] Chapter VI-A) carried to such reserve account:

 

48[R325] Provided that, having regard to its capital structure, the extent of its banking operations outside India, its need for resources for such operations outside India and other relevant factors, the bank is, for the time being, approved by the Central Government for the purposes of this clause.

 

Explanation.—For the purposes of this clause, “scheduled bank” has the same meaning as in clause (ii) of the Explanation to clause (viia);]

 

49[R326] [(ix)      any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employ­ees :

           

Provided that where such expenditure or any part thereof is of a capital nature, one-fifth of such expenditure shall be deducted for the previous year in which it was incurred; and the balance thereof shall be deducted in equal instalments for each of the four immediately succeeding previous years:

           

Provided further that the provisions of sub-section (2) of sec­tion 32 and of sub-section (2) of section 72 shall apply in relation to deductions allowable under this clause as they apply in relation to deductions allowable in respect of depreciation:

           

            Provided further that the provisions of clauses (ii), (iii), (iv) and (v) of sub-section (2) 50[R327] [and sub-section (5)] of section 35, of sub-section (3) of section 41 and of Explanation 1 to clause (1) of section 43 shall, so far as may be, apply in relation to an asset representing expenditure of a capital nature for the purposes of promoting family planning as they apply in relation to an asset representing expenditure of a capital nature on scientific research.]

 

51[R328] [(x)      any sum paid by a public financial institution by way of contribution towards any fund specified under clause (23E) of section 10.

 

            Explanation.—For the purposes of this clause, “public financial institution” shall have the meaning assigned to it in section 4A*[R329]  of the Companies Act, 1956 (1 of 1956).]

 

(2)           In making any deduction for a bad debt or part thereof, the following provisions shall apply—

 

52[R330] [(i)       no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;]

(ii)        if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made.

(iii)       any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year 53[R331] [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)], but the 54[R332] [Assessing] Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year;

(iv)       where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year 55[R333] [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the 55a[R334] [Assessing] Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply;

56[R335] [(v)      where such debt or part of debt relates to ad­vances made by a bank to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.]

 

General.

 

 

57[R336] 37. 58[R337] (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 59[R338] [***] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of the busi­ness or profession”.

 

60[R339] [60a [R340] (2)   Notwithstanding anything contained in sub-section (1), any expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year commencing on the 1st day of April, 1992 shall be allowed as follows:

 

(a)        where the amount of such expenditure does not exceed ten thousand rupees, the whole of such amount;

(b)        in any other case, ten thousand rupees as increased by a sum equal to fifty per cent of such expenditure in excess of ten thousand rupees.

 

Explanation.—For the purpose of this sub-section “entertainment expenditure” includes—

 

(i)         the amount of any allowance in the nature of entertain­ment allowance paid by the assessee to any employee or other person;

(ii)        the amount of any expenditure in the nature of enter­tainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in clause (i)] incurred for the purpose of the business or profession of the assessee by any employee or other person;

(iii)       expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and wheth­er or not such provision is made by reason of any express or implied contract or custom or usage of trade, but does not in­clude expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work.]

 

61[R341] [62[R342] (2B)   Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.]

 

63[R343] [63a[R344] (3)    64[R345] Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residen­tial accommodation including any accommodation in the nature of a guest-house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, may be pre­scribed.]

 

(3A)     65[R346] [***]

(3B)     66[R347] [***]

(3C)     67[R348] [***]

(3D)     68[R349] [***]

 

69[R350] [(4)      Notwithstanding anything contained in sub-section (1) or sub-section (3),—

 

(i)         no allowance shall be made in respect of any expendi­ture incurred by the assessee after the 28th day of February 1970, on the maintenance of any residential accommodation in the nature of a guest-house (such residential accommodation being hereafter in this sub-section referred to as “guest-house”);

(ii)        in relation to the assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, no allowance shall be made in respect of depreciation of any build­ing used as a guest-house or deprecation of any assets in a guest-house :

 

Provided that the aggregate of the expenditure referred to in clause (i) and the amount of any depreciation referred to in clause (ii) shall, for the purposes of this sub-section, be reduced by the amount, if any, and received from persons using the guest-house:

 

Provided further that nothing in this sub-section shall apply in relation to any guest-house maintained as a holiday home if such guest-house—

 

(a)        is maintained by an assessee who has throughout the previous year employed not less than one hundred whole-time employees in a business or profession carried on by him; and

(b)        is intended for the exclusive use of such employees while on leave.

           

            Explanation.—For the purposes of this sub-section,—

 

(i)         residential accommodation in the nature of a guest-house shall include accommodation hired or reserved by the asses­see in a hotel for a period exceeding one hundred and eighty-two days during the previous year; and

(ii)        the expenditure incurred on the maintenance of a guest-house shall, in a case where the residential accommodation has been hired by the assessee, include also the rent paid in respect of such accommodation.]

 

70[R351] [(5)      For the removal of doubts, it is hereby declared that any accommodation, by whatever name called, maintained, hired, re­served or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person (includ­ing any employee or, where the assessee is a company, also any director of, or the holder of any other office in, the company), on tour or visit to the place at which such accommodation is situated, is accommodation in the nature of a guest-house within the meaning of sub-section (4).]

 

 

Building, etc., partly used for business, etc., or not exclusive­ly so used.

 

38. (1)        Where a part of any premises is used as dwelling house by the assessee,—

 

(a)        the deduction under sub-clause (i) of clause (a) of section 30, in the case of rent, shall be such amount as the 71[R352] [Assessing] Officer may determine having regard to the propor­tionate annual value of the part used for the purpose of the business or profession, and in the case of any sum paid for repairs, such sum as is proportionate to the part of the premises used for the purpose of the business or profession;

(b)        the deduction under clause (b) of section 30 shall be such sum as the 71[R353] [Assessing] Officer may determine having regard to the part so used.

 

(2)        Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clause (i) and (ii) of section 31 and 72[R354] [clause (ii) of sub-section (1)] of section 32 shall be restricted to a fair proportionate part thereof which the 71 [R355] [Assessing] Officer may determine, having regard to the user of such building, ma­chinery, plant or furniture for the purposes of the business or profession.

 

 

Managing agency commission.

 

 

73[R356] 39.       [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

 

 

74[R357] Amounts not deductible.

 

 

40.       Notwithstanding anything to the contrary in sections 30 to 75[R358] [38], the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of busi­ness or profession”,—

 

(a)        in the case of any assessee—

 

76[R359] [(i)       any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B :

 

Provided that where in respect of any such sum, tax has been paid or deducted under Chapter XVII-B in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid or deducted.

 

Explanation : For the purposes of this sub-clause,—

 

(A)       “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

(B)       “fees for the technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section 1 of section 9;]

 

(ii)        any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains;

77[R360] [(iia)     any sum paid on account of wealth-tax.

 

Explanation.—For the purposes of this sub-clause, “wealth-tax” means wealth-tax chargeable under the Wealth-tax Act, 1957 (27 of 1957), or any tax of similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of assets of, or the capital employed in, a business or profession carried on by the assessee, whether or not the debts of the business or profession are al­lowed as a deduction in computing the amount with reference to which such tax is charged, but does not include any tax charge­able with reference to the value of any particular asset of the business or profession;]

 

(iii)       any payment which is chargeable under the head “Salaries”, if it is payable outside India and if the tax has not been paid thereon nor deducted therefrom under Chapter XVII-B;

(iv)       any payment to a provident or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head “Salaries”;

(v)        78[R361] [***]

 

79[R362] [(b)      in the case of any firm assessable as such,—

 

(i)         any payment of salary, bonus, commission or remunera­tion, by whatever name called (hereinafter referred to as remu­neration) to any partner who is not a working partner; or

(ii)        any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or

(iii)       any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorised by, and is in accordance with, the terms of the partnership deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorised by, or is not in accordance with, any earlier partnership deed, so, however, that the period of authorisation for such payment by any earlier partnership deed does not cover any period prior to the date of such earlier part­nership deed; or

(iv)       any payment of interest to any partner which is autho­rised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calcu­lated at the rate of eighteen per cent simple interest per annum; or

(v)        any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder:—

 

(1)        in case of a firm carrying on a profession referred to in section 44AA or which is notified for the purpose of that section—

(a) on the first Rs. 1,00,000 of the book-profit or in case of a loss

Rs. 50,000 or at the rate of 90 per cent of the book-profit, whichever is more;

(b) on the next Rs. 1,00,000 of the book-profit

at the rate of 60 per cent;

(c) on the balance of the book-profit

at the rate of 40 per cent;

(2) in the case of any other firm—

 

(a) on the first Rs. 75,000 of the book-profit, or in case of a loss

Rs. 50,000 or at the rate of 90 per cent of the book- profit, whichever is more;

(b) on the next Rs. 75,000 of the book-profit

at the rate of 60 per cent;

(c) on the balance of the book-profit

at the rate of 40 per cent :

 

Provided that in relation to any payment under this clause to the partner during the previous year relevant to the assessment year commencing on the 1st day of April, 1993, the terms of the partnership deed may, at any time during the said previous year, provide for such payment.

 

Explanation 1.—Where an individual is a partner in a firm on behalf, or for the benefit, or any other person (such partner and the other person being hereinafter referred to as “partner in a representative capacity” and “person so represented”, respective­ly),—

 

(i)         interest paid by the firm to such individual otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause;

(ii)        interest paid by the firm to such individual as partner in a representative capacity and interest paid by the firm to the person so represented shall be taken into account for the pur­poses of this clause.

 

Explanation 2.—Where an individual is a partner in a firm other­wise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.

 

Explanation 3.—For the purposes of this clause, “book-profit” means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuner­ation paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.

 

Explanation 4.—For the purposes of this clause, “working part­ner” means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner;]

 

80[R363] [(ba) in the case of an association of persons or body of individuals [other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India], any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to a member of such association or body.

 

Explanation 1.—Where interest is paid by an association or body to any member thereof who has also paid interest to the associa­tion or body, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the association or body to the member exceeds the payment of interest by the member to the association or body.

 

Explanation 2.—Where an individual is a member of an association or body on behalf, or for the benefit, of any other person (such member and the other person being hereinafter referred to as “member in a representative capacity” and “person so represented”, respectively),—

 

(i)         interest paid by the association or body to such indi­vidual or by such individual to the association or body otherwise than as member in a representative capacity, shall not be taken into account for the purposes of this clause;

(ii)        interest paid by the association or body to such indi­vidual or by such individual to the association or body as member in a representative capacity and interest paid by the association or body to the person so represented or by the person so repre­sented to the association or body, shall be taken into account for the purposes of this clause.

 

Explanation 3.—Where an individual is a member of an association or body otherwise than as member in a representative capacity, interest paid by the association or body to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.]

 

(c)        [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Earlier, it was amended by the Finance Act, 1963, w.e.f. 1-4-1963, Finance Act, 1964, w.e.f. 1-4-1964, Fi­nance Act, 1965, w.e.f. 1-4-1965, Finance Act, 1968, w.e.f. 1-4-1969, Finance (No. 2) Act, 1971, w.e.f. 1-4-1972, Finance Act, 1984, w.e.f. 1-4-1985 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.]

 

(d)        [Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]

 

81[R364] [Expenses or payments not deductible in certain circumstances.

 

82[R365] 40A (1)            The provisions of this section shall have effect not­withstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head “Profits and gains of business or profession”.

 

(2) (a)  Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the 83[R366] [Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expendi­ture as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction:

                        84[R367] [* * *]

 

(b)  The persons referred to in clause (a) are the following, namely :—

(I) where the assessee is an individual

any relative of the assessee ;

(ii) where the assessee is a company, firm, association of persons or Hindu un- divided family

any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member ;

(iii)       any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual;

(iv)       a company, firm, association of persons or Hindu undi­vided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member;

(v)        a company, firm, association of persons or Hindu undi­vided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee ; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member;

(vi)       any person who carries on a business or profession,—

(A)       where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person ; or

(B)       where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person.

 

Explanation.—For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profes­sion, if—

 

(a)        in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power ; and

(b)        in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession.

 

85[R368] (3)       Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding 86[R369] [ten thousand] rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction:

 

Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding 86[R370] [ten thousand] rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, the allowance originally made shall be deemed to have been wrongly made and the 87[R371] [Assessing] Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made:

 

Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding 88[R372] [ten thou­sand] rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed89[R373] , having regarded to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.]

 

90[R374] [(4)      Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by a crossed cheque drawn on a bank or by a crossed bank draft in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft ; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner.]

 

91[R375] (5)       [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original sub-section (5) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972.]

 

92[R376] (6)       [Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original sub-section (6) was inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972.]

 

93[R377] [(7)(a)  Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termina­tion of their employment for any reason.

 

(b)     Nothing in clause (a) shall apply in relation to—

(i)         any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year;

(ii)        any provision made by the assessee for the previous year relevant to any assessment year commencing on or after the 1st day of April, 1973, but before the 1st day of April, 1976, to the extent the amount of such provision does not exceed the admissible amount, if the following conditions are fulfilled, namely :—

 

(1)        the provision is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason;

(2)        the assessee creates an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust, the application for the approval of the fund having been made before the 1st day of January, 1976 ; and

(3)        a sum equal to at least fifty per cent of the admissi­ble amount, or where any amount has been utilised out of such provision for the purpose of payment of any gratuity before the creation of the approved gratuity fund, a sum equal to at least fifty per cent of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of contribution to the approved gratuity fund before the 1st day of April, 1976, and the balance of the admissible amount or, as the case may be, the balance of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of such contribution before the 1st day of April, 1977.

 

Explanation 1.—For the purpose of sub-clause (ii) of clause (b) of this sub-section, “admissible amount” means the amount of the provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employ­ment for any reason, to the extent such amount does not exceed an amount calculated at the rate of eight and one-third per cent of the salary [as defined in clause (h) of rule 2 of Part A of the Fourth Schedule] of each employee entitled to the payment of such gratuity for each year of his service in respect of which such provision is made.

 

Explanation 2.—For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason has been allowed as a deduc­tion in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid.]

 

(8)        94[R378] [* * *]

95[R379] [(9)      No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or informa­tion of, or as contribution to, any fund, trust, company, associ­ation of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) or clause (v) of sub-section (1) of section 36, or as re­quired by or under any other law for the time being in force.

 

95[R380] [(10)    Notwithstanding anything contained in sub-section (9), where the 96[R381] [Assessing] Officer is satisfied that the fund, trust, company, association of persons, body of individuals, society or other institution referred to in that sub-section has, before the 1st day of March, 1984, bona fide laid out or expended any expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee referred to in sub-section (9) out of the sum referred to in that sub-section, the amount of such expenditure shall, in case no deduction has been allowed to the assessee in respect of such sum and subject to the other provisions of this Act, be deducted in computing the income referred to in section 28 of the assessee of the previous year in which such expenditure is so laid out or expended, as if such expenditure had been laid out or expended by the assessee.]

 

97[R382] [(11)    Where the assessee has, before the 1st day of March, 1984, paid any sum to any fund, trust, company, association of persons, body of individuals, society or other institution re­ferred to in sub-section (9), then, notwithstanding anything contained in any other law or in any instrument, he shall be entitled—

 

(i)         to claim that so much of the amount paid by him as has not been laid out or expended by such fund, trust, company, association of persons, body of individuals, society or other institution (such amount being hereinafter referred to as the unutilised amount) be repaid to him, and where any claim is so made, the unutilised amount shall be repaid, as soon as may be to him ;

(ii)        to claim that any asset, being land, building, machin­ery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individuals, society or other institution out of the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him.]

 

(12)      98[R383] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

Profits chargeable to tax.

 

41.99[R384] (1)  Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trad­ing liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previ­ous year,—

 

(a)        the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not ; or

 

(b)        the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit acquiring to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.

 

Explanation.—For the purposes of this sub-section, “successor in business” means—

 

(i)         where there has been an amalgamation of a company with another company, the amalgamated company ;

(ii)        where the first-mentioned person is succeeded by any other person in that business or profession, the other person ;

(iii)       where a firm carrying on a business or profession is succeeded by another firm, the other firm.]

 

(2)           1[R385] [* * *]

 

(2A)        2[R386] [* * *]

 

(3)           Where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (iv) of sub-section (1), 3[R387] [or clause (c) of sub-section (2B),] of section 35, read with clause (4) of section 43, is sold, without having been used for other purposes, and the proceeds of the sale together with the total amount of the deductions made under clause (i) 4[R388] [or, as the case may be, the amount of the deduction under clause (ia)] of sub-section (2), 3[R389] [or clause (c) of sub-section (2B),] of section 35 exceed the amount of the capital expendi­ture, the excess or the amount of the deductions so made, which­ever is the less, shall be chargeable to income-tax as income of the business or profession of the previous year in which the sale took place.

 

Explanation.—Where the moneys payable in respect of any asset referred to in this sub-section become due in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year.

 

(4)           Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of clause (vii) of sub-section (1) of section 36, then, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly chargeable to income-tax as the income of the previous year in which it is recovered, whether the business or profession in respect of which the deduction has been allowed is in existence in that year or not.

           

            5[R390] [Explanation.—For the purposes of sub-section (3),—

 

(1)        “moneys payable” in respect of any building, machinery, plant or furniture includes—

(a)        any insurance, salvage or compensation moneys payable in respect thereof;

(b)        where the building, machinery, plant or furniture is sold, the price for which it is sold,so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to he assessee as it would have been computed before applying the said proviso;

 

(2)        “sold” includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company.]

 

(5)           Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-section (1), 6[R391] [* * *] sub-section (3) or sub-section (4) in respect of that business or profession, any loss, not being a loss sustained in speculation business 7[R392] [* * *], which arose in that business or profession during the previ­ous year in which it ceased to exist and which could not be set off against any other income of that previous year shall, so far as may be, be set off against the income chargeable to tax under the sub-sections aforesaid.

 

8[R393] [(6)           References in sub-section (3) to any other provision of this Act which has been amended or omitted by the Direct Tax Laws (Amendment) Act, 1987 shall, notwithstanding such amendment or omission, be construed, for the purposes of that sub-section, as if such amendment or omission had not been made.]

 

 

Special provision for deductions in the case of business for prospecting, etc., for mineral oil.

 

 

42.       For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation 9[R394] [of the Central Government or any person authorised by it in such business] (which agreement has been laid on the Table of each House of Parliament), there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement in relation—

 

 

(a)        to expenditure by way of infractuous or abortive explo­ration expenses in respect of any area surrendered prior to the beginning of commercial production by the assessee ;

(b)        after the beginning of commercial production, to ex­penditure incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for deprecia­tion is admissible under section 32 :

                        10[R395] [* * *]

 

 

11[R396] [Provided that in relation to any agreement entered into after the 31st day of March, 1981, this clause shall have effect subject to the modification that the words and figures “except assets on which allowance for depreciation is admissible under section 32” had been omitted; and]

 

(c)        to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified in the agreement; and such allowances shall be computed and made in the manner specified in the agreement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement.

 

12[R397] [Explanation.—For the purposes of this section, “mineral oil” includes petroleum and natural gas.]

 

 

 

Definition of certain terms relevant to income from profits and gains of business or profession.

 

43.       In sections 28 to 41 and in this section, unless the context otherwise requires—

 

13[R398] (1)       “actual cost” means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority :

 

14[R399] [Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, 15[R400] [but before the 1st day of March, 1975,] and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees.]

 

Explanation 1.—Where an asset is used in the business after it ceases to be used for scientific research related to that business and a deduction has to be made under 16[R401] [clause (ii) of sub-section (1)] of section 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under clause (iv) of sub-section (1) of section 35 or under any corresponding provision of the Indian Income-tax Act, 1922 (11 of 1992).

 

17[R402] [Explanation 2.—Where an asset is acquired by the asses­see by way of gift or inheritance, the actual cost of the asset to the assessee shall be the actual cost to the previous owner, as reduced by—

 

(a)        the amount of depreciation actually allowed under this Act and the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and

(b)        the amount of depreciation that would have been allowa­ble to the assessee for any assessment year commencing on or after the 1st day of April, 1988, as if the asset was the only asset in the relevant block of assets.]

 

Explanation 3.—Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the 18[R403] [Assess­ing] Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the 18[R404] [Assessing] Officer may, with the previous approval of the 19[R405] [Deputy] Commissioner, determine having regard to all the circumstances of the case.

 

20[R406] [Explanation 4.—Where any asset which had once belonged to the assessee and had been used by him for the purposes of his business or profession and thereafter ceased to be his property by reason of transfer or otherwise, is re-acquired by him, the actual cost to the assessee shall be—

 

(i)         the actual cost to him when he first acquired the asset as reduced by—

 

(a)        the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and

(b)        the amount of depreciation that would have been allowa­ble to the assessee for any assessment year commencing on or after the 1st day of April, 1988, as if the asset was the only asset in the relevant block of assets; or

 

(ii)        the actual price for which the asset is re-acquired by him, whichever is less.]

 

Explanation 5.—Where a building previously the property of the assessee is brought into use for the purpose of the business or profession after the 28th day of February, 1946, the actual cost to the assessee shall be the actual cost of the building to the assessee, as reduced by an amount equal to the depreciation calculated at the rate in force on that date that would have been allowable had the building been used for the aforesaid purposes since the date of its acquisition by the assessee.

 

21[R407] [Explanation 6.—When any capital asset is transferred by a holding company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied, the actual cost of the transferred capital asset to the transferee-company shall be taken to be the same as it would have been if the transferor-company had continued to hold the capital asset for the purposes of its business.]

 

22[R408] [Explanation 7.—Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company and the amalgamated company is an Indian company, the actual cost of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its own business.]

 

23[R409] [Explanation 8.—For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset;]

 

(2)        “paid” means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head “Profits and gains of business or profession”;

 

(3)        “plan” includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession ;

 

(4)24[R410] [(i)   “scientific research” means any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries;]

 

(ii)     references to expenditure incurred on scientific re­search include all expenditure incurred for the prosecution, or the provision of facilities for the prosecution, of scientific research, but do not include any expenditure incurred in the acquisition of rights in, or arising out of, scientific research;

(iii)    references to scientific research related to a business or class of business include—

 

(a)        any scientific research which may lead to or facilitate an extension of that business or, as the case may be, all busi­nesses of that class;

(b)        any scientific research of a medical nature which has a special relation to the welfare of workers employed in that business or, as the case may be, all businesses of that class;

 

25[R411] (5)       “speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately set­tled otherwise than by the actual delivery or transfer of the commodity or scrips:

            Provided that for the purposes of this clause—

 

(a)        a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or

(b)        a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or

(c)        a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member;shall not be deemed to be a speculative transaction.

 

(6)        “written down value” means—

 

(a)        in the case of assets acquired in the previous year, the actual cost to the assessee;

(b)        in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force:

 

26[R412] [Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of clause (ii) of sub-section (1) of section 32, “depreciation actually allowed” shall not include depreciation allowed under sub-clauses (a), (b) and (c) of clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi);]

 

27[R413] [(c)      in the case of any block of assets,—

 

(i)         in respect of any previous year relevant to the assess­ment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjust­ed,—

 

(A)       by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and

(B)       by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and

 

(ii)        in respect of any previous year relevant to the assess­ment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i).]

 

Explanation 1.—When in a case of succession in business or profession, an assessment is made on the successor under sub-section (2) of section 170 the written down value of 28[R414] [any asset or any block of assets] shall be the amount which would have been taken as its written down value if the assessment had been made directly on the person succeeded to.

 

29[R415] [Explanation 2.—Where in any previous year, any block of assets is transferred,—

 

(a)        by a holding company to its subsidiary company or by a subsidiary company to its holding company and the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied; or

(b)        by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company,then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee-company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferor-company or the amalgamated company, for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year.]

 

Explanation 3.—Any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation “actually allowed”.

 

30[R416] [Explanation 4.—For the purposes of this clause, the expres­sions “moneys payable” and “sold” shall have the same meanings as in the Explanation below sub-section (4) of section 41.]

 

 

31[R417] [Special provisions consequential to changes in rate of ex­change of currency.

 

 

32[R418] 43A.(1)            Notwithstanding anything contained in any other provi­sion of this Act, where an assessee has acquired any asset from a country outside India for the purposes of his business or profes­sion and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as ex­pressed in India currency for making payment towards the whole or a part of the cost of the asset or for repayment of the whole or a part the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset (being in either case the liability exist­ing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during the previous year shall be added to, or, as the case may be, deducted from, the actual cost of the asset as defined in clause (1) of section 43 or the amount of expenditure of a capital nature referred to 33[R419] [in clause (iv) of sub-section (1) of section 35 or in section 35A] or in clause (ix) of sub-section (1) of section 36, or in the case of a capital asset (not being a capital asset referred to in section 50), the cost of acquisition thereof for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid.

 

Explanation 1.—In this sub-section, unless the context otherwise requires,—

 

(a)        “rate of exchange” means the rate of exchange deter­mined or recognised by the Central Government for the conversion of Indian currency into foreign currency or foreign currency into Indian currency;

(b)        34[R420] "foreign currency” and “Indian currency” have the meanings respectively assigned to them in section 2 of the For­eign Exchange Regulation Act, 1947 (7 of 1947).35[R421] 

 

Explanation 2.—Where the whole or any part of the liability aforesaid is met, not by the assessee, but, directly or indirect­ly, by any other person or authority, the liability so met shall not be taken into account for the purpose of this sub-section.

 

Explanation 3.—Where the assessee has entered into a contract with an 36[R422] authorised dealer as defined in section 2 of the For­eign Exchange Regulation Act, 1947 (7 of 1947),37 [R423] for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the liability aforesaid, the amount, if any, to be added to, or deducted from, the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this sub-section shall, in respect of so much of the sum specified in the contract as is available for discharging the liability aforesaid, be computed with reference to the rate of exchange specified therein.

 

(2)        The provisions of sub-section (1) shall not be taken into account in computing the actual cost of an asset for the purpose of the deduction on account of development rebate under section 33.]

 

 

38[R424] [Certain deductions to be only on actual payment.

 

 

39[R425] 43B.    Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—

 

40[R426] [(a)      any sum payable by, the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or]

(b)        any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, 41[R427] [or]

41[R428] [(c)      any sum referred to in clause (ii) of sub-section (1) of section 36,] 42[R429] [or]

42[R430] [(d)      any sum payable by the assessee as interest on any loan or borrowing from any public financial institution 43[R431] [or a state financial corporation or a state industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing,] shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :

 

44[R432] [Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) 45[R433] [or clause (c)] 46[R434] [or clause (d)] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is fur­nished by the assessee along with such return :

 

47[R435] [Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Expla­nation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date]].

 

Explanation 48[R436] [1].—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in comput­ing the income referred in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.]

 

49[R437] [Explanation 2.—For the purposes of clause (a), as in force at all material times, “any sum payable” means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.]

 

50[R438] [Explanation 51[R439] [3].—For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) 52[R440] [or clause (d) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assess­ment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.]

 

53[R441] [Explanation 4.—For the purposes of this section,—

 

(a)        “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956*[R442]  (1 of 1956);

(b)        “State financial corporation” means a financial corpo­ration established under section 3 or section 3A or an institu­tion notified under section 46 of the State Financial Corpora­tions Act, 1951 (63 of 1951);

(c)        “State industrial investment corporation” means a Government company within the meaning of section 617 of the Companies Act,†[R443]  1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and approved by the Central Government under clause (viii) of sub-section (1) of section 36.]

 

 

54[R444] [Special provision for computation of cost of acquisition of certain assets.

 

43C. (1)           Where an asset [not being an asset referred to in sub-section (2) of section 45] which becomes the property of an amalgamated company under a scheme of amalgamation, is sold after the 29th day of February, 1988, by the amalgamated company as stock-in-trade of the business carried on by it, the cost of acquisition of the said asset to the amalgamated company in computing the profits and gains from the sale of such asset shall be the cost of acquisition of the said asset to the amalgamating company, as increased by the cost, if any, of any improvement made thereto, and the expenditure, if any, incurred, wholly and exclusively in connection with such transfer by the amalgamating company.

 

(2)           Where an asset [not being an asset referred to in sub-section (2) of section 45] which becomes the property of the assessee on the total or partial partition of a Hindu undivided family or under a gift or will or an irrevocable trust, is sold after the 29th day of February, 1988, by the assessee as stock-in-trade of the business carried on by him, the cost of acquisition of the said asset to the assessee in computing the profits and gains from the sale of such asset shall be the cost of acquisition of the said asset to the transferor or the donor, as the case may be, as increased by the cost, if any, of any improvement made thereto, and the expenditure, if any, incurred, wholly and exclu­sively in connection with such transfer (by way of effecting the partition, acceptance of the gift, obtaining probate in respect of the will or the creation of the trust), including the payment of gift-tax, if any, incurred by the transferor or the donor, as the case may be.]

 

 

 

55[R445] [Special provision in case of income of public financial insti­tutions etc.

 

 

43D.    Notwithstanding anything to the contrary contained in any other provision of this Act, in the case of a public financial institution or a scheduled bank or a State financial corporation or a State industrial investment corporation, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed55a[R446]  having regard to the guidelines issued by the Reserve Bank of India in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or the State financial corporation or the State industrial investment corporation to its profit and loss account for that year or, as the case may be, in which it is actually received by the institution or bank or corporation, whichever is earlier.

           

            Explanation.—For the purposes of this section,—

 

(a)        “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956)55b[R447] ;

(b)        “scheduled bank” shall have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36;

(c)        “State financial corporation” means a financial corpo­ration established under section 3 or section 3A or an institu­tion notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951);

(d)        “State industrial investment corporation” means a Government company55c[R448]  within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of pro­viding long-term finance for industrial projects and approved by the Central Government under clause (viii) of sub-section (1) of section 36.

 

 

Insurance business.

 

 

56[R449] 44.       Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income charge­able under the head “Interest on securities”, “Income from house property”, “Capital gains” or “Income from other sources”, or in section 199 or in sections 28 to 57[R450] [43B], the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule.

 

 

58[R451] [Special provision for deduction in the case of trade, profes­sional or similar association.

 

 

44A. (1)           Notwithstanding anything to the contrary contained in this Act, where the amount received during a previous year by any trade, professional or similar association 59[R452] [(other than an association or institution referred to in clause (23A) of section 10)] from its members, whether by way of subscription or other­wise (not being remuneration received for rendering any specific services to such members) falls short of the expenditure incurred by such association during that previous year (not being expendi­ture deductible in computing the income under any other provision of this Act and not being in the nature of capital expenditure) solely for the purposes of protection or advancement of the common interests of its members, the amount so fallen short (hereinafter referred to as deficiency) shall, subject to the provisions of this section, be allowed as a deduction in comput­ing the income of the association assessable for the relevant assessment year under the head “Profits and gains of business or profession” and if there is no income assessable under that head or the deficiency allowable exceeds such income, the whole or the balance of the deficiency, as the case may be, shall be allowed as a deduction in computing the income of the association assess­able for the relevant assessment year under any other head.

(2)           In computing the income of the association for the relevant assessment year under sub-section (1), effect shall first be given to any other provision of this Act under which any allowance or loss in respect of any earlier assessment year is carried forward and set off against the income for the relevant assessment year.

(3)           The amount of deficiency to be allowed as a deduction under this section shall in no case exceed one-half of the total income of the association as computed before making any allowance under this section.

(4)           This section applies only to that trade, professional or similar association the income of which or any part thereof is not distributed to its members except as grants to any association or institution affiliated to it.]

 

 

 

60[R453] [Maintenance of accounts by certain persons carrying on profession or business.

 

 

44AA. (1)        Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified61[R454]  by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the 62[R455] [Assessing] Officer to compute his total income in accordance with the provisions of this Act.

(2)        Every person carrying on business or profession [not being a profession referred to in sub-section (1)] shall,—

 

(i)         if his income from business or profession exceeds 63[R456] [forty] thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds 64[R457] [five hundred] thousand rupees in any one of the three years immediately preceding the previous year; or

(ii)        where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed 63[R458] [forty] thousand rupees or his total sales, turnover or gross receipt, as the case may be, in business or profession are or is likely to exceed 64[R459] [five hundred] thousand rupees, during such previous year, keep and maintain such books of account and other documents as may enable the 65[R460] [Assessing] Officer to compute his total income in accordance with the provisions of this Act.

 

66[R461] (3)       The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe, by rules, the books of account and other documents (including inven­tories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained.

(4)        Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-section (1) or sub-section (2) shall be retained.]

 

 

 

67[R462] [Audit of accounts of certain persons carrying on business or profession.

 

 

68[R463] 44AB.  69[R464] Every person,—

 

(a)        carrying on business shall, if his total sales, turn­over or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year 70[R465] [***]; or

(b)        carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year 70 [R466] [***], get his accounts of such previous year 71[R467] [***] audited by an accountant before the specified date and obtain before that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed :

 

72[R468] [Provided that this sections shall not apply to the person, who derives income of the nature of referred to in section 44AC or section 44AB or section 44BB or section 44BBA or section 44BBB, on and from the 1st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later :

 

Provided further that] in a case where such person is required by or under any other law to get his accounts audited 73[R469] [***], it shall be sufficient compliance with the provisions of this sec­tion if such person gets the accounts of such business or profes­sion audited under such law before the specified date and obtains before that date the report of the audit as required under such other law and a further report in the form prescribed under this section.

 

Explanation.—For the purposes of this section,—

 

(i)         “accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288;

74[R470] [(ii)       “specified date”, in relation to the accounts of the previous year relevant to an assessment year means,—

 

(a)        where the assessee is a company, the 31st day of Decem­ber of the assessment year;

(b)        in any other case, the 31st day of October of the assessment year.]]

 

 

75[R471] [Special provision for computing profits and gains from the business of trading in certain goods.

 

 

44AC. [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

 

76[R472] [Special provision for computing profits and gains of shipping business in the case of non-residents.

 

 

44B. (1)           Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gain of business or profession”.

(2)           The amounts referred to in sub-section (1) shall be the fol­lowing, namely :—

 

(i)         the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods shipped at any port in India; and

(ii)        the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of pas­sengers, livestock, mail or goods shipped at any port outside India.]

 

77[R473] [Special provision for computing profits and gains in connec­tion with the business of exploration, etc., of mineral oils.

 

44BB. (1)         Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee 78[R474] [, being a non-resident,] engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospect­ing for, or extraction or production of, mineral oils, a sum equal to ten per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession” :

 

Provided that this sub-section shall not apply in a case where the provisions of section 42 or section 44D or section 115A or section 293A apply for the purposes of computing profits or gains or any other income referred to in those sections.

 

(2)        The amounts referred to in sub-section (1) shall be the following, namely :—

 

(a)        the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, material oils in India; and

(b)        the amount received or deemed to be received in India by or on behalf of the assessee on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India.

           

            Explanation.—For the purposes of this section,—

 

(i)         “plant” includes ships, aircraft, vehicles, drilling units, scientific, apparatus and equipment, used for the purposes of the said business;

(ii)        “mineral oil” includes petroleum and natural gas.]

 

 

79[R475] [Special provision for computing profits and gains of the business of operation of aircraft in the case of non-residents.

 

 

44BBA.  (1)     Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of aircraft, a sum equal to five per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.

(2)     The amounts referred to in sub-section (1) shall be the following namely :—

(a)        the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods from any place in India; and

(b)        the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods from any place outside India.]

 

80[R476] [Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.

 

81[R477] 44BBB.           Notwithstanding anything to the contrary contained in sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commis­sioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf and financed under any international aid programme, a sum equal to ten per cent of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profes­sion.”]

 

82[R478] [Deduction of head office expenditure in the case of non-residents.*[R479] 

44C.    Notwithstanding anything to the contrary contained in sec­tions 28 to 43A, in the case of an assessee, being a non-resident, no allowance shall be made, in computing the income chargeable under the head “Profits and gains of business or profession,” in respect of so much of the expenditure in the nature of head office expenditure as is in excess of the amount computed as hereunder, namely :—

 

(a)        an amount equal to five per cent of the adjusted total income; or

(b)        82a[R480]  [***]

(c)        the amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India,whichever is the least :

 

Provided that in a case where the adjusted total income of the assessee is a loss, the amount under clause (a) shall be computed at the rate of five per cent of the average adjusted total income of the assessee.

 

Explanation.—For the purposes of this section,—

 

(i)         “adjusted total income” means the total income computed in accordance with the provisions of this Act, without giving effect to the allowance referred to in this section or in sub-section (2) of section 32 or the deduction referred to in section 32A or section 33 or section 33A or the first proviso to clause (ix) of sub-section (1) of section 36 or any loss carried forward under sub-section (1) of section 72, or sub-section (2) of sec­tion 73 or sub-section (1) 83[R481] [or sub-section (3)] of section 74 or sub-section (3) of section 74A or the deductions under Chapter VI-A;

(ii)        “average adjusted total income” means,—

 

(a)        in a case where the total income of the assessee is assessable for each of the three assessment years immediately preceding the relevant assessment year, one-third of the aggre­gate amount of the adjusted total income in respect of the previ­ous years relevant to the aforesaid three assessment years;

(b)        in a case where the total income of the assessee is assessable only for two of the aforesaid three assessment years, one-half of the aggregate amount of the adjusted total income in respect of the previous years relevant to the aforesaid two assessment years;

(c)        in a case where the total income of the assessee is assessable only for one of the aforesaid three assessment years, the amount of the adjusted total income in respect of the previ­ous year relevant to that assessment year;

 

(iii)       83a [R482] [***]

(iv)       “head office expenditure” means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of—

 

(a)        rent, rates, taxes, repairs or insurance of any prem­ises outside India used for the purposes of the business or profession;

(b)        salary, wages, annuity, pension, fees, bonus, commis­sion, gratuity, perquisites or profits in lieu of or in addition to salary, whether paid or allowed to any employee or other person employed in, or managing the affairs of, any office out­side India;

(c)        travelling by any employee or other person employed in, or managing the affairs of, any office outside India; and

(d)        such other matters connected with executive and general administration as may be prescribed.]

 

 

84[R483] [Special provisions for computing income by way of royalties, etc., in the case of foreign companies.

 

 

44D.    Notwithstanding anything to the contrary contained in sec­tions 28 to 44C, in the case of an assessee, being a foreign company,—

 

(a)        the deductions admissible under the said sections in computing the income by way of royalty or fees for technical services received 85[R484] [from Government or an Indian concern in pursuance of an agreement made by the foreign company with Gov­ernment or with the Indian concern] before the 1st day of April, 1976, shall not exceed in the aggregate twenty per cent of the gross amount of such royalty or fees as reduced by so much of the gross amount of such royalty as consists of lump sum considera­tion for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property;

(b)        no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received 86[R485] [from Government or an Indian concern in pursuance of an agree­ment made by the foreign company with Government or with the Indian concern] after the 31st day of March, 1976;

87[R486] [(c) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing income by way of interest received from Government or an Indian concern on moneys borrowed or debt incurred by the Government or the Indian concern in foreign currency;]

88[R487] [(d) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income referred to in clause (ab) of sub-section (1) of section 115A.]

           

            Explanation.—For the purposes of this section,—

(a)        “fees for technical services” shall have the same meaning as in 89[R488] [Explanation 2] to clause (vii) of sub-section (1) of section 9;

(b)        “foreign company” shall have the same meaning as in section 80B;

(c)        “royalty” shall have the same meaning as in 89[R489] [Explana­tion 2] to clause (vi) of sub-section (1) of section 9;

(d)        royalty received 90-91[R490] [from Government or an Indian concern in pursuance of an agreement made by a foreign company with Government or with the Indian concern] after the 31st day of March, 1976, shall be deemed to have been received in pursuance of an agreement made before the 1st day of April, 1976, if such agreement is deemed, for the purposes of the proviso to clause (vi) of sub-section (1) of section 9, to have been made before the 1st day of April, 1976.]

 

E.—Capital gains

 

Capital gains.

 

92[R491] 45.93[R492] [(1)]            Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as other­wise provided in sections 94[R493] [***] 95[R494] [54, 54B, 96[R495] [***] 97[R496] [98[R497] [54D, 99[R498] [54E, 54F 1[R499] [, 54G and 54H]]]]], be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.

2[R500] [(2)        Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be charge­able to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.]

3[R501] [(3)        The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative socie­ty) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

(4)        The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.]

4[R502] [(5)        Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such trans­fer is enhanced or further enhanced by any court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely:—

 

(a)        the capital gain computed with reference to the compen­sation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be charge­able as 5[R503] [income under the head “Capital gains” of the previous year in which such compensation or part thereof, or such consid­eration or part thereof, was first received]; and

(b)        the amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head “Capital gains” of the previous year in which such amount is received by the assessee.

 

Explanation.—For the purposes of this sub-section,—

 

(i)         in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil;

(ii)        the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988;

(iii)       where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compen­sation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the in­come, chargeable to tax under the head “Capital gains”, of such other person.]

 

6[R504] [(6)        Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in sub-section (2) of section 80CCB and the capital value of such units shall be deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that section is terminated and shall be taxed accordingly.

 

Explanation.—For the purposes of this sub-section, “capital value of such units” means any amount invested by the assessee in the units referred to in sub-section (2) of section 80CCB.]

 

 

Capital gains on distribution of assets by companies in liquida­tion.

 

 

46.(1)         notwithstanding anything contained in section 45, where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45.

(2)        Where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be charge­able to income-tax under the head “Capital gains”, in respect of the money so received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48.

 

Transactions not regarded as transfer.

 

47.       Nothing contained in section 45 shall apply to the following transfers :—

 

(i)         any distribution of capital assets on the total or partial partition of a Hindu undivided family;

(ii)        7[R505] [* * *]

(iii)       any transfer of a capital asset under a gift or will or an irrevocable trust;

(iv)       any transfer of a capital asset by a company to its subsidiary company, if—

 

(a)        the parent company or its nominees hold the whole of the share capital of the subsidiary company, and

(b)        the subsidiary company is an Indian company;

 

8[R506] [(v)        any transfer of a capital asset by a subsidiary company to the holding company, if—

 

(a)        the whole of the share capital of the subsidiary compa­ny is held by the holding company, and

(b)        the holding company is an Indian company:]

 

9[R507] [Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade;]

 

10[R508] [(vi)         any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company;

11[R509] [(via)    any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if—

 

(a) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and

(b)     such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated;]

 

(vii)      any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company if—

 

(a)        the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company, and

(b)        the amalgamated company is an Indian company;]

 

12[R510] [(viia) any transfer of a capital asset, being bonds or shares referred to in sub-section (1) of section 115AC, made outside India by a non-resident to another non-resident;]

13[R511] [(viii)    any transfer of agriculture land in India effected before the 1st day of March, 1970;]

14[R512] [(ix)      any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manu­script, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution as may be notified15[R513]  by the Central Government in the Official Gazette to be of national importance or to be of renown through­out any State or States.

 

Explanation.—For the purposes of this clause, “University” means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act;]

 

16[R514] [(x)      any transfer by way of conversion of 17[R515] [bonds or] debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company.]

 

18[R516] [Withdrawal of exemption in certain cases.

 

47A.    Where at any time before the expiry of a period of eight years from the date of the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47,—

 

(i)         such capital asset is converted by the transferee company into, or is treated by it as, stock-in-trade of its business; or

(ii)        the parent company or its nominees or, as the case may be, the holding company ceases or cease to hold the whole of the share capital of the subsidiary company, the amount of profits or gains arising from the transfer of such capital asset not charged under section 45 by virtue of the provisions contained in clause (iv) or, as the case may be, clause (v) of section 47 shall, notwithstanding anything con­tained in the said clauses, be deemed to be income chargeable under the head “Capital gains” of the previous year in which such transfer took place.]

 

19[R517] [Mode of computation.

 

48.       The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:—

(i)         expenditure incurred wholly and exclusively in connec­tion with such transfer;

(ii)        the cost of acquisition of the asset and the cost of any improvement thereto:

19a[R518] Provided that in the case of an assessee, who is a non-resident Indian, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian compa­ny shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the pur­chase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency so however, that the aforesaid manner of computa­tion of capital gains shall be applicable in respect of capital gains accruing or arising from every re-investment thereafter in, and sale of, shares in, or debentures of, an Indian company :

 

Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first provi­so, the provisions of clause (ii) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement” had respectively been substituted.

 

Explanation : For the purposes of this section,—

 

(i)         “foreign currency” and “Indian currency” *[R519] shall have the meanings respectively assigned to them in section 2 of the For­eign Exchange Regulation Act, 1973 (46 of 1973);

(ii)        the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf;

(iii)       “indexed cost of acquisition” means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is trans­ferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year begin­ning on the 1st day of April, 1981, whichever is later;

(iv)       “indexed cost of any improvement” means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place;

(v)        “Cost Inflation Index” for any year means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index for urban non-manual employees for that year, by notification20 [R520] in the Official Gazette, specify in this behalf.]

 

Cost with reference to certain modes of acquisition.

 

49 21[R521] [(1) Where the capital asset became the property of the assessee—

 

(i)         on any distribution of assets on the total or partial partition of a Hindu undivided family;

(ii)        under a gift or will;

(iii) (a)  by succession, inheritance or devaluation, or

22[R522] [(b)      on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or]

(c) on any distribution of assets on the liquidation of a company, or

(d) under a transfer to a revocable or an irrevocable trust, or

(e) under any such transfer as is referred to in clause (iv) 23[R523] [or clause (v)] 24[R524] [or clause (vi)] 25[R525] [or clause (via)] of section 47;

26[R526] [(iv)      such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969,] the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.

 

27[R527] [Explanation.—In this 28[R528] [sub-section] the expression “previous owner of the property” in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) 29[R529] [or clause (iv)] of this 30[R530] [sub-section].]

 

31[R531] [(2)      Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the proper­ty of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company.]

 

32[R532] [(2A)   Where the capital asset, being a share or debenture in a company, became the property of the assessee in consideration of a transfer referred to in clause (x) of section 47, the cost of acquisition of the asset to the assessee shall be deemed to be that part of the cost of debenture, debenture-stock or deposit certificates in relation to which such asset is acquired by the assessee.]

 

33[R533] [(3)      Notwithstanding anything contained in sub-section (1), where the capital gain arising from the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47 is deemed to be income chargeable under the head “Capital gains” by virtue of the provisions contained in section 47A, the cost of acquisition of such asset to the trans­feree-company shall be the cost for which such asset was acquired by it.]

 

 

34[R534] [Special provision for computation of capital gains in case of depreciable assets.

 

 

50.       Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :—

 

(1)        where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely :—

 

(i)         expenditure incurred wholly and exclusively in connec­tion with such transfer or transfers;

(ii)        the written down value of the block of assets at the beginning of the previous year; and

(iii)       the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;

 

(2)        where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.]

 

Advance money received.

 

51.       Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.

 

 

Consideration for transfer in cases of understatement.

 

 

35[R535] 52.       [Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]

 

 

 

Exemption of capital gains from a residential house.

 

 

36[R536] 53.       [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

 

Profit on sale of property used for residence.

 

 

37[R537] 54.38[R538] [(1) 39[R539] [40[R540] [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset 41[R541] [***], being buildings or lands appur­tenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (hereafter in this section referred to as the original asset), and the assessee has within a period of 42[R542] [one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date construct­ed, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

 

(i)         if the amount of the capital gain 43[R543] [is greater than the cost of 44[R544] [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purposes of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii)        if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its trans­fer within a period of three years of its purchase or construc­tion, as the case may be, the cost shall be reduced by the amount of the capital gain.

                                    45[R545] [***]

 

46[R546] [(2)         The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the pur­chase or construction of the new asset before the date of fur­nishing the return of income under section 139, shall be deposit­ed by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-sec­tion (1) of section 139] in an account in any such bank or insti­tution as may be specified in, and utilised in accordance with, any scheme47[R547]  which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

 

(i)         the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii)        the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

 

Explanation.—48[R548] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

 

Relief of tax on capital gains in certain cases.

 

 

54A.    [Omitted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. Original section was inserted by the Finance Act, 1965, w.e.f. 1-4-1965. The Direct Tax Laws (Amendment) Act, 1989 has deleted new section 54A, dealing with relief of tax on capital gains on transfer of property held under trust for charitable or religious purposes or by certain institution, earlier inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.]

 

 

49[R549] [Capital gain on transfer of land used for agricultural pur­poses not to be charged in certain cases.

 

 

54B.50[R550] [(1)]         51[R551] [Subject to the provisions of sub-section (2) where the capital gain arises] from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his for agricultural purposes 51a[R552] [(here­inafter referred to as the original asset)], and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, in­stead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

 

(i)         if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or

(ii)        if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its trans­fer within a period of three years of its purchase, the cost shall be reduced by the amount of the capital gain.]

 

52[R553] [(2)            The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme53[R554]  which the Central Government may, by notification in the Official gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset to­gether with the amount so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the new asset within the period specified in sub-section (1), then,—

 

(i)         the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of two years from the date of the transfer of the original asset expires; and

(ii)        the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

            Explanation.—54[R555] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

 

Capital gain on transfer of jewellery held for personal use not to be charged in certain cases.

 

 

54C.    [Omitted by the Finance Act, 1976, w.e.f. 1-4-1976. Original section was inserted by the Finance Act, 1972, w.e.f. 1-4-1973.]

 

 

55[R556] [Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases.

 

 

54D.56[R557] [(1)]         57[R558] [Subject to the provisions of sub-section (2), where the capital gain arises] from the transfer by way of com­pulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking belonging to the assessee which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee for the purposes of the business of the said undertaking 58[R559] [(hereafter in this section referred to as the original asset)], and the assessee has within a period of three years after that date purchased any other land or building or any right in any other land or building or constructed any other building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertak­ing, then, instead of the capital gain being charged to income-tax as the income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

(i)         if the amount of the capital gain is greater than the cost of the land, building or right so purchased or the building so constructed (such land, building or right being hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and cost of new asset shall be charged under section 45 as the income of the previous year ; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii)        if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45 ; and for the purpose of computing in respect of the new asset any capital gain arising from its trans­fer within a period of three years of its purchase or construc­tion, as the case may be, the cost shall be reduced by the amount of the capital gain.]

 

59[R560] [(2)         The amount of the capital gain which is not utilised by the assessee for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date ap­plicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme60[R561]  which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

 

(i)         The amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii)        The assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

 

Explanation.—61[R562] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

62[R563] [Capital gain of transfer of capital assets not to be charged in certain cases.

 

63[R564] 54E. (1)           Where the capital gain arises from the transfer of a 64[R565] [long-term capital asset] 65[R566] [before the 1st day of April, 1992], the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, within a period of six months after the date of such transfer, invested or deposited the 66[R567] [whole or any part of the net consid­eration] in any specified asset (such specified asset being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

 

(a)        if the cost of the new asset is not less than the 67[R568] [net consideration] in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b)        if the cost of the new asset is less than the 67[R569] [net consideration] in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the 68[R570] [net consideration] shall not be charged under section 45:

 

69[R571] [Provided that in a case where the original asset is trans­ferred after the 28th day of February, 1983, the provisions of this sub-section shall not apply unless the assessee has invested or deposited the whole or, as the case may be, any part of the net consideration in the new asset by initially subscribing to such new asset:]

 

70[R572] [Provided further that in case where the transfer of the origi­nal asset is by way of compulsory acquisition under any law and the full amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period of six months referred to in this sub-section shall, in relation to so much of such compensation as is not received on the date of the transfer, be reckoned from the date immediately following the date on which such compensation is received by the assessee 71[R573] [or the 31st day of March, 1992, whichever is earlier].]

 

Explanation 1.—72[R574] [For the purposes of this sub-section, “speci­fied asset” means—

 

(a)        in a case where the original asset is transferred before the 1st day of March, 1979, any of the following assets, namely :—]

(i)         securities of the Central Government or a State Govern­ment;

(ii)        73[R575] savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959);

(iii)       units in the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(iv)       debentures specified by the Central Government for the purposes of clause (ii) of sub-section (1) of section 80L;

(v)        shares in any Indian company which are issued to the public or are listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder, 74[R576] [where the invest­ment in such shares is made before the 1st day of March, 1978];

75[R577] [(va)     equity shares forming part of any eligible issue of capital, where the investment in such shares is made after the 28th day of February, 1978;]

(vi)       deposits for a period of not less than three years with the State Bank of India established under the State Bank of India Act, 1955 (23 of 1955), or any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) or any nationalised bank, that is to say, any corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or any co-operative society engaged in carrying on the business of banking including a co-operative land mortgage bank or a co-operative land development bank);

 

76[R578] [(b)      in a case where the original asset is transferred after the 28th day of February, 1979 77[R579] [but before the 1st day of March, 1983], such National Rural Development Bonds as the Cen­tral Government may notify78[R580]  in this behalf in the Official Ga­zette;]

 

79[R581] [(c) in a case where the original asset is transferred after the 28th day of February, 1983 80[R582] [but before the 1st day of April, 1986], any of the following assets, namely:—

 

(i)         securities of the Central Government which that Govern­ment may, by notification in the Official Gazette, specify in this behalf;

(ii)        special series of units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), which the Central Government may, by notification81[R583]  in the Offi­cial Gazette, specify in this behalf;

(iii)       such National Rural Development bonds as have been notified82[R584]  under clause (b) of Explanation 1 or as may be noti­fied in this behalf under this clause by the Central Government;

(iv)       such debentures issued by the Housing and Urban Devel­opment Corporation Limited [a 83[R585] Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)], as the Central Government may, by notification in the Official Gazette, specify in this behalf;]

 

84[R586] [(d)      in a case where the original asset is transferred after the 31st day of March, 1986, any of the assets specified in clause (c) and such bonds issued by any public sector company, as the Central Government may, by notification85[R587]  in the Official Gazette, specify in this behalf.

                                    86[R588] [* * *]]

 

87[R589] [(e) in a case where the original asset is transferred after the 31st day of March, 1989, any of the assets specified in clauses (c) and (d) and such debentures or bonds issued by the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987), as the Central Government may, by notification88[R590]  in the Official Gazette, specify in this behalf.]

 

89[R591] [Explanation 2.—”Eligible issue of capital” shall have the meaning assigned to it in sub-section (3) of section 80CC.]

 

89[R592] [Explanation 3.—An assessee shall not be deemed to have in­vested the 90[R593] [whole or any part of the net consideration in any equity shares referred to in sub-clause (va) of clause (a)] of Explanation 1, unless the assessee has subscribed to or purchased the shares in the manner specified in sub-section (4) of section 80CC.]

 

Explanation91[R594] [4].—“Cost”, in relation to any new asset, being a deposit referred to in 92[R595] [sub-clause (vi) of clause (a)] of Explanation 1, means the amount of such deposit.

93[R596] [Explanation 5.—“Net consideration”, in relation to the trans­fer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclu­sively in connection with such transfer.

 

94[R597] [(1A)   Where the assessee deposits after the 27th day of April, 1978, the 95[R598] [whole or any part of the net consideration in re­spect] of the original asset in any new asset, being a deposit referred to in 96[R599] [sub-clause (vi) of clause (a)] of Explanation 1 below sub-section (1), the cost of such new asset shall not be taken into account for the purposes of that sub-section unless the following conditions are fulfilled, namely:—

 

(a)        the assessee furnishes, along with the deposit, a declaration in writing, to the bank or the co-operative society referred to in the said 96a [R600] [sub-clause (vi)] with which such deposit is made, to the effect that the assessee will not take any loan or advance on the security of such deposit during a period of three years from the date on which the deposit is made;

(b)        the assessee furnishes, along with the return of income for the assessment year relevant to the previous year in which the transfer of the original asset was effected or within such further time as may be allowed by the 97[R601] [Assessing] Officer, a copy of the declaration referred to in clause (a) duly attested by an officer not below the rank of sub-agent, agent or manager of such bank or an officer of corresponding rank of such co-operative society.]

 

98[R602] [(1B)    Where on the fulfillment of the conditions specified in sub-section (1A), the cost of the new asset referred to in that sub-section is taken into account for the purposes of sub-section (1), the assessee shall, within a period of ninety days from the expiry of the period of three years reckoned from the date of such deposit, furnish to the 97[R603] [Assessing] Officer a certificate from the officer referred to in clause (b) of sub-section (1A) to the effect that the assessee has not taken any loan or advance on the security of such deposit during the said period of three years.]

 

99[R604] [(1C)   Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of the original asset, made after the 31st day of March, 1992, in respect of which the assessee had received any amount by way of advance on or before the 29th day of February, 1992 and had invested or deposited the whole or any part of such amount in the new asset on or before the later date, then, the provisions of clauses (a) and (b) of sub-section (1) shall apply in the case of such in­vestment or deposit as they apply in the case of investment or deposit under that sub-section.]

 

(2)        Where the new asset is transferred, or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relation to 1[R605] [long-term capital assets] of the previous year in which the new asset is transferred or converted (otherwise than by transfer) into money.]

 

2[R606] [3[R607] [Explanation 1].—Where the assessee deposits after the 27th day of April, 1978, the 4[R608] [whole or any part of the net considera­tion in respect] of the original asset in any new asset, being a deposit referred to in 5[R609] [sub-clause (vi) of clause (a)] of Expla­nation 1 below sub-section (1), and such assessee takes any loan or advance on the security of such deposit, he shall be deemed to have converted (otherwise than by transfer) such deposit into money on the date on which such loan or advance is taken.]

 

6[R610] [Explanation 2.—In a case where the original asset is trans­ferred after the 28th day of February, 1983 and the assessee invests the whole or any part of the net consideration in respect of the original asset in any new asset and such assessee takes any loan or advance on the security of such new asset, he shall be deemed to have converted (otherwise than by transfer) such new asset on the date on which such loan or advance is taken.]

7[R611] [* * *]

8[R612] [* * *]

9[R613] [* * *]

 

10[R614] [(3)      Where the cost of the equity shares referred to in 11[R615] [sub-clause (va) of clause (a) of Explanation 1 below sub-section (1) is taken into account for the purposes of clause (a) or clause (b) of sub-section (1) 12[R616] [* * *], a deduction with reference to such cost shall not be allowed under section 80CC.]

 

13[R617] [Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.

 

54F. (1)     14[R618] [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undi­vided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or 15[R619] [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

 

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears of the net consid­eration, shall not be charged under section 45:

 

Provided that nothing contained in this sub-section shall apply where the assessee owns on the date of the transfer of the origi­nal asset, or purchases, within the period of one year after such date, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset.

           

            Explanation.—For the purposes of this section—

            16[R620] [* * *]

17[R621] [* * *] “net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclu­sively in connection with such transfer.

 

(2)           Where the assessee purchases, within the period of 18[R622] [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.

 

(3)           Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the trans­fer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.]

 

19[R623] [(4)         The amount of the net consideration which is not appropri­ated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme20[R624]  which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

 

(i)         the amount by which—

(a)        the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1),exceeds

(b)        the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii)        the assessee shall be entitled to withdraw the unuti­lised amount in accordance with the scheme aforesaid.

 

Explanation.—21[R625] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

22[R626] [Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area.

 

54G. (1)     Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset, being machinery or plant or building or land or any rights in building or land used for the purposes of the business of an industrial undertaking situate in an urban area, effected in the course of, or in consequence of, the shifting of such industrial undertaking (hereafter in this section referred to as the original asset) to any area (other than an urban area) and the assessee has within a period of one year before or three years after the date on which the transfer took place,—

 

(a) purchased new machinery or plant for the purposes of business of the industrial undertaking in the area to which the said undertaking is shifted;

(b) acquired building or land or constructed building for the purposes of his business in the said area;

(c) shifted the original asset and transferred the estab­lishment of such undertaking to such area; and

(d) incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government for the purposes of this section, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

 

(i)         if the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) (such cost and expenses, being hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, con­structed or transferred, as the case may be, the cost shall be nil; or

(ii)        if the amount of the capital gain is equal to, or less than, the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its trans­fer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be reduced by the amount of the capital gain.

 

Explanation.—In this sub-section, “urban area” means any such area within the limits of a municipal corporation or municipality as the Central Government may, having regard to the population, concentration of industries, need for proper planning of the area and other relevant factors, by general or special order, declare to be an urban area for the purpose of this sub-section.

 

(2)           The amount of capital gain which is not appropriated by the assessee towards the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for all or any of the purposes aforesaid before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme23[R627]  which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for all or any of the purposes aforesaid together with the amount, so deposited shall be deemed to be the cost of the new asset :

 

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within the period specified in that sub-section, then,—

 

(i)         the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii)        the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

 

Explanation.—24[R628] [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

25[R629] [Extension of time for acquiring new asset or depositing or investing amount of capital gain.

 

54H.    Notwithstanding anything contained in sections 54, 54B, 54D 26[R630] [* * *] and 54F, where the transfer of the original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period for acquiring the new asset by the assessee referred to in those sections or, as the case may be, the period available to the assessee under those sections for depositing or investing the amount of capital gain in relation to such compen­sation as is not received on the date of the transfer, shall be reckoned from the date of receipt of such compensation:

 

Provided that where the compensation in respect of transfer of the original asset by way of compulsory acquisition under any law is received before the 1st day of April, 1991, the aforesaid period or periods, if expired, shall extend up to the 31st day of December, 1991.]

 

Meaning of “adjusted”, “cost of improvement” and “cost of acqui­sition”.

 

55. (1)        For the purposes of 27[R631] [sections 48 and 49],—

 

(a)        28[R632] [***]

29[R633] [(b)            “cost of any improvement”,—

 

(1)        in relation to a capital asset being goodwill of a business shall be taken to be nil; and

(2)        in relation to any other capital asset,—]

(i)         where the capital asset became the property of the previous owner or the assessee before the 30[R634] [1st day of April, 31[R635] [1981]], 32[R636] [***] means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and

(ii)        in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in 33[R637] [sub-section (1) of] section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head “Interest on secu­rities”, “Income from house property”, “Profits and gains of business or profession”, or “Income from other sources”, and the expression “improvement” shall be construed accordingly.

 

34[R638] (2) 35[R639] [For the purposes of sections 48 and 49, “cost of acqui­sition”,—

 

(a) in relation to a capital asset, being goodwill of a business,—-

 

(i)         in the case of acquisition of such asset by the asses­see by purchase from a previous owner, means the amount of the purchase price; and

(ii)        in any other case, shall be taken to be nil;

 

(b)  in relation to any other capital asset,—]

 

(i)         where the capital asset became the property of the assessee before the 36[R640] [1st day of April, 37[R641] [1981]], means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 36[R642] [1st day of April, 37[R643] [1981]], at the option of the assessee;

(ii)        where the capital asset became the property of the assessee by any of the modes specified in 38[R644] [sub-section (1) of] section 49, and the capital asset became the property of the previous owner before the 36[R645] [1st day of April, 37[R646] [1981]], means the cost of the capital asset to the previous owner of the fair market value of the asset on the 36[R647] [1st day of April, 37[R648] [1981]], at the option of the assessee;

(iii)       where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head “Capital gains” in respect of that asset under section 46, means the fair market value of the asset on the date of distribution;

(iv)       39[R649] [***]

40[R650] [(v)      where the capital asset, being a share or a stock of a company, became the property of the assessee on—

 

(a)        the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares,

(b)        the conversion of any shares of the company into stock,

(c)        the re-conversion of any stock of the company into shares,

(d)        the sub-division of any of the shares of the company into shares of smaller amount, or

(e)        the conversion of one kind of shares of the company into another kind, means the cost of acquision of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.]

 

(3)  Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner.

 

41[R651] [eference to Valuation Officer.

 

55A.    With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the 42[R652] [Assessing] Officer may refer the valuation of capital asset to a Valuation Officer—

 

(a)        in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a regis­tered valuer, if the 42[R653] [Assessing] Officer is of opinion that the value so claimed is less than its fair market value;

(b)        in any other case, if the 42[R654] [Assessing] Officer is of opinion—

 

43[R655] (i)         that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or

(ii)        that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do,44[R656] and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the 45[R657] [Assessing] Officer under sub-section (1) of section 16A of that Act.

 

Explanation.—In this section, “Valuation Officer” has the same meaning, as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]

 

F.—Income from other sources

 

Income from other sources.

 

46[R658] 56.(1)  Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not charge­able to income-tax under any of the heads specified in section 14, items A to E.

 

(2)     In particular, and without prejudice to the generality of the provisions of sub-section (1), the following income shall be chargeable to income-tax under the head “Income from other sources”, namely:—

 

(i)         dividends;

47[R659] [(ia)            Income referred to in sub-clause (viii) of clause (24) of section 2;]

48[R660] [(ib) Income referred to in sub-clause (ix) of clause (24) of section 2;]

49[R661] [(ic)            Income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession”;]

50[R662] [(id) income by way of interest on securities, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;]

 

(ii)        income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

 

(iii)       where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machin­ery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head “Profits and gains of business or profession”.

 

Deductions.

 

51[R663] 57.       The income chargeable under the head “Income from other sources” shall be computed after making the following deductions, namely:—

 

(i)         in the case of dividends, 52[R664] [or interest on securities], any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend 52a[R665] [or interest] on behalf of the asses­see;

 

53[R666] [(ia) in the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-tax under the head “Income from other sources”, deductions so far as may be, in accordance with the provisions of clause (va) of sub-section (1) of section 36;]

 

(ii)        in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31 and 54[R667] [sub-sections (1) 55[R668] [***] and (2)] of section 32 and subject to the provisions of 56[R669] [section 38];

 

57[R670] [(iia) in the case of income in the nature of family pen­sion, a deduction of a sum equal to thirty-three and one-third per cent of such income or twelve thousand rupees, whichever is less.

 

Explanation.—For the purposes of this clause, “family pension” means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death;]

 

(iii)       any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income:

 

58[R671] [Provided that nothing contained in clause (i) or clause (iii) shall apply in computing the income referred to in clause (a) or clause (aa) or clause (ab) of sub-section (1) of section 115A in the case of an assessee, being a foreign company.]

 

59[R672] Explanation.—[Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]

 

Amounts not deductible.

 

58.60[R673] [(1)] Notwithstanding anything to the contrary contained in section 57, the following amounts shall not be deductible in computing the income chargeable under the head “Income from other sources”, namely :—

 

(a)        in the case of any assessee,—

 

(i)         any personal expenses of the assessee;

61[R674] [(ia)            any expenditure of the nature referred to in sub-section (12)* of section 40A;]

(ii)        any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B 62[R675] [***];

(iii)       any payment which is chargeable under the head “Salaries”, if it is payable outside India, unless tax has been paid thereon or deducted therefrom under Chapter XVII-B;

            (iv) 63[R676] [***]

 

(b)        64[R677] [***]

 

65[R678] [(1A)         The provisions of sub-clause (iia) of clause (a) of section 40 shall, so far as may be, apply in computing the income chargeable under the head “Income from other sources” as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.]

66[R679] [(2)            The provisions of section 40A shall, so far as may be, apply in computing the income chargeable under the head “Income from other sources” as they apply in computing the income charge­able under the head “Profits and gains of business or profession”.]

67[R680] [(3)            In the case of an assessee, being a foreign company, the provisions of section 44D shall, so far as may be, apply in computing the income chargeable under the head “Income from other sources” as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.]

68[R681] [(4)            In the case of an assessee having income chargeable under the head “Income from other sources”, no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoev­er:

 

Provided that nothing contained in this sub-section shall apply in computing the income of an assessee, being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses.

 

Explanation.—For the purposes of this sub-section, “horse race” means a horse race upon which wagering or betting may be lawfully made.]

 

Profits chargeable to tax.

 

59. (1) The provisions of sub-section (1) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head “Profits and gains of business or profes­sion”.

(2) 69 [R682] [***]

(3) 70[R683] [***]

71[R684]  [***]

 [R1]“B.—Interest on securities” omitted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R2]See also Circular No. 2(LVIII-32)-D of 1966, dated 21-2-1966, Circular No. 293, dated 10-2-1981, Letter [F. No. 45/118/66-ITJ], dated 21-8-1967, Circular No. 309, dated 3-7-1981, Letter No. 35/1/65-IT(B), dated 5-11-1965, Circular No. 312, dated 31-8-1981, Letter F. No. 40/29/67-IT (A-I), dated 22-5-1967 and Instruction No. 1099 [F. No. 200/73/77-IT (A-I)], dated 20-9-1977.

 [R3]Existing Explanation renumbered as Explanation 1 by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R4]Inserted, ibid., Earlier Explanation 2 was inserted and omitted by the Direct Tax Laws (Amendment) Act, 1987/1989, with effect from 1-4-1989.

 [R5]Substituted by the Finance Act, 1974, w.e.f. 1-4-1975.

 [R6]Substituted for “in respect of expenditure incidental to the employment of the assessee” by the Finance (No.2) Act, 1980, w.e.f. 1-4-1981.

 [R7]substituted for the following [as it stood after amend­ment made by the Finance (No.2) Act, 1980, w.e.f. 1-4-1981] by the Finance Act, 1981, w.e.f. 1-4-1982:

“a sum calculated on the basis provided hereunder, namely:—

(a)where the salary does not exceed Rs. 10,000

20 per cent of such salary;

(b)where the salary exceeds Rs. 10,000

Rs. 2,000 plus 10 per cent of the amount by which such salary exceeds Rs. 10,000 or Rs. 3,500, whichever is less:”

 

 [R8]Substituted for “a sum equal to *thirty per cent of the salary or †ten thousand rupees, whichever is less” by the Finance Act, 1988, w.e.f. 1-4-1989. *”thirty” was sub­stituted for “twenty-five” by the Finance Act, 1986, w.e.f. 1-4-1987 and “twenty-five” was substituted for “twenty” by the Fi­nance Act, 1982, w.e.f. 1-4-1983. †”ten” was substituted for “six” by the Finance Act, 1986, w.e.f. 1-4-1987 and “six” was substituted for “five” by the Finance Act, 1983, w.e.f. 1-4-1984.

 [R9]word “fifteen” shall be substituted for “twelve” by the Finance Act, 1993, w.e.f. 1-4-1994.

 [R10]Omitted by the Finance Act, 1989, w.e.f. 1-4-1990. Earlier, the proviso, as amended by the Finance Act, 1981, w.e.f. 1-4-1982, read as under:

“Provided that—

(i) [***]

(ii) where any motor car, motor cycle, scooter or other moped is provided to the assessee by his employer for use by the assessee, otherwise than wholly and exclusively in the perform­ance of his duties; or

(iii) where one or more motor cars are owned or hired by the employer of the assessee and the assessee is allowed the use of such motor car or all or any of such motor cars, otherwise than wholly and exclusively in the performance of his duties,

the deduction under this clause shall not exceed one thousand rupees.”

 [R11]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R12]Word “fifteen” shall be substituted for “twelve” and word “eighteen” shall be substituted for “fifteen”, respectively, by the Finance Act, 1993, w.e.f. 1-4-1994.

 [R13]Word “fifteen” shall be substituted for “twelve” and word “eighteen” shall be substituted for “fifteen”, respectively, by the Finance Act, 1993, w.e.f. 1-4-1994.

 [R14]Inserted by the Taxation Laws (Amendment) Act, 1984, with retrospective effect from 1-4-1975 and numbered as Explana­tion 1 by the Finance Act, 1985, w.e.f. 1-4-1986.

 [R15]“1” omitted by the Finance Act, 1989, w.e.f. 1-4-1990.

 [R16]Omitted by the Finance Act, 1989, w.e.f. 1-4-1990. Earlier, Explanation 2, as inserted by the Finance Act, 1985, w.e.f. 1-4-1986, stood as under:

“Explanation 2.—For the purposes of the proviso to this clause, the use of any vehicle referred to therein for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence shall not be regarded as the use of such vehicle otherwise than wholly and exclusively in the performance of his duties;”

 [R17]Inserted by the Finance (No.2) Act, 1980, w.e.f. 1-4-1981.

 [R18]Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. Earlier, it was omitted by the Finance Act, 1974, w.e.f. 1-4-1975.

 [R19]For text of article 276(2) of the Constitution, see Appendix.

 [R20]Omitted by the Finance Act, 1974, w.e.f. 1-4-1975. Earlier, clause (iv) was substituted/amended by the Finance Act, 1968, w.e.f. 1-4-1968, the Finance Act, 1969, w.e.f. 1-4-1970, the Finance Act, 1970, w.e.f. 1-4-1971 and the Finance (No.2) Act, 1971, w.e.f. 1-4-1972.

 [R21]Omitted by the Finance Act, 1974, w.e.f. 1-4-1975.

 [R22]See also Circular No. 150, dated 19-11-1974, Circular No. 130, dated 16-3-1974, Circular No. 374, dated 14-12-1983, Instruction No. 1146 [F. No. 200/9/78-IT (A-I)], dated 27-1-1978. Letter: F.No. 35/50/65-IT(B), dated 27-4-1966, Circular No. 5, dated 6-9-1950, Circular No. 311, Dated 24-8-1981, Circular No. 41(LVIII-2), dated 27-10-1956, Letter: F.No. 35/7/65-IT(B), dated 12-2-1965, Circular No. 122, dated 19-10-1973, Instruction No. 1145[F.No. 200/6/78-IT(A-I)], dated 27-1-1978 and Para 1 of Instruction No. 133, dated 10-2-1969.

 [R23]Inserted by the Taxation Laws (Amendment) Act, 1984, with retrospective effect from 1-4-1978.

 [R24]See rule 3.

 [R25]In terms of section 10A of the Salaries and Allowances of Ministers Act, 1952/Salaries and Allowances of Officers of Parliament Act, 1953 and section 9A of Salary and Allowances of Leaders of Opposition in Parliament Act, 1977, value of rent-free furnished residence (including maintenance thereof) provided to a minister/an officer of Parliament and a Leader of the Opposition is not to be included in the computation of his income chargeable to tax under the head “Salaries”.

 [R26]Substituted for ‘under the head “Salaries”, exclusive of the value of all benefits of amenities not provided for by way of monetary payment, exceeds eighteen thousand rupees;’ by the Finance Act, 1985, w.e.f. 1-4-1986.

 [R27]Inserted by the Finance Act, 1989, w.e.f. 1-4-1990.

 [R28]Inserted by the Labour Provident Funds Laws (Amendment) Act, 1976, w.e.f. 1-8-1976.

 [R29]Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.

 [R30]Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to substitution, clause (ii) read as under:

“(ii) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in any hospi­tal maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees;”

 [R31]For list of hospitals recognised under the Central Government Health Scheme vide Circular No. 603, dated 6-6-1991, See Circulars, 1991.

 [R32]See rule 3A.

 [R33]Substituted for “or” by the Finance Act, 1993, w.e.f. 1-4-1993.

 [R34]Substituted, ibid. Prior to substitution, the portion beginning with “subject to the condition” and ending with “Re­serve Bank of India in this behalf, prescribe” as amended by the Finance Act, 1992, w.e.f. 1-4-1993, read as under:

“subject to the condition that the expenditure on travel referred to in sub-clauses (2) and (3) of this clause shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expendi­ture, does not exceed two lakh rupees and subject to such further conditions and limits in relation to such expenditure as the Board may, having regard to the guidelines, if any, issued by the Reserve Bank or India in this behalf, prescribe;”

 [R35]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R36]Sub-clause (vi) along with consequential amendments in sub-clauses (iv) and (v), omitted by the Finance Act, 1985, w.e.f. 1-4-1985. Original sub-clause was inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985. Amendment thus never came into operation.

 [R37]See also Letter [F.No. 35/26/64-IT(B), dated 25-5-1964].

 [R38]Inserted by the Finance (No. 2) Act, 1965, with retrospective effect from 1-4-1962.

 [R39]Inserted by the Finance Act, 1975, w.e.f. 1-4-1976.

 [R40]Substituted for “or Clause (12)” by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964.

 [R41]Sub-heading “B.—Interest on securities” and sections 18 to 21 omitted by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to their omission, sub-heading, section 18 (as amended by the Finance Act, 1965, w.e.f. 1-4-1965 and the Finance Act, 1988, w.e.f. 1-4-1988), section 19, section 20 (as amended by the Finance Act, 1979, w.e.f. 1-4-1980) and section 21, read as under :

‘B.—Interest on securities

18. Interest on securities.—(1) The following amounts due to an assessee in the previous year shall be chargeable to income-tax under the head “Interest on securities”,—

(i) interest on any security of the Central or State Gov­ernment;

(ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by the Central, State or Provincial Act.

(2) Nothing contained in sub-section (1) shall be construed as precluding an assessee from being charged to income-tax in re­spect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year.

19. Deductions from interest on securities.—Subject to the provisions of section 21, the income chargeable under the head “Interest on securities” shall be computed after making the following deduction—

(i) any reasonable sum expended by the assessee for the purpose of realising such interest;

(ii) any interest payable on money borrowed for the purpose of investment in the securities by the assessee.

20. Deductions from interest on securities in the case of banking company.—(1) In the case of a banking company—

(i) the sum to be regarded as a sum reasonably expended for the purpose referred to in clause (i) of section 19 shall be an amount bearing to the aggregate of its expenses as are admissible under the provisions of sections 30, 31, 36 and 37 [other than clauses (iii), (vi), (vii) and (viia) of sub-section (1) of section 36] the same proportion as the gross receipts from inter­est on securities (inclusive of tax deducted at source) charge­able to income-tax under section 18 bear to the gross receipts of the company from all sources which are included in the profit and loss account of the company;

(ii) the amount to be regarded as interest payable on moneys borrowed for the purpose referred to in clause (ii) of section 19 shall be an amount which bears to the amount of interest payable on all moneys borrowed by the company the same proportion as the gross receipts from interest on securities (inclusive of tax deducted at source) chargeable to income-tax under section 18 bear to the gross receipts from all sources which are included in the profit and loss account of the company.

(2) The expenses deducted under clauses (i) and (ii) of sub-section (1) shall not again form part of the deductions admissi­ble under sections 30 to 37 for the purposes of computing the income of the company under the head “Profits and gains of busi­ness or profession”.

Explanation.—For the purposes of this section, “moneys borrowed” includes moneys received by way of deposits.

21. Amounts not deductible from interest on securities.—Notwith­standing anything contained in sections 19 and 20, any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B, and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head “Interest on securities”.’

 [R42]See also Circular No. 9, dated 25-3-1969 and Circular No. 2(XLVII-2), dated 13-6-1955.

 [R43]Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [R44]Substituted for the following proviso, which was earli­er substituted for the first proviso and Explanation by the Finance Act, 1968, w.e.f. 1-4-1969, by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985:

“Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted in determining the annual value of the property:”

 [R45]Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [R46]Inserted by the Finance Act, 1978, w.e.f. 1-4-1979.

 [R47]Inserted, ibid.

 [R48]Substituted for “completed after the 31st day of March, 1978” by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R49]Substituted for “so, however, that the income in re­spect of any residential unit referred to in clause (a) or clause (b) or clause (c) is in no case a loss” by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R50]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R51]“so, however, that the income in respect of any resi­dential unit referred to in clause (a) or clause (b) or clause (c) or clause (d) is in no case a loss” omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1984.

 [R52]Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [R53]Numbered as Explanation 1 by the Taxation Laws (Amend­ment) Act, 1984, w.e.f. 1-4-1985.

 [R54]Inserted, ibid.

 [R55]Substituted for the following sub-section (2) by the Finance Act, 1986, w.e.f. 1-4-1987:

“(2) Where the property consists of—

(i) a house in the occupation of the owner for the purposes of his own residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be reduced by one-half of the amount so determined or [three thousand and six hundred] rupees, whichever is less;

(ii) more than one house in the occupation of the owner for the purposes of his own residence, the provisions of clause (i) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf:

Provided that for the purposes of clauses (i) and (ii), where the sum so arrived at exceeds ten per cent of the total income of the owner (the total income for this purpose being computed without including therein any income from such property and before making any deduction under Chapter VIA), the excess shall be disregard­ed.

Explanation.—Where any such residential unit as is referred to in the second proviso to sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing con­tained in that proviso shall apply in computing the annual value of that residential unit.”

Earlier, sub-section (2) was first amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967 and later substituted by the Taxa­tion Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and also by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976. Words in square brackets in clause (i) were substituted for “one thousand and eight hundred” by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R56]Sub-section (2A) omitted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to its omission, sub-section (2A), as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, stood as under :

“(2A) For the removal of doubt, it is hereby declared that, where the property consists of more than one house and such houses are in the occupation of the owner for the purposes of his own resi­dence, the annual value of the houses, other than that the annual value of which is required to be determined under clause (ii) of sub-section (2), shall be determined under sub-section (1) as if such houses had been let.”

 [R57]Substituted for the following sub-section (3) by the Finance Act, 1986, w.e.f. 1-4-1987:

“(3) Where the property referred to in sub-section (2) consists of one residential house only and it cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house shall—

(a) if the house was not actually occupied by the owner during the whole of the previous year, be taken to be nil, or

(b) if the house was actually occupied by the owner for a fraction of the previous year, be taken to be that fraction of the annual value determined under sub-section (2):

Provided that the following conditions are in either case ful­filled:—

(i) the house is not actually let, and

(ii) no other benefit therefrom is derived by the owner.”

 [R58]See also Circular No. 363, dated 24-6-1983 and Circular No. 28, dated 20-8-1969.

 [R59]Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to substitution, clause (i) read as under:

“(i) in respect of repairs,—

(a) where the property is in the occupation of the owner, or where the property is let to a tenant and the owner has under­taken to bear the cost of repairs, a sum equal to one-sixth of the annual value;

(b) where the property is in the occupation of a tenant who has undertaken to bear the cost of repairs,—

(i) the excess of the annual value over the amount of rent payable for a year by the tenant; or

(ii) a sum equal to one-sixth of the annual value,

whichever is less;”

 [R60]Omitted by the Finance Act, 1968, w.e.f. 1-4-1969.

 [R61]Substituted for “not being a capital charge” by the Finance Act, 1968, w.e.f. 1-4-1969.

 [R62]Inserted by the Finance Act, 1983, w.e.f. 1-4-1984.

 [R63]Inserted by the Finance Act, 1968, w.e.f. 1-4-1969.

 [R64]Prior to omission clause (viii) read as under:

“(viii) any sums spent to collect the rent from the pro­perty, not exceeding six per cent of the annual value of the property;”

 [R65]“And” omitted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.

 [R66]Inserted, ibid.

 [R67]See rule 4.

 [R68]Substituted for the following sub-section (2) by the Finance Act, 1986, w.e.f. 1-4-1987:

“(2) The total amount deductible under sub-section (1) in respect of property of the nature referred to in sub-section (3) of section 23 shall not exceed the annual value of the property as determined under section 23.”

 [R69]Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.

 [R70]See also Letter F.No. 45/230/63-ITJ, dated 22-2-1965.

 [R71]Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [R72]Substituted for the following clause (iii) by the Finance Act, 1987, w.e.f. 1-4-1988:

“(iii) a member of a co-operative society to whom a building or part thereof is allotted or leased under a house building scheme of the society shall be deemed to be the owner of that building or part thereof;”

 [R73]For text of provisions, see Appendix.

 [R74]See also Press Note, dated 9-10-1952, issued by the Ministry of Finance, Instruction No. 971 [F. No. 228/12/76-IT(A-II)], dated 8-7-1976, Circular No. 1 (XLVII-12), dated 16-1-1962, Circular No. 35-D(XLVII-20), dated 24-11-1965 and Circular No. 25, SIA Series, dated 20-10-1975.

 [R75]Inserted by the Finance Act, 1973, with retrospective effect from 1-4-1972.

 [R76]Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962.

 [R77]Inserted, ibid, w.r.e.f. 1-4-1967.

 [R78]Inserted, ibid, w.r.e.f. 1-4-1972.

 [R79]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R80]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier clause (v) was inserted by the Direct Tax Laws (Amdt.) Act, 1987, w.e.f. 1-4-1989 and was omitted by the Direct Tax Laws (Amdt.) Act, 1989, with effect from the same date.

 [R81]Prior to its omission, Explanation 1 read as under :

“Explanation 1.—The profits and gains of a business shall in­clude the profits and gains of managing agency.”

 [R82]See also Press Note, dated 9-10-1952, issued by the Ministry of Finance, Instruction No. 971 [F. No. 228/12/76-IT (A-II)], dated 8-7-1976, Circular No. 1(XLVII-12), dated 16-1-1962, Circular No. 35-D(XLVII-20), dated 24-11-1965 and Circular No. 25, SIA 1975 Series, dated 20-10-1975.

 [R83]Substituted for “43C” by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Earlier “43C” was substituted for “43B” by the Finance Act, 1988, w.e.f. 1-4-1988. “43B” was substituted for “43A” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and “43A” was substituted for “43” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R84]See also Circular No. 26-D(XLVI-22), dated 10-10-1966.

 [R85]See also Circular No. 9, dated 23-3-1943, Circular No. 29-D(XIX-14), dated 31-8-1965, Letter [F.No. 10/14/66-IT (A-I)], dated 12-12-1966 and Letter [F.No. 10/47/68-IT(A-II)], dated 17-7-1968 read with letter dated 21-6-1968, Circular No. 609, dated 29-7-1991 and Circular No. 622, dated 6-1-1992.

 [R86]Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Earlier, original clause (i), as substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [R87]Substituted for “in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed:” by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R88]See rule 5 and Appendix I.

 [R89]Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R90]Substituted for “seven hundred and fifty” by the Fi­nance Act, 1983, w.e.f. 1-4-1984.

 [R91]Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to substitution, second proviso, as inserted by the Finance Act, 1975, w.e.f. 1-4-1975 and amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988, read as under :

“Provided further that no deduction shall be allowed under this clause in respect of and motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975 and is used otherwise than in a business of running it on hire for tourists:”

 [R92]Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992.

 [R93]Inserted by the Taxation Laws (Amendment) Act, 1991, w.e.f. 15-1-1991.

 [R94]Inserted by the Taxation Laws (Amendment and Miscella­neous Provisions) Act, 1986, w.e.f. 1-4-1988.

 

 [R95]* Should be read as ‘sub-clause’.

 [R96]†Should be read as ‘clause’.

 [R97]Omitted by the Taxation Laws (Amendment and Miscellane­ous Provisions) Act, 1986, w.e.f. 1-4-1988. Original clause (iia), as inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, stood as under :

‘(iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980, but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) (exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machin­ery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year :

Provided that no deduction shall be allowed under this clause in respect of—

(a) any machinery or plant installed in any office premises or any residential accommodation;

(b) any office appliances or road transport vehicles; and

(c) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year.

Explanation. —For the purposes of this clause,—

(a) “new machinery or plant” shall have the meaning as­signed to it in clause (2) of the Explanation below clause (vi) of this sub-section;

(b) “residential accommodation” includes accommodation in the nature of a guest house but does not include premises used as a hotel;’

 [R98]Clause (iii) was omitted by the Taxation Laws (Amend­ment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its omission, original clause (iii), as amended by the Finance Act, 1966, w.e.f. 1-4-1966 and later amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967, stood as under :

‘(iii) In the case of any building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use,) the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof:

Provided that such deficiency is actually written off in the books of the assessee.

Explanation.—For the purposes of this clause,—

(1) “moneys payable” in respect of any building, machinery, plant or furniture includes—

(a) any insurance, salvage or compensation moneys payable in respect thereof;

(b) where the building, machinery, plant or furniture is sold, the price for which it is sold,

so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect of thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso;

(2) “sold” includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company;’

 [R99]Clause (iv) was omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Original clause (iv), as amended by the Finance Act, 1983, w.e.f. 1-4-1984, the Finance Act, 1978, w.e.f. 1-4-1979, the Finance Act, 1976, w.e.f. 1-4-1977 and the Finance Act, 1966, w.e.f. 1-4-1966, stood as under :

‘(iv) in the case of any building which has been newly erected after the 31st day of March, 1961, where the building is used solely for the purpose of residence of persons employed in the business and the income of each such person chargeable under the head “Salaries” is ten thousand rupees or less, or where the building is used solely or mainly for the welfare of such persons as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch-room, a sum equal to forty per cent of the actual cost of the building to the assessee in respect of the previous year of erection of the building;’

 [R100]Clause (v) was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Original clause (v), as inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 and later amended by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under :

‘(v) in the case of any new building, the erection of which is completed after the 31st day of March, 1967, where the build­ing is owned by an Indian company and used by such company as a hotel and such hotel is for the time being approved in this behalf by the Central Government, a sum equal to twenty-five per cent of the actual cost of erection of the building to the asses­see, in respect of the previous year in which the erection of the building is completed or, if such building is first brought into use as a hotel in the immediately succeeding previous year, then in respect of that previous year;’

 [R101]Clause (vi) was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Origi­nal clause (vi), as inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1975 and later amended by the Finance Act, 1976, w.e.f. 1-4-1976, stood as under :

‘(vi) in the case of a new ship or a new aircraft ac­quired after the 31st day of May, 1974, by an assessee engaged in the business of operation of ships or aircraft or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date for the purposes of business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in items 1 to 24 (both inclusive) in the list in the Ninth Schedule or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date in a small-scale industrial undertaking for the purposes of business of manufacture or production of any other articles or things, a sum equal to twenty per cent of the actual cost of the ship, air­craft, machinery or plant to the assessee, in respect of the previous year in which the ship or aircraft is acquired or the machinery or plant is installed, or if the ship, aircraft, ma­chinery or plant is first put to use in the immediately succeed­ing previous year, then, in respect of that previous year; but any such small not be deductible in determining the written down value for the purposes of clause (ii) :

Provided that the assessee may, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income for the assessment year in respect of which he first becomes entitled to deduction under this clause, furnish to the Income-tax Officer a declaration in writing that the provi­sions of this clause shall not apply to him, and if he does so, the provisions of this clause shall not apply to him, for that assessment year and for every subsequent assessment year; so, however, that the assessee may, by notice in writing furnished to the Income-tax Officer before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income for any such subsequent assessment year, revoke his decla­ration and upon such revocation, the provisions of this clause shall apply to the assessee for that subsequent assessment year and for every assessment year thereafter :

Provided further that no deduction shall be allowed under this clause in respect of—

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

(b) any ship, aircraft, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33, and

(c) any ship or aircraft acquired after the 31st day of March, 1976, or any machinery or plant installed after that date.

Explanation.—For the purposes of this clause,—

(1) “new ship” or “new aircraft” includes a ship or air­craft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India;

(2) “new machinery or plant” includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are ful­filled, namely :—

(a) such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India;

(b) such machinery or plant is imported into India from any country outside India; and

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee;

(3) an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant installed, as on the last day of the previous year, for the purposes of the business of the undertaking does not exceed seven hundred and fifty thousand rupees; and for this purpose the value of any machinery or plant shall be,—

(a) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and

(b) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant.'

 [R102]Sub-section (1A) was omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Original sub-section (1A), as inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, stood as under :

‘(1A) Where the business or profession is carried on in a build­ing not owned by the assessee but in respect of which the asses­see holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession after the 31st day of March, 1970, on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or im­provement to, the building, then, in respect of depreciation of such structure or work, the following deductions shall, subject to the provisions of section 34, be allowed—

(i) such percentage on the written down value of the struc­ture or work as may in any case or class of cases be prescribed;

(ii) in the case of any such structure or work which is sold, discarded, demolished, destroyed or is surrendered as a result of the determination of the lease or other right of occu­pancy in respect of the building in the previous year (other than the previous year in which it is constructed or done) the amount by which the moneys payable in respect of such structure or work together with the amount of scrap value, if any, fall short of the written down value thereof :

Provided that such deficiency is actually written off in the books of the assessee.

Explanation.—For the purposes of this clause,—

(i) “moneys payable”, in respect of any structure or work, includes—

(a) any insurance or compensation moneys payable in respect thereof;

(b) where the structure or work is sold, the price for which is sold; and

(ii) “sold” shall have the meaning assigned to in the Expla­nation to clause (iii) of sub-section (1)’.

 [R103]Words “(or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assess­ment of its partners)” omitted by the Finance Act, 1992, w.e.f. 1-4-1993. This expression was earlier omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R104]Substituted for “under clause (i) or clause (ii) or clause (iia) or clause (iv) or clause (v) or clause (vi) of sub-section (1) or under clause (i) of sub-section (1A)” by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R105]Inserted by the Finance Act, 1976, w.e.f. 1-4-1976.

 [R106]Vide Notification No. SO 233(E), dated 29-3-1990, no investment allowance shall be allowed in respect of any new ship or aircraft acquired or any new machinery or plant installed after 31-3-1990. See also  Circulars, 1991.

 [R107]See also Circular No. 305, dated 12-6-1981, Circular No. 324, dated 3-2-1982, Circular No. 314, dated 17-9-1981 and PIB Press Release, dated 23-10-1989.

 [R108]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R109]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R110]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R111]Substituted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R112]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R113]Inserted by the Finance Act, 1983, w.e.f. 1-4-1984.

 [R114]Substituted for “1st day of April, 1988” by the Finance Act, 1986, w.e.f. 1-4-1987.

 [R115]Substituted for “sub-section (4)” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R116]Inserted by the Finance Act, 1983, w.e.f. 1-6-1983.

 [R117]Substituted for the following clause (1) by the Taxa­tion Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988 :

‘(1) “new ship” or “new aircraft” or “new machinery or plant” shall have the same meanings as in the Explanation to clause (vi) of sub-section (1) of section 32;’

 [R118]Substituted for “does not exceed ten lakh rupees” by the Finance Act, 1981, w.e.f. 1-4-1981.

 [R119]Substituted for the following by the Finance Act, 1986, with retrospective effect from 1-4-1985 :

“(i) in a case where the previous year ends before the 1st day of August, 1980, ten lakh rupees; and

(ii) in a case where the previous year ends after the 31st day of July, 1980, twenty lakh rupees;”

 [R120]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R121]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R122]Substituted for “1982” by the Finance Act, 1982, w.e.f. 1-4-1982.

 [R123]See rule 5A.

 [R124]See rule 5A.

 [R125]Omitted by the Finance Act, 1987, w.e.f. 1-4-1987. Prior to omission, it read as under :

‘(b) “public sector company” means any corporation estab­lished by or under any Central, State or Provincial Act, or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);’

 [R126]Inserted by the Finance Act, 1983, w.e.f. 1-6-1983.

 [R127]Vide Notification No. SO 555(E), dated 1-8-1984, refer Circulars, 1991.

 [R128]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R129]Substituted for “the previous year in respect of which the deduction is to be allowed” by the Finance Act, 1990, w.r.e.f. 1-4-1976.

 [R130]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R131]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R132]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R133]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R134]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R135]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R136]

 [R137]“not being earlier than three years from the date of such notification,” omitted by the Finance Act, 1986, w.e.f. 1-4-1986.

 [R138]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R139]Substituted for sub-section (8B) by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Sub-section (8B), as inserted by the Finance Act, 1986, w.e.f. 1-4-1987, stood as under :

“(8B) Subject to the provisions of clause (ii) of sub-section (3), no deduction shall be allowed under this section in the case of an assessee who has claimed the deduction allowable under section 32AB.”

 [R140]Vide Notification No. SO 233(E), dated 29-3-1990, no investment allowance shall be allowed in respect of any new ship or aircraft acquired or any new machinery or plant installed after 31-3-1990 [See , 1991].

 [R141]Prior to omission sub-section (9) read as under :

“(9) For the removal of doubts, it is hereby declared that the deduction under sub-section (1) shall not be denied by reason only that the amount debited to the profit and loss account of the relevant previous year and credited to the Investment Allowance Reserve Account exceeds the amount of the profit of such previous year (as arrived at without making the debit afore­said), in accordance with the profit and loss account.”

 [R142]Inserted by the Finance Act, 1986, w.e.f. 1-4-1987.

 [R143]Investment Deposit Account Scheme, 1986 is the scheme framed by the Government under sub-section (1). For details of the Scheme, See Circulars, 1991.

 [R144]Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.

 [R145]Word “eligible” omitted by the Finance Act, 1989, w.e.f. 1-4-1991.

 [R146]Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.

 [R147]Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.

 [R148]Omitted by the Finance Act, 1989, w.e.f. 1-4-1991. Prior to omission clause (i) read as under :

‘(i) “eligible business or profession” shall mean business or profession, other than—

(a) the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking, which is not a small-scale industrial undertaking as defined in section 80HHA;

(b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small-scale industrial undertaking as defined in section 80HHA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule;’

 [R149]Substituted for the following clause (ii) by the Fi­nance Act, 1987, w.e.f. 1-4-1987.

‘(ii) “new ship” or “new aircraft” or “new machinery” shall have the same meanings as in the Explanation to clause (vi) of sub-section (1) of section 32.’

 [R150]Substituted for the portion beginning with the words “The profits of eligible business or profession” and ending with the words “eligible business or profession are maintained,” by the Finance Act, 1989, w.e.f. 1-4-1991.

 [R151]Substituted for “Sixth Schedule” by the Finance Act, 1989, w.e.f. 1-4-1991.

 [R152]For text of provision, see Appendix.

 [R153]Substituted for “as increased by an amount equal to the depreciation, if any, debited in the audited profit and loss account; and” by the Finance Act, 1987, w.e.f. 1-4-1987.

 [R154]“and” omitted by the Finance Act, 1989, w.e.f. 1-4-1991.

 [R155]Omitted, ibid. Prior to omission clause (b) read as under :

“(b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of sub-section (1) of section 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipt of the business or profession carried on by the assessee.”

 [R156]Inserted by the Finance Act, 1989, w.e.f. 1-4-1991.

 [R157]See, rule 5AB and Form No. 3AA.

 [R158]Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.

 [R159]Substituted for “and” by the Finance Act, 1989, with retrospective effect from 1-4-1987.

 [R160]Inserted, ibid.

 [R161]Inserted, ibid.

 [R162]Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.

 [R163]“eligible” omitted by the Finance Act, 1989, w.e.f. 1-4-1991.

 [R164]Inserted by the Finance Act, 1989, with retrospective effect from 1-4-1987.

 [R165]Inserted by the Finance Act, 1987, w.e.f. 1-4-1987.

 [R166]“within that previous year” omitted by the Finance Act, 1987, w.e.f. 1-4-1987.

 [R167]

 [R168]Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Prior to its substitution, sub-section (10) stood as under:

‘(10) No deduction shall be allowed under this section in the case of an assessee who has claimed the deduction allowable under section 33AB.’

 [R169]Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. Sub-section (1) was first amended by the Income-tax (Amendment) Act, 1963, w.e.f. 1-4-1963, and then by the Finance Act, 1965, and then by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965.

 [R170]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R171]See rule 5B.

 [R172]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R173]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R174]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R175]“or section 280-O” omitted by the Finance Act, 1988, w.e.f. 1-4-1988.

 [R176]Substituted for “that sub-section” by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R177]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R178]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R179]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R180]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R181]“or section 280-O” omitted by the Finance Act, 1988, w.e.f. 1-4-1988.

 [R182]Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. Sub-section (3) was first amended by the Finance Act, 1964, w.e.f. 1-4-1964 and then by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R183]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R184]In terms of Notification No. SO 2167, dated 28-5-1971 [refer  Circulars, 1991], issued under sub-section (5) of section 33, the grant of development rebate has been discontinued in respect of ships acquired or machinery or plant installed after 31-5-1974. Howev­er, section 16 of the Finance Act, 1974, as amended by section 30 of the Finance Act, 1975, has made an independent provision for the continuance of development rebate for a limited period in certain cases. As a result grant of the rebate was continued, subject to certain conditions, for limited period, i.e., from 1-6-1974 to 31-5-1977 in respect of—

(a) ship which was acquired after 31-5-1974 but before 1-1-1977;

(b) any machinery or plant [other than mentioned in (c) below] which was installed after 31-5-1974 but before 1-6-1975; and

(c) coal-fired equipment or any machinery or plant for converting oil-fired equipment into coal-fired equipment which was installed after 31-5-1974 but before 1-6-1977.

 [R185]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R186]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R187]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R188]See also Circular No. 325, dated 3-2-1982.

 [R189]Substituted for “forty” by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R190]Substituted for “twenty”, ibid.

 [R191]Substituted for “in respect of the third succeeding previous year next following the previous year in which the land is prepared for planting or replanting, as the case may be”, ibid.

 [R192]Substituted for the following by the Finance Act, 1990, w.e.f. 1-4-1990 :

“Provided that no deduction under clause (i) shall be al­lowed unless the planting has commenced after the 31st day of March, 1965, and no deduction shall be allowed under clause (ii) unless the planting has commenced after the 31st day of March, 1965, and been completed before the 1st day of April, 1970.”

 [R193]Substituted for “the third succeeding previous year next following the previous year in which the land has been pre­pared” by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R194]Substituted for “(the total income for this purpose being computed after making the allowance under sub-section (1) or sub-section (1A) or clause (ii) or sub-section (2) of section 33 but without making any allowance under sub-section (1) of this section)” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R195]“or section 280-O” omitted by the Finance Act, 1988, w.e.f. 1-4-1988.

 [R196]Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R197]Substituted for “(the total income for this purpose being computed after making the allowance under sub-section (1) or sub-section (1A) or clause (ii) of sub-section (2) of section 33 but without making any allowance under sub-section (1) of this section)” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R198]“or section 280-O” omitted by the Finance Act, 1988, w.e.f. 1-4-1988.

 [R199]See rule 8A and Form Nos. 4, 5 and 5A.

 [R200]

 [R201]Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R202]Substituted by the Finance Act, 1981, w.e.f. 1-4-1982.

 [R203]For notified hilly areas, refer Circulars, 1991.

 [R204]Inserted by the Finance Act, 1975, with retrospective effect from 1-4-1965.

 [R205]Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Prior to substitution, section 33AB, as inserted by the Finance Act, 1985, w.e.f. 1-4-1986 and later amended by the Finance Act, 1987, w.e.f. 1-4-1988, read as under:

“33AB. Tea development account.—(1) Where an assessee carrying on business of growing and manufacturing tea in India has, during the previous year, deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with the Bank in accordance with a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board, the assessee shall, subject to the provisions of this section, be allowed a deduction of—

(a) a sum equal to the amount or the aggregate of the amounts so deposited during the previous year, or

(b) a sum equal to twenty per cent of the profits of such business (computed under the head “Profits and gains of business or profession” before making any deduction under this section),

whichever is less.

Explanation.—In this section,—

(a) “National Bank” means the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);

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

(2) Where the amount or the aggregate of the amounts deposited by the assessee in the special account during the previous year exceeds the sum allowable as deduction under sub-section (1), the excess shall be treated, for the purposes of that sub-section, as a deposit made by the assessee in the next following previous year.

(3) Where any amount standing to the credit of the assessee in the special account is utilised by the assessee for the purposes of the business referred to in sub-section (1) in accordance with the scheme,—

(a) for acquiring any asset being building, machinery, plant or furniture, the actual cost of such asset as determined under clause (1) of section 43, shall, for the purposes of this Act, be reduced by the amount so utilised;

(b) for incurring any expenditure for the purposes of such business, such expenditure shall be reduced by the amount so utilised and the resultant sum, if any, shall be taken into account for the purposes of this Act.

(4) Where any amount, standing to the credit of the assessee in the special account, which is released during any previous year by the National Bank for being utilised by the assessee for the purposes of the business referred to in sub-section (1) in accordance with the scheme is not so utilised, either wholly or in part, within that previous year, the whole of such amount or, as the case may be, part thereof which is not so utilised shall be deemed to be profits and gains of business and accordingly chargeable to income-tax as the income of that previous year.

(5) The provisions of this section shall apply in relation to the assessment years commencing on the 1st day of April, 1986, and the 1st day of April, 1987.’

 [R206]See rule 5AC and Form No. 3AC.

 [R207]

 [R208]Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990.

 [R209]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R210]

 [R211]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R212]* For definition of “Government Company”.

 [R213]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R214]Inserted by the Finance Act, 1984, w.e.f. 1-4-1985.

 [R215]Omitted by the Taxation laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Original sub-section (1), as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, stood as under:

“(1) the deductions referred to in sub-section (1) or sub-section (1A) of section 32 shall be allowed only if the prescribed par­ticulars have been furnished; and the deduction referred to in section 33 shall be allowed only if the particulars prescribed for the purpose of clause (i) and Clause (ii) of sub-section (1) of section 32 have been furnished by the assessee in respect of the ship or machinery or plant.”

 [R216]Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Original sub-section (2), as amended by the Finance Act, 1965, w.e.f. 1-4-1965, the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967, the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1975 and the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, stood as under:

“(2) For the purposes of section 32—

(i) the aggregate of all deductions in respect of depreciation made under sub-section (1) or sub-section (1A) of section 32 or under the Indian Income-tax Act, 1922 (11 of 1922), or under any Act repealed by the Act or under the Indian Income-tax Act, 1886 (2 of 1886), shall, in no case, exceed the actual cost to the assessee of the building, machinery, plant, furni­ture, structure or work, as the case may be.

Explanation.—Where a capital asset is transferred—

(i) by a holding company to its subsidiary company or by a subsidiary company to its holding company, or

(ii) by a company to another company in a scheme of amalga­mation,

and the conditions specified in clause (iv) or clause (v) or, as the case may be, clause (vi) of section 47 are satisfied, then, in determining the aggregate of all deductions in respect of depreciation under this clause, account shall also be taken of the deductions in respect of depreciation allowed in the case of the company from which the asset has been transferred;

(ii) nothing in clause (i) or clause (ii) or clause (iia) or clause (iv) or clause (v) or clause (vi) of sub-section (1) of section 32 shall be deemed to authorise the allowance for any previous year of any sum in respect of any building, machinery, plant or furniture sold, discarded, demolished or destroyed in that year;

(iii) nothing in clause (i) of sub-section (1A) of section 32 shall be deemed to authorise the allowance for any previous year of any sum in respect of any structure or work in or in relation to a building referred to in that sub-section which is sold, discarded, demolished or destroyed or is surren­dered as a result of the determination of the lease or other right of occupancy in respect of the building in that year.”

 [R217]Substituted for “the relevant previous year” by the Finance Act, 1990, w.r.e.f 1-4-1962.

 [R218]Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R219]Prior to omission, Explanation read as under:

“Explanation.—For the removal of doubts, it is hereby declared that the deduction referred to in section 33 shall not be denied by reason only that the amount debited to the profit and loss account of the relevant previous year and credited to the reserve account aforesaid exceeds the amount of the profit of such previ­ous year (as arrived at without making the debit aforesaid) in accordance with the profit and loss account.”

 [R220]

 [R221]Inserted by the Finance Act, 1992, w.e.f. 1-4-1992.

 [R222]Reintroduced with modification by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier section 35 was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.

 [R223]See also Press Note, dated 5-6-1982, issued by the Ministry of Finance (Department of Revenue).

 [R224]Inserted by the Direct Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974.

 [R225]See rule 6 and Form No. 3CF.

 [R226]For complete list of approved scientific research universities/institutions etc., under this clause, refer Circulars, 1991, 1989, 1990, 1991, 1992 and 1993.

 [R227]See rule 6 and Form No. 3CF.

 [R228]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R229]Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to substitution, clause (iii), as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989, read as under:

“(iii) any sum paid to a university, college or other institution to be used for research in social science or statis­tical research related to the class of business carried on, being a university, college or institution which is for the time being approved for the purposes of this clause by the prescribed au­thority by notification in the Official Gazette;”

 [R230]For complete list of approved social science or statis­tical research university/institutions, etc., under this clause, refer Circulars, 1991, 1989, 1990, 1991 and 1993.

 [R231]See rule 6 and Form No. 3CF.

 [R232]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R233]Substituted for clause (i) by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R234]Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.

 [R235]Numbered as Explanation 1, ibid.

 [R236]Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.

 [R237]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R238]Substituted for “clauses (i), (ii), (iia), (iii) and (vi) of sub-section (1) or under sub-section (1A)” by the Taxa­tion Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R239]Inserted by the Finance (No. 2) Act, 1980, with retro­spective effect from 1-4-1962.

 [R240]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R241]Substituted for “clauses (i), (ii) and (iii) of sub-section (1)” by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R242]Inserted by the Taxes (Amendment) Act, 1974, w.e.f. 1-4-1974.

 [R243]For guidelines for approval of scientific research programmes and list of approved programmes, refer Circulars, 1991.

 [R244]Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.

 [R245]Inserted by the Finance (No. 2) Act, 1983, w.e.f. 1-4-1984.

 [R246]Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980.

 [R247]See rule 6.

 [R248]Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980.

 [R249]Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-9-1980. For guidelines for approval of scientific research pro­grammes under this sub-section, refer Circulars, 1991.

 [R250]Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.

 [R251]See rule 6.

 [R252]Substituted for “clauses (i), (ii), (iia) and (iii) of sub-section (1) or under sub-section (1A)” by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R253]See rule 6.

 [R254]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R255]Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R256]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R257]Inserted by the Finance Act, 1985, w.e.f. 1-4-1986.

 [R258]Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992.

 [R259]* See rules 11F to 11-O and Form Nos. 56A & 56B.

 [R260]For notification on constitution of National Committee for Promotion of Social and Economic Welfare and appointment of members thereof see  1992 and 1993.

 [R261]See rule 11-O(1) and Form No. 58A.

 [R262]See rule 11-O(2) and Form No. 58B.

 [R263]See rules 11F to 11-O and Form Nos. 56A & 56B.

 [R264]Immediately prior to its omission, section 35B, as amended by the Finance Act, 1973, with retrospective effect from 1-4-1968, Direct Taxes (Amendment) Act, 1974, with retrospective effect from 1-4-1973, Finance Act, 1978, w.e.f. 1-4-1978, Finance Act, 1979, w.e.f. 1-4-1980, Finance (No. 2) Act, 1980 w.e.f. 1-4-1981 and Finance Act, 1983, w.e.f. 1-4-1983, stood as under:

’35B. (1)(a) Where an assessee, being a domestic company or a person (other than a company) who is resident in India, has incurred after the 29th day of February, 1968 but before the 1st day of March, 1983, whether directly or in association with any other person, any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in clause (b), he shall, subject to the provisions of this section, be allowed a deduction of a sum equal to one and one-third times the amount of such expenditure incurred during the previous year:

Provided that in respect of the expenditure incurred after the 28th day of February, 1973, but before the 1st day of April, 1978, by a domestic company, being a company in which the public are substantially interested, the provisions of this clause shall have effect as if for the words “one and one-third times”, the words “one and one-half times” had been substituted.

(b) The expenditure referred to in clause (a) is that incurred wholly and exclusively on—

(i) advertisement or publicity outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business;

(ii) [***]

(iii) [***]

(iv) maintenance outside India of a branch, office or agency for the promotion of the sale outside India of such goods, serv­ices or facilities;

(v) [* * *]

(vi) [* * *]

(vii) travelling outside India for the promotion of the sale outside India of such goods, services or facilities, includ­ing travelling outward from, and return to, India;

(viii) [* * *]

(ix) such other activities for the promotion of the sale outside India of such goods, services or facilities as may be prescribed.

Explanation 1.—In this section, “domestic company” shall have the meaning assigned to it in clause (2) of section 80B.

Explanation 2.—For the removal of doubts, it is hereby declared that nothing in clause (b) shall be construed to include any expenditure which is in the nature of purchasing and manufactur­ing expenses ordinarily debatable to the trading or manufacturing account and not to the profit and loss account.

(1A) [* * *]

(2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.

 [R265]Immediately prior to its omission, section 35C, as amended by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, Finance Act, 1983, w.e.f. 1-4-1984, and Finance Act, 1984, w.e.f. 1-4-1984, stood as under:

“35C. (1)(a) Where any company or a co-operative society is engaged in the manufacture or processing of any article or thing which is made from, or uses in such manufacture or processing as raw material, any product of agriculture, animal husbandry, or dairy or poultry farming, and has incurred, after the 29th day of February, 1968 but before the 1st day of March, 1984, whether directly or through an association or body which has been ap­proved for the purposes of this section by the prescribed author­ity, any expenditure in the provision of any goods, services or facilities specified in clause (b) to a person (not being a person referred to in clause (b) of sub-section (2) of section 40A) who is a cultivator, grower or producer of such product in India, the company or co-operative society shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year.

(b) The goods, services or facilities referred to in clause (a) are the following:—

(i) fertilisers, seeds, pesticides, concentrates for cattle and poultry feed, tools or implements, for use by such cultiva­tor, grower or producer;

(ii) dissemination of information on, or demonstration of, modern techniques or methods of agriculture, animal husbandry, or dairy or poultry farming, or advice on such techniques or meth­ods;

(iii) such other goods, services or facilities as may be prescribed.

Explanation.—In computing the expenditure which is to be allowed as deduction under this section, the amount, if any, received by the company or co-operative society in consideration of, or as compensation for, such goods, services or facilities shall be deducted.

(2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure of the nature specified in sub-section (1), deduction shall not be al­lowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.”

 [R266]Immediately prior to its omission, section 35CC, as amended by the Finance Act, 1983 w.e.f. 1-4-1983 and Finance Act, 1985, w.e.f. 17-3-1985, stood as under:

’35CC. (1) Where the assessee, being a company or a co-operative society, incurs any expenditure on any programme of rural devel­opment, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year:

Provided that the approval of the prescribed authority has been obtained by the assessee in respect of such programme before incurring the expenditure:

Provided further that the prescribed authority shall not approve any programme unless such programme is a programme falling within any such class or category of programmes of rural development as may be specified by the Central Government in this behalf:

Provided also that no programme shall be approved under this section after the 16th day of March, 1985.

Explanation.—For the purposes of this sub-section,—

(a) “programme of rural development” includes any programme for promoting the social and economic welfare of, or the uplift of, the public in any rural area;

(b) “rural area” means any area other than—

(i) an area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corpora­tion, notified area committee, town area committee, town commit­tee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been pub­lished before the first day of the previous year; or

(ii) an area within such distance, not being more than fifteen kilometres, from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area (including the extent of, and scope for, urbansiation of such area) and other relevant considerations, specify in this behalf by notification in the Official Gazette.

(2) Where the expenditure referred to in sub-section (1) results in the acquisition or creation of an asset, being building ma­chinery, plant or furniture, and the assessee does not divest itself of the ownership of such asset before the end of the previous year, no deduction in respect of such expenditure shall be allowed under sub-section (1) but the assessee shall be enti­tled to the allowance for depreciation in respect of the asset so acquired or created as if such asset was used for the purposes of the business and the provisions of sections 32, 34, 41 and 43 shall, so far as may be, apply accordingly.

(3) No deduction shall be allowed in respect of the expenditure referred to in sub-section (1) unless the assessee furnishes, along with the return of income for the assessment year for which the deduction is claimed, a statement of such expenditure in the prescribed form duly signed and verified by an accountant as defined in the Explanation below sub-section (2) of section 288 and setting forth such particulars as may be prescribed.

(4) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall to be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year.’

 [R267]Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Section 35CCA was earlier omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Original section 35CCA was inserted by the Finance Act, 1978, w.e.f. 1-6-1978.

 [R268]Substituted by the Finance Act, 1979, w.e.f. 1-6-1979. For guidelines for approval of programmes of rural development, refer  Direct Taxes Circulars, 1991.

 [R269]See rule 6AAA.

 [R270]Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. National Fund for Rural Development has since been notified. For notification, refer  Direct Taxes Circulars, 1991. See also Circular No. 244, dated 13-7-1978.

 [R271]Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. National Fund for Rural Development has since been notified. For notification, refer  Direct Taxes Circulars, 1991. See also Circular No. 244, dated 13-7-1978.

 [R272]Substituted for following sub-section (2), which was earlier substituted by the Finance Act, 1979, w.e.f. 1-6-1979, by the Finance Act, 1983, w.e.f. 1-4-1983:

“(2) The deduction under sub-section (1) shall not be allowed with respect to expenditure by way of payment of any sum to any association or institution, unless such association or institu­tion is for the time being approved in this behalf by the pre­scribed authority:

Provided that the prescribed authority shall not grant such approval for more than three years at a time.”

 [R273]Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.

 [R274]Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.

 [R275]Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Original section 35CCB was inserted by the Finance Act, 1982, w.e.f. 1-6-1982.

 [R276]Substituted by the Finance Act, 1990, w.e.f. 1-4-1991. Earlier sub-section (1) read as under:

“(1) Where an assessee incurs any expenditure by way of payment of any sum to an association or institution, which has as its object the undertaking of any programme of conservation of natural resources, to be used for carrying out any programme of conservation of natural resources approved by the prescribed authority, the assessee shall, subject to the provisions of sub-section (2), be allowed a deduction of the amount of such expend­iture incurred during the previous year.”

 [R277]For list of approved associations or institutions, see  Direct Taxes Circulars, 1991, 1989 (wherein approval to notified institution is withdrawn), 1990, 1991, 1992 and 1993 .

 [R278]See rule 6AAC.

 [R279]Inserted by the Finance Act, 1990, w.e.f. 1-4-1991.

 [R280]See rule 6AAC.

 [R281]Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [R282]For list of approved concerns, refer Circulars, 1991 and 1991. See also Notification No. 9222 [F. No. 203/6/92-IT(A-II)], dated 23-2-1993. See also Circu­lar No. 162A, dated 27-5-1975.

 [R283]See rule 6AB and Form No. 3B.

 [R284]Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [R285]See rule 6AB and Form No. 3B.

 [R286]See also Circular No. 4-P(LVIII-30), dated 25-11-1965, Circular No. 44(3)-IT/49, dated 12-2-1949, Circular No. 110, dated 13-4-1973, Letter [F. No. 44/13/64-ITJ], dated 6-9-1964, Letter [F. No. 216/6/77-IT(A-II)], dated 7-6-1978, Circular No. 403, dated 5-12-1984, Circular No. 30 (XLVII-18), dated 30-11-1964, Circular No. 14, dated 23-4-1969, Extracts from Minutes (Item 31) of Ninth Meeting of DTAC held on 5-11-1966, Circular dated 6-10-1952, extracted from CIT v. Corporation Bank Ltd. [1986] 157 ITR 509 (Kar.), Circular No. 20, dated 13-6-1969, Extracts of Instruction No. 370 [F. No. 205/15/71-IT (A-II)], dated 13-1-1972 and Letter [F. No. 10/66/61-IT (A-I)], dated 16-1-1962.

 [R287]Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.

 [R288]Inserted by the Income-tax (Amendment) Act, 1986, w.e.f. 1-4-1987.

 [R289]First proviso omitted by the Direct Tax Laws (Amend­ment) Act, 1987, w.e.f. 1-4-1989. Prior to its omission, first proviso, as inserted by the Payment of Bonus (Amendment) Act, 1976, with retrospective effect from 25-9-1975, stood as under :

“Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (21 of 1965), apply shall not exceed the amount of bonus payable under that Act.”

 [R290]Second proviso omitted by the Direct Tax Laws (Amend­ment) Act, 1987, w.e.f. 1-4-1989. Prior to its omission, second proviso, as substituted by the Payment of Bonus (Amendment) Act, 1976, with retrospective effect from 25-9-1975, stood as under :

“Provided further that the amount of the bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to—

(a) the pay of the employee and the conditions of his service;

(b) the profits of the business or profession for the previous year in question; and

(c) the general practice in similar business or profession.”

 [R291]Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.

 [R292]Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.

 [R293]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R294]See rules 75, 87 and 88.

 [R295]For conditions specified by the Board, refer Circulars, 1991.

 [R296]See rules 103 and 104.

 [R297]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R298]Substituted for “any debt, or part thereof, which is established to have become a bad debt in the previous year” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R299]Inserted by the Finance Act, 1985, w.e.f. 1-4-1985.

 [R300]Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.

 [R301]Substituted for the following by the Income-tax (Amend­ment) Act, 1986, w.e.f. 1-4-1987 :

“in respect of any provision for bad and doubtful debts made by a scheduled bank (not being a bank approved by the Central Government for the purposes of clause (viiia) or a bank incorpo­rated by or under the laws of a country outside India) or a non-scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher.”

Earlier, above opening para of clause (viia) was substituted by the Finance Act, 1985, w.e.f. 1-4-1985. It was also amended by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R302]See rule 6ABA.

 [R303]Word “four” shall be substituted for “two” by the Finance Act, 1993, w.e.f. 1-4-1994.

 [R304]Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992.

 [R305]Inserted by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R306]Section 5(c) of the Banking Regulation Act, 1949 de­fines “banking company” as follows:

‘(c) “Banking company” means any company which transacts the business of baking in India.

Explanation.—Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;’

 [R307]Relettered by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R308]Inserted, ibid.

 [R309]Substituted for the following clause (ii), [as amended by the Finance Act, 1985, w.e.f. 1-4-1985] by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

‘(ii) “scheduled bank” has the same meaning as in the Explanation to clause (iii) of sub-section (5) of section 11, but does not include a co-operative bank;’

 [R310]Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992.

 [R311]For approved institutions, see Appendix.

 [R312]

 [R313]Operative part of this clause was amended first by the Finance Act, 1966, w.e.f. 1-4-1966 and then by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968 and then by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972 and then by the Finance Act, 1974, w.e.f. 1-4-1975.

 [R314]Substituted for the portion beginning with “agricultur­al development in India” and ending with “carried to such reserve account:” by the Finance Act, 1979, w.e.f. 1-4-1980.

 [R315]Inserted by the Finance Act, 1985, w.e.f. 1-4-1985.

 [R316]Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.

 [R317]For approved financial corporation, refer Circulars, 1991.

 [R318]Inserted by the Finance Act, 1981, w.e.f. 1-4-1982.

 [R319]Inserted by the Finance Act, 1979, w.e.f. 1-4-1980.

 [R320]Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1987. Prior to substitution, Explanation as inserted by the Finance Act, 1970, w.r.e.f. 1-4-1966 and later on omitted by the Finance Act, 1974, w.e.f. 1-4-1975 and again inserted by the Finance Act, 1979, w.e.f. 1-4-1980 and further substituted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1987, read as under :

‘Explanation : In this clause,—

(a) “financial corporation” shall include a public company;

(b) “public company” shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956).’

 [R321]Clause (iv) of section 3(1) of the Companies Act, 1956 defines “public company” as a company which is not a private company. Clauses (i), (ii) and (iii) define expressions “company”, “existing company”, “private company” and “public company”. Section 3 reads as follows :

‘(1) In this Act unless the context otherwise requires, the expressions “company”, “existing company”, “private company” and “public company” shall, subject to the provisions of sub-section (2), have the meaning specified below :—

(i) “company” means a company formed and registered under this Act or an existing company as defined in clause (ii);

(ii) “existing company” means a company formed and registered under any of the previous companies laws specified below :—

(a) Any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866), and repealed by that Act;

(b) the Indian Companies Act, 1866 (10 of 1866);

(c) the Indian Companies Act, 1882 (6 of 1882);

(d) the Indian Companies Act, 1913 (7 of 1913);

(e) the Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and

(f) Any law corresponding to any of the Acts or the Ordi­nance aforesaid and in force—

(1) in the merged territories or in a Part B State (other than the State of Jammu and Kashmir), or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); or

(2) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956, in so far as banking, insurance and financial corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu and Kashmir) Act, 1968, in so far as other corporations are concerned; and

(g) The Portuguese Commercial Code, in so far as it relates to “societies anonyms”;

(iii) “private company” means a company which, by its articles,—

(a) restricts the right to transfer its shares, if any;

(b) limits the number of its members to fifty not includ­ing—

(i) persons who are in the employment of the company, and

(ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and

(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company :

Provided that were two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this defini­tion, be treated as a single member;

(iv) “public company” means a company which is not a private company.

(2) Unless the context otherwise requires, the following compa­nies shall not be included within the scope of any of the expres­sions defined in clauses (i) to (iv) of sub-section (1) and such companies shall be deemed, for the purposes of this Act, to have been formed and registered outside India :—

(a) a company the registered office whereof is in Burma, Aden or Pakistan and which immediately before the separation of that country from India was a company as defined in clause (i) of sub-section (1);

(b) [* * *]’

 [R322]

 [R323]Inserted by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R324]Inserted by the Finance Act, 1985, w.e.f. 1-4-1985.

 [R325]For approved banks, refer Circulars, 1991.

 [R326]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R327]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R328]Inserted by the Finance Act, 1989, w.e.f. 1-4-1989.

 [R329]* For definition of ‘public financial institution’ and list of notified institutions thereunder see Appendix

 [R330]Substituted for the following clause (i) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989:

“(i) no such deduction shall be allowed unless such debt or part thereof—

(a) has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee, and

(b) has been written off as irrecoverable in the accounts of the assessee for that previous year;”

 [R331]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R332]Substituted for “Income-tax”, ibid., w.e.f. 1-4-1988.

 [R333]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R334]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R335]Inserted by the Finance Act, 1985, w.e.f. 1-4-1985.

 [R336]See also Letter [F.No. 27(30)-IT/59], dated 6-7-1959, Letter [F.No. 9/54/64-IT(A-I)], dated 2-9-1964 and Letter [F.No. 9/56/66-IT(A-I)], dated 17-1-1967, Letter [F.No. 9/23/67-IT(A-I)], dated 6-7-1967, Circular No. 5-P(XIV-I), dated 28-9-1963, Letter [F.No. 10/67/65-IT(A-I)], dated 26-8-1965, Circular No. 16, dated 18-9-1969, Circular No. 64(XI-2), dated 27-1-1951, Circular No.117, dated 22-8-1973, Letter [F.No. 10/25/63-IT(A-I)], dated 18-6-1964, Letter [F. No. 204/42/77- IT (A-II)], dated 28-9-1977, Circular No. 1-D (IV-53), dated 20-1-1966, Circular No. 2, dated 8-3-1946, Letter [F.No. 35/5/65-IT(A-I)], dated 1-17-1965, Circular No. 69(XIX-3), dated 27-11-1951, Circular No. 4, dated 19-6-1950, Letter [F. No. 10/80/64-IT(A-I)], dated 26-2-1965, Letter [F.No. 10/92/64-IT(A-I)], dated 13-9-1965, Circular No. 3, dated 26-3-1946, Circular No. 22, dated 23-6-1943, Letter [F.No. 10/16/63-IT(A-I)], dated 14-5-1963, Letter [F.No. 10/8/63-IT(A-I)], dated 14-10-1963, Letter [F.No. 27(24)-IT/59], dated 19-5-1959, Letter [F.No. 7/33/62-IT(A-I)], dated 28-8-1963, Circular No. 2-P(XI-6), dated 23-8-1965, Letter [F.No. 13A/20/68-IT(A-II)], dated 3-10-1968, Letter [F.No. 32/6/62-IT(A-I)], dated 16-1-1963, Extracts from the minutes of the 16th meeting of CDTAC held on 2-2-1972, In­struction No. 943 [F.No. 204/15/76-IT (A-II)], dated 2-4-1976, Circular No. 420, dated 4-6-1985, Circular No. 2(40)/66-EAC, dated 16/17-1-1967, issued by the Ministry of Commerce, Circular No. 42 [C. No. 19(7)-IT/42], dated 22-8-1942, Circular No. 36 [. Disc. No. 54(13)-IT/43], dated 24-11-1943, Circular No. 48 [C. No. 19(22)-IT/42], dated 16-10-1942, Circular No. 192, dated 10-3-1976, Circular No. 316, dated 30-9-1981 and Board’s Circular Letter No. 10/22/65-IT(A-I), dated 24-5-1965, Circular No. 578, dated 12-9-1990.

 [R337]See rules 9A and 9B.

 [R338]“and section 80VV”, which was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, omitted by the Finance Act, 1985, w.e.f. 1-4-1986.

 [R339]Substituted for existing sub-section (2) and (2A) by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to substitution, sub-sections (2) and (2A), as amended by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962, the Finance Act, 1965, w.e.f. 1-4-1965, the Taxation Laws (Amendment) Act, 1967, w.e.f. 1-10-1967, the Finance Act, 1968, w.e.f. 1-4-1968, the Finance Act, 1970, w.e.f. 1-4-1970, the Finance Act, 1976, w.e.f. 1-4-1977 and the Finance Act, 1983, w.e.f. 1-4-1984/1-4-1976, read as under:

‘(2) Notwithstanding anything contained in sub-section (1), no expenditure in the nature of entertainment expenditures shall be allowed in the case of a company, which exceeds the aggregate amount computed as hereunder:—

(I) on the first Rs. 10,00,000 of the profits and gains of the business (computed before making any allowance under section 33 or section 33A or in respect of entertain­ment expenditure)

at the rate of 1 per cent or Rs. 5,000, whichever is higher;

(ii) on the next Rs. 40,00,000 of the profits and gains of the business (computed in the manner aforesaid)

at the rate of ½ per cent;

(iii) on the next Rs. 1,20,00,000 of the profits and gains of the business (computed in the manner aforesaid)

at the rate of ¼ per cent;

(iv) on the balance of the profits and gains of the business (computed in the manner aforesaid)

nil.

 

‘(2A) Notwithstanding anything contained in sub-section (1), or sub-section (2), no allowance shall be made in respect of so much of the expenditure in the nature of entertainment expenditure incurred by any assessee during any previous year which expires after the 30th day of September, 1967, as is in excess of the aggregate amount computed as hereunder:—

(I) on the first Rs. 10,00,000 of the profits and gains of the business or profession (computed before making any allowance under section 32A or section 33 or section 33A or in respect of entertainment expenditure)

at the rate of ½ per cent or Rs. 5,000, whichever is higher;

(ii) on the next Rs. 40,00,000 of the profits and gains of the business or profession (computed in the manner afore­said)

at the rate of ¼ per cent;

(iii) on the balance of the profits and gains of the business or profession (computed in the manner aforesaid)

at the rate of 1/8 per cent,

 

so, however, that the allowance shall in no case exceed Rs. 50,000:

Provided that where the previous year of any assessee falls partly before and partly after the 30th day of September, 1967, the allowance in respect of such expenditure incurred during the previous year shall not exceed—

(a) in the case of a company

(i) in respect of such expenditure incurred before the 1st day of October, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in sub-section (2), the same proportion as the number of days comprised in the period commencing on the 1st day of such previous year and ending with the 30th day of September, 1967, bears to the total number of days in the previous year;

(ii) in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub-section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year;

(b) in any other case—

(i) in respect of such expenditure incurred before the 1st day of October, 1967, the amount admissible under sub-section (1);

(ii) in respect of such expenditure incurred after the 30th day of September, 1967, the sum which bears to the aggregate amount computed at the rate or rates specified in this sub-section, the same proportion as the number of days comprised in the period commencing on the 1st day of October, 1967, and ending with the last day of the previous year bears to the total number of days in the previous year.

Explanation 1.—For the purposes of this sub-section, “entertain­ment expenditure” includes—

(i) the amount of any allowance in the nature of entertain­ment allowance paid by the assessee to any employee or other person after the 29th day of February, 1968;

(ii) the amount of any expenditure in the nature of enter­tainment expenditure [not being expenditure incurred out of an allowance of the nature referred to in clause (i)] incurred after the 29th day of February, 1968, for the purposes of the business or profession of the assessee by any employee or other person.

Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of this sub-section and sub-section (2B), as it stood before the 1st day of April, 1977, “entertainment expenditure” includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not such provision is made by reason of any express or implied con­tract or custom or usage of trade, but does not include expendi­ture on food or beverages provided by the assessee to his employ­ees in office, factory or other place of their work.’

*See Circular No. 12D(LVIII-35), dated 19-7-1967.

 [R340]See Circular No. 644, dated 15-3-1993.

 [R341]Inserted by the Taxation Laws (Amendment) Act, 1978, w.e.f. 1-4-1979. Originally, the sub-section was inserted by the Finance Act, 1970, w.e.f. 1-4-1970 which was later on omitted by the Finance Act, 1976, w.e.f. 1-4-1977.

 [R342]Circular No. 203, dated 16-7-1976, Circular No. 200, dated 28-6-1976 and Circular No. 19, dated 13-6-1969.

 [R343]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R344]

 [R345]See rules 6AC, 6B and 6D.

 [R346]Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3A), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under:

‘(3A) Notwithstanding anything contained in sub-section (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub-section (3B) exceeds one hundred thousand rupees, twenty per cent of such excess shall not be allowed as deduction in computing the income chargeable under the head “Profits and gains of business or profession”.’

Original sub-section was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and was later omitted by the Finance (No. 2) Act, 1980 w.e.f. 1-4-1981.

 [R347]Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3B), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under:

“(3B) The expenditure, referred to in sub-section (3A) is that incurred on—

(i) advertisement, publicity and sales promotion; or

(ii) running and maintenance of aircraft and motor cars; or

(iii) payments made to hotels.

Explanation.—For the purposes of sub-section (3A) and (3B),—

(a) the expenditure specified in clause (i) to clause (iii) of sub-section (3B) shall be the aggregate amount of expenditure incurred by the assessee as reduced by so much of such expendi­ture as is not allowed under any other provision of this Act;

(b) expenditure on advertisement, publicity and sales promotion shall not include remuneration paid to employees of the assessee engaged in one or more of the said activities;

(c) expenditure on running and maintenance of aircraft and motor cars shall include,—

(i) expenditure incurred on chartering any aircraft and expenditure on hire charges for engaging cars plied for hire;

(ii) conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors also.”

Original sub-section was inserted by the Finance Act, 1978, w.e.f. 1-4-1979, and was later omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.

 [R348]Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3C), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under:

“(3C) Nothing contained in sub-section (3A) shall apply in re­spect of expenditure incurred by an assessee, being a domestic company as defined in clause (2) of section 80B, or a person

(other than a company) who is resident in India in respect of expenditure incurred wholly and exclusively on—

(i) advertisement, publicity and sales promotion outside India in respect of the goods, services or facilities which the assessee deals in or provides in the course of his business;

(ii) running and maintenance of motor cars in any branch, office or agency maintained outside India, for the promotion of the sale outside India of such goods, services or facilities.”

Original sub-section was inserted by the Finance Act, 1978, w.e.f. 1-4-1979, and was later omitted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.

 [R349]Omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Omitted sub-section (3D), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, stood as under:

“(3D) No disallowance under sub-section (3A) shall be made—

(i) in the case of an assessee engaged in the business of operation of aircraft, in respect of expenditure incurred on running and maintenance of such aircraft;

(ii) in the case of an assessee engaged in the business of running motor cars on hire, in respect of expenditure incurred in running and maintenance of such motor cars.”

Original sub-section was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and was later omitted the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.

 [R350]Inserted by the Finance Act, 1970, w.e.f. 1-4-1970.

 [R351]Inserted by the Finance Act, 1983, with retrospective effect from 1-4-1979.

 [R352]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R353]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R354]Substituted for “clauses (i), (ii), (iia) and (iii) of sub-section (1) and sub-section (1A)” by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R355]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R356]Prior to its omission, section 39 stood as under:

“Where a managing agent of a company is liable under an agreement in writing made for adequate consideration to share managing agency commission with a third party or third parties, the said agent and the said party or parties shall file a declaration showing the proportion in which such commission is shared between them under the agreement, and on proof to the satisfaction of the Income-tax Officer of the facts contained in such declaration, such agent and each such party shall be chargeable only on the share to which such agent or party is entitled under the agree­ment.”

 [R357]See also Circular No. 91/58/66-ITJ(19), dated 18-5-1967, [Press Note, dated 2-5-1969, issued by Ministry of Finance, Circular No. 34, dated 5-3-1970, Circular No. 33, dated 29-12-1969, Circular No. 250, dated 11-1-1979, Circular No. 522, dated 18-8-1988, Letter [F. No. 142(14)/70-TPL], dated 28-9-1970, Letter [F. No. 1(22)/69-TPL(Pt.)], dated 18-4-1969, Circular No. 220, dated 31-5-1977, Circular No. 169 (Para 27), dated 23-6-1975, Letter [F. No. 204/10/71-IT(A-II)], dated 17-4-1971 and Letter BC No. T-II/256-Misc. 75-76, dated 15-11-1975, from the Commissioner of Income-tax, Bombay.

 [R358]Substituted for “39” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R359]Substituted for the following sub-clause (i) by the Finance Act, 1988, w.e.f. 1-4-1989.

“(i) any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163;”

 [R360]Inserted by the Income-tax (Amendment) Act, 1972, with retrospective effect from 1-4-1962 subject to savings prescribed by sections 4 and 5 of that Act which read as under:

‘4. Wealth-tax not deductible in computing the total income for certain assessment years.—Nothing contained in the Indian In­come-tax Act, 1922 (11 of 1922), shall be deemed to authorise, or shall be deemed ever to have authorised, any deduction in the computation of the income of any assessee chargeable under the head “Profits and gains of business, profession or vocation” or “Income from other sources” for the assessment year commencing on the 1st day of April, 1957, or any subsequent assessment year, of any sum paid on account of wealth-tax.

Explanation.—For the purposes of this section, “wealth-tax” shall have the same meaning as is assigned to it in the Explana­tion to sub-clause (iia) of clause (a) of section 40 of the principal Act.

5. Saving in certain cases.—Where, before the 15th day of July, 1972 [being the date on which the Income-tax (Amendment) Ordi­nance, 1972 (7 of 1972), came into force], the Supreme Court has, on an appeal in respect of the assessment of an assessee for any particular assessment year, held that wealth-tax paid by the assessee is deductible in computing the total income of that year, then, nothing contained in sub-clause (iia) of clause (a) of section 40, or sub-section (1A) of section 58, of the principal Act, as amended by this Act, or, as the case may be, section 4 of this Act, shall apply to the assessment of such assessee for that particular year.’

 [R361]Omitted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. Original clause (v) was inserted by the Finance Act, 1968, w.e.f. 1-4-1969 and was later amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [R362]Substituted by the Finance Act, 1992. w.e.f. 1-4-1993. Prior to substitution, clause (b), as amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985, the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989 and the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989, read as under:

‘(b) in the case of any firm, any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm.

Explanation 1. — Where interest is paid by a firm to any partner of the firm who has also paid interest to the firm, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the firm to the parnter exceeds the payment of interest by the partner to the firm.

Explanation 2.—Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and the other person being hereinafter referred to as “partner in a representative capacity” and “person so represented” respective­ly),—

(i) interest paid by the firm to such individual or by such individual to the firm otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause;

(ii) interest paid by the firm to such individual or by such individual to the firm as partner in a representative capacity and interest paid by the firm to the person so represented or by the person so represented to the firm, shall be taken into account for the purposes of this clause.

Explanation 3.—Where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person;’

 [R363]Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.

 [R364]Inserted by the Finance Act, 1968, w.e.f. 1-4-1968.

 [R365]See also Circular No. 91/58/66-ITJ(19), dated 18-5-1967 [Press Note, dated 2-5-1969], issued by Ministry of Finance, Circular No. 34, dated 5-3-1970, Circular No. 33, dated 29-12-1969, Circular No. 250, dated 11-1-1979, Circular No. 522, dated 18-8-1988, Letter [F. No. 142(14)/70-TPL], dated 29-9-1970, Letter [F. No. 1(22)/69-TPL(Pt.)], dated 18-4-1969, Circular No. 220, dated 31-5-1977, Circular No. 169 (para 27), dated 23-6-1975, Letter [F. No. 204/10/71-IT(A-II)], dated 17-4-1971 and Letter BC No. T-II/256-Misc. 75-76, dated 15-11-1975, from the Commissioner of Income-tax, Bombay.

 [R366]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R367]Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to its omission, proviso, as amended by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972, stood as under:

“Provided that the provisions of this sub-section shall not apply in the case of an assessee being a company in respect of any expenditure to which sub-clause (i) of clause (c) of section 40 applies.”

 [R368]31-3-1969 specified vide Notification No. SO 623, dated 14-2-1969. Refer  Circular, 1991.

 [R369]Substituted for “two thousand five hundred” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. See also Circular No. 522, dated 18-8-1988.

 [R370]Substituted for “two thousand five hundred” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. See also Circular No. 522, dated 18-8-1988.

 [R371]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R372]Substituted for “two thousand five hundred” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R373]See rule 6DD.

 [R374]Inserted by the Finance Act, 1969, w.e.f. 1-4-1969.

 [R375]Prior to its omission, sub-section (5), as amended by the Direct Tax Laws (Amendment) Act, 1974, w.e.f. 1-4-1974, Taxa­tion Laws (Amendment) Act, 1984, w.e.f. 1-4-1985, Finance Act, 1984, w.e.f. 1-4-1985 and Finance Act, 1985, w.e.f. 1-4-1985, stood as under:

‘(5)(a) Where the assessee—

(i) incurs any expenditure which results directly or indi­rectly in the payment of any salary to an employee or a former employees, or

(ii) incurs any expenditure which results directly or indi­rectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirect­ly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit,

then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduc­tion:

Provided that where the assessee is a company, so much of the aggregate of—

(a) the expenditure and allowance referred to in sub-clauses (i) and (ii) of this clause; and

(b) the expenditure and allowance referred to in sub-clauses (i) and (ii) of clause (c) of section 40,

in respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of one hundred and two thousand rupees, shall in no case be allowed as a deduction:

Provided further that in computing the expenditure referred to in sub-clause (i) or the expenditure or allowance referred to in sub-clause (ii) of this clause or aggregate referred to in the foregoing proviso, the following shall not be taken into account, namely :—

(i) the value of any travel concession or assistance re­ferred to in clause (5) of section 10;

(ii) passage moneys or the value of any free or concessional passage referred to in sub-clause (i) of clause (6) of section 10;

(iii) any payment referred to in clause (iv) or clause (v) of sub-section (1) of section 36;

(iv) any expenditure referred to in clause (ix) of sub-section (1) of section 36.

(b) Nothing in clause (a) shall apply to any expenditure or allowance in relation to—

(i) any employee in respect of any period of his employment outside India;

(ii) any employee being an individual referred to in sub-clause (vii) or sub-clause (viia) of clause (6) of section 10 in respect of any period during which he is entitled to the exemp­tion under sub-clause (vii) or, as the case may be, sub-clause (viia) aforesaid;

(iii) any employee whose income chargeable under the head “Salaries” is seven thousand and five hundred rupees or less.

(c) The limits referred to in clause (a) are the following, namely :—

(i) in respect of the expenditure referred to in sub-clause (i) of clause (a), in the case of an employee, an amount calcu­lated at the rate of seven thousand five hundred rupees for each month or part thereof comprised in the period of his employment in India during the previous year, and in the case of a former employee, being an individual who ceases or ceased to be the employee of the assessee during the previous year or any earlier previous year, ninety thousand rupees:

Provided that where the expenditure is incurred on payment of any salary to an employee or a former employee engaged in scientific research during any one or more of the three years immediately preceding the commencement of the business and such expenditure is deemed under the Explanation to clause (i) of sub-section (1) of section 35 to have been laid out or expended in the previous year in which the business is commenced, the limit referred to in this sub-clause shall, in relation to the previous year in which the business is commenced, be an amount calculated at the rate of five thousand rupees for each month or part thereof comprised in the period of his employment in India during the previous year in which such business is commenced and in the period of his employ­ment in India during which he was engaged in scientific research during the three years immediately preceding that previous year:

Provided further that in relation to any month or part thereof comprised in any such previous year as is relevant to the assess­ment year commencing on the 1st day of April, 1985, or any subse­quent assessment year, the reference to “five thousand rupees” in the preceding proviso shall be construed as a reference to “seven thousand five hundred rupees”;

(ii) in respect of the aggregate of the expenditure and the allowance referred to in sub-clause (ii) of clause (a), one-fifth of the amount of the salary payable to the employee or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of employment in India of the employee during the previous year, whichever is less.

Explanation 1.—The provisions of this sub-section shall apply notwithstanding that any amount not to be allowed under this sub-section is included in the total income of the employee or, as the case may be, the former employee.

Explanation 2.—In this sub-section,—

(a) “salary” has the meaning assigned to it in clause (1) read with clause (3) of section 17 subject to the following modifications, namely :—

(1) in the said clause (1), the word “perquisites” occur­ring in sub-clause (iv) and the whole of sub-clause (vii) shall be omitted;

(2) in the said clause (3), the references to “assessee” shall be construed as references to “employee or former employee” and the references to “his employer or former employer” and “an employer or a former employer” shall be construed as references to “the assessee”;

(b) “perquisite” means—

(i) rent-free accommodation provided to the employee by the assessee;

(ii) any concession in the matter of rent respecting any accommodation provided to the employee by the assessee;

(iii) any benefit or amenity granted or provided free of cost or at concessional rate to the employee by the assessee;

(iv) payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee ; and

(v) payment by the assessee of any sum, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, to effect as assurance on the life of the employee or to effect a contract for an annuity;’

 [R376]Prior to its omission, sub-section (6) as amended by the Finance Act, 1984, w.e.f. 1-4-1985, stood as under:

“(6) Where the assessee incurs any expenditure by way of fees for services rendered by a person who at any time during the twenty-four months immediately preceding the previous year was an employee of the assessee,—

(a) such expenditure by way of fees, or

(b) where the assessee has also incurred in relation to such person any expenditure by way of salary referred to in sub-clause (i) of clause (a) of sub-section (5), the aggregate of such expenditure by way of fees and by way of salary,

shall not be allowed as a deduction to the extent such expendi­ture by way of fees or, as the case may be, the aggregate of such expenditure by way of fees and by way of salary exceeds ninety thousand rupees.”

 [R377]Inserted by the Finance Act, 1975, with retrospective effect from 1-4-1973.

 [R378]Sub-section (8) was omitted by the Finance Act, 1985, w.e.f. 1-4-1986. Sub-section (8), as inserted by the Finance Act, 1975, w.e.f. 1-4-1976, stood as under:

‘(8) Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent of such expenditure shall not be allowed as a deduction.

Explanation.—In this sub-section,—

(a) “banking company” means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act;

(b) “deposit” means any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company—

(i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government;

(ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India;

(iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank);

(iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the institution or body, by notification in the Offi­cial Gazette, specify in this behalf;

(v) from any other company;

(vi) from an employee of the company by way of security deposit;

(vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of goods or for the rendering of any service;

(viii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or a lien on the assets of the company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company;

(ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, to­gether with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan;

(c) “financial company” means—

(i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-pur­chase transactions or the financing of such transactions; or

(ii) an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature; or

(iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith;

(iv) a loan company, that is to say, a company [not being a company referred to in sub-clauses (i) to (iii)] which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise;

(v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the busi­ness of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society;

(vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses.’

 [R379]Inserted by the Finance Act, 1984, with retrospective effect from 1-4-1980.

 [R380]Inserted by the Finance Act, 1984, with retrospective effect from 1-4-1980.

 [R381]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R382]Inserted by the Finance Act, 1984, w.e.f. 1-4-1980.

 [R383]Prior to omission sub-section (12), as inserted by the Finance Act, 1985, w.e.f. 1-4-1986, read as under:

“(12) No deduction shall be allowed in excess of ten thou­sand rupees for any assessment year in respect of any expenditure incurred by the assessee by way of fees or other remuneration paid to any person (other than an employee of the assessee),—

(a) for services (not being services by way of preparation of return of income) in connection with any proceeding under this Act before any income-tax authority or the Commissioner consti­tuted under section 245B or a competent authority within the meaning of clause (b) of section 269A or the Appellate Tribunal or any court;

(b) for services in connection with any other proceeding before any court, being a proceeding relating to tax, penalty, interest or any other matter under this Act; and

(c) for any advice in connection with tax, penalty, inter­est or any other matter under this Act.”

 [R384]Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to substituted, sub-section (1) read as under:

“(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trad­ing liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previ­ous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not.”

 [R385]Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Original sub-section (2), as amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, stood as under:

‘(2) Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due :

Provided that where the building sold, discarded, demolished or destroyed is building to which Explanation 5 to section 43 ap­plies, and the moneys payable in respect of such building, to­gether with the amount of scrap value, if any, exceed the actual cost as determined under that Explanation, so much of the excess as does not exceed the difference between the actual cost so determined and the written down value shall be chargeable to income-tax as income of the business or profession of such previ­ous year :

Provided further that where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (c) of sub-section (2B) of section 35, read with clause (4) of section 43 owned by the assessee which was or has been used for the purposes of business after it ceased to be used for the purpose of scientific research related to the business is sold, discarded, demolished or destroyed, the provisions of this sub-section shall apply as it for the words “actual cost”, at the first place where they occur, the words “actual cost as increased by twenty-five per cent thereof” had been substituted.

Explanation.—Where the moneys payable in respect of the build­ing, machinery, plant or furniture referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provisions of this sub-section shall apply as if the business or profession is in existence in that previous year.’

 [R386]Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Original sub-section (2A), as inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, stood as under :

‘(2A) Where any structure or work in connection with a building, being the structure or work referred to in sub-section (1A) of section 32, is sold, discarded, demolished, destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building and the moneys payable in respect of such structure or work together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference between the actual cost of the structure or work and its written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the structure or work became due.

Explanation 1.—Where the moneys payable in respect of the struc­ture or work referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the structure or work was constructed or done is no longer in existence, the provisions of this sub-section shall apply as if the business or profession were in existence in that previous year.

Explanation 2.—For the purposes of this sub-section, the expres­sion “moneys payable” and the expression “sold” shall have the same meanings as in sub-section (1A) of section 32.’

 [R387]Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.

 [R388]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968.

 [R389]Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981.

 [R390]Substituted by the Taxation Laws (Amendment & Miscella­neous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its sub­stitution it stood as under :

‘Explanation.—The expression “moneys payable” and the expression “sold” in sub-sections (2) and (3) shall have the same meanings as in sub-section (1) of section 32.’

 [R391]“sub-section (2), sub-section (2A)”, omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Italicised words were inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [R392]‘or under the head “Capital gains”’ omitted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R393]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R394]Substituted for “in such business of the Central Gov­ernment” by the Finance Act, 1981, w.e.f. 1-4-1981.

 [R395]“and” omitted by the Finance Act, 1981, w.e.f. 1-4-1981.

 [R396]Inserted, ibid.

 [R397]Inserted by the Finance Act, 1981, w.e.f. 1-4-1981.

 [R398]See also Circular No. 190, dated 1-3-1976.

 [R399]Substituted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. Original proviso was inserted by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R400]Inserted by the Finance Act, 1975, w.e.f. 1-4-1975.

 [R401]Substituted for “clause (i), clause (ii) or clause (iii) of sub-section (1) or sub-section (1A)” by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Italicised words were inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971.

 [R402]Substituted by the Taxation Laws (Amendment & Miscella­neous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its sub­stitution, Explanation 2 stood as under :

“Explanation 2.—Where an asset is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the written down value thereof as in the case of the previous owner for the previous year in which the asset is so acquired for the market value thereof on the date of such acquisition, whichever is the less.”

 [R403]Substitution for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R404]Substitution for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R405]Substituted for “Inspecting Assistant”, ibid.

 [R406]Substituted by the Taxation Laws (Amendment & Miscella­neous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its sub­stitution, Explanation 4 as amended by the Taxation Laws (Amend­ment) Act, 1970, w.e.f. 1-4-1971, stood as under :

‘Explanation 4.—Where assets which had once belonged to the assessee and had been used by him for the purposes of his busi­ness or profession and thereafter ceased to be his property by reason of transfer or otherwise, are re-acquired by him, the actual cost to the assessee shall be the actual cost to him when he first acquired the assets less the depreciation actually allowed to him under this Act or under the corresponding provi­sions of the Indian Income-tax Act, 1922 (11 of 1922), diminished by any loss deducted, or as the case may be, increased by any profit assessed, under the provisions of clause (iii) of sub-section (1) or clause (ii) of sub-section (1A) of section 32 or sub-section (2), or sub-section (2A) of section 41 of this Act, or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), or the actual price for which the asset is re-acquired by him, whichever is the less.”

 [R407]Substituted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R408]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R409]Inserted by the Finance Act, 1986, with retrospective effect from 1-4-1974.

 [R410]Substituted by the Finance Act, 1968, w.e.f. 1-4-1969.

 [R411]See also Circular No. 23D (XXXIX-4), dated 12-9-1960.

 [R412]Inserted by the Finance (No. 2) Act, 1965, with retro­spective effect from 1-4-1962.

 [R413]Inserted by the Taxation Laws (Amendment & Miscellane­ous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R414]Substituted for “any asset” by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R415]Substituted for the following Explanation 2 and Explana­tion 2A by the Taxation Laws (Amendment & Miscellaneous Provi­sions) Act, 1986, w.e.f. 1-4-1988. Prior to their substitution, Explanation 2 as substituted by the Finance Act, 1965, w.e.f. 1-4-1965 and Explanation 2A as inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967, stood as under :

“Explanation 2.—When any capital asset is transferred by a holding company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied, the written down value of the transferred capital asset to the transferee-company shall be taken to be the same as it would have been if the transferor-company had continued to hold the capital asset for the purposes of its business.

Explanation 2A.—Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalga­mated company, and the amalgamated company is an Indian company, the written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its business.”

 [R416]Inserted by the Taxation Laws (Amendment & Miscellane­ous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R417]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R418]See also Letter, dated 4-1-1967, issued by Ministry of Finance to FICCI.

 [R419]Restored to its original expression by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date.

 [R420]For definition of “foreign currency”.Expression “Indian currency” has been defined in section 2(k) of the Foreign Exchange Regulation Act, 1973 as under :

‘(k) “Indian currency” means currency which is expressed or drawn in Indian rupees but does not include special bank notes and special one-rupee notes issued under section 28A of the Reserve Bank of India Act, 1934 (2 of 1934);’

 [R421]Now Foreign Exchange Regulation Act, 1973 (46 of 1973).

 [R422]Expression “authorised dealer” has been defined in section 2(b) of the Foreign Exchange Regulation Act, 1973, as under :

‘(b) “authorised dealer” means a person for the time being authorised under section 6 to deal in foreign exchange;’

 [R423]Now Foreign Exchange Regulation Act, 1973 (46 of 1973).

 [R424]Inserted by the Finance Act, 1983, w.e.f. 1-4-1984.

 [R425]See also Circular No. 496, dated 25-9-1987.

 [R426]Substituted for the following clause (a) by the Finance Act, 1988, w.e.f. 1-4-1989 :

“(a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or”

 [R427]Inserted by the Direct Taxes Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R428]Inserted by the Direct Taxes Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R429]Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R430]Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R431]Inserted by the Finance Act, 1990, w.e.f. 1-4-1991.

 [R432]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R433]Inserted by the Direct Taxes Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R434]Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R435]Substituted for the following second proviso by the Finance Act, 1989, w.e.f. 1-4-1989 :

“Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actual­ly been paid during the previous year on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36.”

 [R436]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R437]Inserted by the Finance Act, 1989, with retrospective effect from 1-4-1984.

 [R438]Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R439]Renumbered by the Finance Act, 1989, with retrospective effect from 1-4-1984.

 [R440]Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R441]Substituted by the Finance Act, 1990 w.e.f. 1-4-1991. Prior to substitution Explanation 4 as inserted by the Finance Act, 1988, w.e.f. 1-4-1989 and amended by the Finance Act, 1989, with retrospective effective from 1-4-1984, read as under :

‘Explanation 4.—For the purposes of this section the expression “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956).’

 [R442]* For list of institutions, see Appendix.

 [R443]

 [R444]Inserted by the Finance Act, 1988, w.e.f. 1-4-1988.

 [R445]Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.

 [R446]See rule 6EA.

 [R447]See Appendix.

 [R448]

 [R449]See also Letter [F.No. 14/3/7-IT(A-I)], dated 7-8-1967, Circular No. 38, dated 3-10-1956 and Circular No. 22 [. Disc. 51(14)-IT-47], dated 23-9-1947.

 [R450]Substituted for “43A” by the Direct Tax Laws (Amend­ment) Act, 1987, w.e.f. 1-4-1989. Earlier, “43A” was substituted for “43” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R451]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R452]Inserted by the Finance (No. 2) Act, 1965, with retro­spective effect from 1-4-1964.

 [R453]Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [R454]For specified professions, refer Circulars, 1991 and , 1993.

 [R455]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R456]Substituted for the words “twenty-five” by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R457]Substituted for the words “two hundred and fifty”, ibid.

 [R458]Substituted for the words “twenty-five” by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R459]Substituted for the words “two hundred and fifty”, ibid.

 [R460]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R461]See rule 6F and Form No. 3C.

 [R462]Inserted by the Finance Act, 1984, w.e.f. 1-4-1985.

 [R463]See also Circular No. 452, dated 17-3-1986, Circular No. 561, dated 22-5-1990, Circular No. 582, dated 23-10-1990 and Circular No. 628, dated 6-3-1992.

 [R464]See rule 6G and Form Nos. 3CA to 3CE.

 [R465]“or years relevant to the assessment year commencing on the first day of April, 1985, or any subsequent assessment year” omitted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R466]“or years relevant to the assessment year commencing on the first day of April, 1985, or any subsequent assessment year” omitted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R467]“or years” omitted, ibid.

 [R468]Substituted for “Provided that” by the Finance Act, 1992, w.r.e.f. 1-4-1985.

 [R469]“by an accountant” omitted by the Finance Act, 1985, w.e.f. 1-4-1985.

 [R470]Substituted for the following clause (ii) by the Fi­nance Act, 1988, w.e.f. 1-4-1989 :

‘(ii) “specified date”, in relation to the accounts of the previous year or years relevant to an assessment year, means the date of the expiry of four months from the end of the previ­ous year or, where there is more than one previous year, from the end of the previous year which expired last before the commence­ment of the assessment year, or the 30th day of June of the assessment year, whichever is later.’

 [R471]Prior to omission section 44AC, as inserted by the Finance Act, 1988, w.e.f. 1-4-1989 and later amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989 and the Finance Act, 1990, w.e.f. 1-4-1991, reads as under :

’44AC. Special provision for computing profits and gains from the business of trading in certain goods.—(1) Notwithstanding any­thing to the contrary contained in sections 28 to 43C, in the case of assessee, being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction, tender or any other mode, conducted by any other person or his agent (hereafter in this section referred to as the seller),—

(a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor), a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head “Profits and gains of business or profession” :

Provided that nothing contained in this clause shall apply to a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act.

Explanation.—For the purposes of this clause, “purchase price” means any amount (by whatever name called) paid or payable by the buyer to obtain the goods referred to in this clause, but shall not include the amount paid or payable by him towards the bid money in an auction, or, as the case may be, the highest accepted offer in case of tender or any other mode;

(b) the right to receive any goods of the nature specified in column (2) of the Table below, or such goods, as the case may be, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of the amount paid or payable by the buyer in respect of the sale of such right or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head “Profits and gains of business or profession.”

Table

S.No.

Nature of goods

Percentage

(1)

(2)

(3)

(i)

Timber obtained under a forest lease

Thirty-five per cent

(ii)

Timber obtained by any mode other than under a forest lease

Fifteen per cent

(iii)

Any other forest produce not being a timber

Thirty-five per cent

 

(2) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to a buyer (other than a buyer who obtains any goods, from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1).

(3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee.

Explanation.—For the purposes of this section, “seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society.’

 [R472]Inserted by the Finance Act, 1975, w.e.f. 1-4-1976.

 [R473]Inserted by the Finance Act, 1987, with retrospective effect from 1-4-1983.

 [R474]Inserted by the Finance Act, 1988, with retrospective effect from 1-4-1983.

 [R475]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R476]Inserted by the Finance Act, 1989, w.e.f. 1-4-1990.

 [R477]See also Circular No. 552, dated 9-2-1990.

 [R478]Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.

 [R479]* See also Circular No. 649, dated 31-3-1993.

 [R480]Omitted by the Finance Act, 1993, w.e.f. 1-4-1993. Prior to omission, clause (b) read as under :

“(b) an amount equal to the average head office expenditure; or”

 [R481]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R482]Omitted by the Finance Act, 1993, w.e.f. 1-4-1993. Prior to omission clause (iii) read as under:

‘(iii) “average head office expenditure” means,—

(a) in a case where any expenditure in the nature of head office expenditure has been allowed as a deduction in computing the income of the assessee chargeable under the head “Profits and gains of business or profession” in respect of each of the three previous years relevant to the assessment years commencing on the 1st day of April, 1974, the 1st day of April, 1975, and the 1st day of April, 1976, one-third of the aggregate amount of the expenditure so allowed;

(b) in a case where such expenditure has been so allowed only in respect of two of the aforesaid three previous years, one-half of the aggregate amount of the expenditure so allowed;

(c) in a case where such expenditure has been so allowed only in respect of one of the aforesaid three previous years, the amount of the expenditure so allowed;’

 [R483]Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.

 [R484]Substituted for the portion beginning with “from an Indian concern” and ending with “with the Indian concern” by the Finance Act, 1983, w.e.f. 1-6-1983.

 [R485]Substituted for the portion beginning with “from an Indian concern” and ending with “with the Indian concern” by the Finance Act, 1983, w.e.f. 1-6-1983.

 [R486]Inserted, ibid.

 [R487]Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1989.

 [R488]Substituted for “the Explanation” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.

 [R489]Substituted for “the Explanation” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.

 [R490]Substituted for the portion beginning with “from an Indian concern” and ending with “with the Indian concern” by the Finance Act, 1983, w.e.f. 1-6-1983.

 [R491]See also Circular No. 23D (XXIII-6) of 1965.

 [R492]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. “(1)” deemed to have been omitted with the omission of sub-sections (2) to (4) by the Finance Act, 1966, w.e.f. 1-4-1966 and deemed to have been inserted with the insertion of sub-section (2) by the Taxation Laws (Amendment) Act, 1984. w.e.f. 1-4-1985.

 [R493]Figure “53”, omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R494]“53, 54 and 54B” substituted for “53 and 54” by the Finance Act, 1970, w.e.f. 1-4-1970; “53, 54, 54B and 54C” substi­tuted for “53, 54 and 54B” by the Finance Act, 1972, w.e.f. 1-4-1973 and “53, 54, 54B, 54C and 54D” substituted for “53, 54, 54B and 54C” by the Finance Act, 1973, w.e.f. 1-4-1974.

 [R495]“54C” omitted by the Finance Act, 1976, w.e.f. 1-4-1976.

 [R496]Substituted for “and 54D” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R497]Substituted for “54D and 54E” by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R498]Substituted for “54E and 54F” by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R499]Substituted for “and 54G” by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.

 [R500]Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985. Original sub-section (2) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and later on omitted by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R501]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. Original sub-sections (3) and (4) were inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and later on omitted by the Finance Act, 1966, w.e.f. 1-4-1966.

 [R502]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R503]Substituted for ‘income under the head “Capital gains” of the previous year in which the transfer took place’ by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1988.

 [R504]Inserted by the Finance Act, 1990, w.e.f. 1-4-1991.

 [R505]Clause (ii) omitted by the Finance Act, 1987, w.e.f. 1-4-1988. Prior to its omission, clause (ii) stood as under:

“(ii) any distribution of capital assets on the dissolu­tion of a firm, body of individuals or other association of persons;”

 [R506]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R507]Inserted by the Finance Act, 1988, w.e.f. 1-4-1988.

 [R508]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R509]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R510]Inserted by the Finance Act, 1992, w.e.f. 1-6-1992.

 [R511]Inserted by the Finance Act, 1970, w.e.f. 1-4-1970.

 [R512]Inserted by the Finance Act, 1976, w.e.f. 1-4-1977.

 [R513]For notified public institution, refer Circulars, 1991 and 1992.

 [R514]Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1962.

 [R515]Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1962.

 [R516]Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.

 [R517]Substituted by the Finance Act, 1992 w.e.f. 1-4-1993. Prior to substitution, section 48, as amended by the Finance Act, 1987, w.e.f. 1-4-1988, the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990, the Finance Act, 1989, w.e.f. 1-4-1990 and the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992, read as under:

‘48. Mode of computation and deductions.—(1) The income charge­able under the head “Capital gains” shall be computed,—

(a) by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:—

(i) expenditure incurred wholly and exclusively in connec­tion with such transfer;

(ii) the cost of acquisition of the asset and the cost of any improvement thereto:

Provided that in the case of an assessee, who is a non-resident Indian, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every re-investment thereafter in, and sale of, shares in, or debentures of, an Indian company.

Explanation.—For the purposes of this clause,—

(i) “non-resident Indian” shall have the same meaning as in clause (e) of section 115C;

(ii) “foreign currency” and “Indian currency” shall have the meanings respectively assigned to them in section 2 of the For­eign Exchange Regulation Act, 1973 (46 of 1973);

(iii) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf;

(b) where the capital gain arises from the transfer of a long-term capital asset (hereafter in this section referred to, re­spectively, as long-term capital gain and long-term capital asset) by making the further deductions specified in sub-section (2).

(2) The deductions referred to in clause (b) of sub-section (1) are the following, namely:—

(a) where the amount of long-term capital gain arrived at after making the deductions under clause (a) of sub-section (1) does not exceed fifteen thousand rupees, the whole of such amount;

(b) in any other case, fifteen thousand rupees as increased by a sum equal to,—

(i) in respect of long-term capital gain so arrived at relating to capital assets, being buildings or lands or any rights in buildings or lands or gold, bullion or jewellery,—

(A) in the case of a company, ten per cent of the amount of such gain in excess of fifteen thousand rupees;

(B) in the case of any other assessee, fifty per cent of the amount of such gain in excess of fifteen thousand rupees:

(ia) in respect of long-term capital gain so arrived at relating to equity shares of venture capital undertakings,—

(A) in the case of a company, other than venture capital company, thirty per cent of the amount of such gain in excess of fifteen thousand rupees;

(B) in the case of venture capital company, sixty per cent of the amount of such gain in excess of fifteen thousand rupees;

(C) in any other case, sixty per cent of the amount of such gain in excess of fifteen thousand rupees;]

(ii) in respect of long-term capital gain so arrived at relating to capital assets other than capital assets referred to in sub-clauses (i) and (ia),—

(A) in the case of a company, thirty per cent of the amount of such gain in excess of fifteen thousand rupees;

(B) in any other case, sixty per cent of the amount of such gain in excess of fifteen thousand rupees :

Provided that where the long-term capital gain relates to both categories of capital assets referred to in sub-clauses (i) and (ii), the deduction of fifteen thousand rupees shall be allowed in the following order, namely:—

(1) the deduction shall first be allowed against long-term capital gain relating to the assets mentioned in sub-clause (i);

(2) thereafter, the balance, if any, of the said fifteen thousand rupees shall be allowed as deduction against long-term capital gain relating to the assets mentioned in sub-clause (ii),

and the provisions of sub-clause (ii) shall apply as if refer­ences to fifteen thousand rupees therein were references to the amount of deduction allowed in accordance with clauses (1) and (2) of this proviso:

Provided further that, in relation to the amount referred to in clause (b) of sub-section (5) of section 45, the initial deduc­tion of fifteen thousand rupees under clause (a) of this sub-section shall be reduced by the deduction already allowed under clause (a) of section 80T in the assessment for the assessment year commencing on the 1st day of April, 1987, or any earlier assessment year or, as the case may be, by the deduction allowed under clause (a) of this sub-section in relation to the amount of compensation or consideration referred to in clause (a) of sub-section (5) of section 45 and references to fifteen thousand rupees in clauses (a) and (b) of this sub-section shall be construed as references to such reduced amount, if any.

Explanation.—For the purposes of this section,—

(a) “venture capital company” means such company as is engaged in providing finance to venture capital undertakings mainly by way of acquiring equity shares of such undertakings or, if the circumstances so require, by way of advancing loans to such undertakings, and is approved by the Central Government in this behalf;

(b) “venture capital undertaking” means such company as the prescribed authority may, having regard to the following factors, approve for the purposes of sub-clause (ia) of clause (b) of sub-section (2), namely:—

(1) the total investment in the company does not exceed ten crore rupees or such other higher amount as may be prescribed;

(2) the company does not have adequate financial resources to undertake projects for which it is otherwise professionally or technically equipped; and

(3) the company seeks to employ any technology which will result in significant improvement over the existing technology in India in any field and the investment in such technology involves high risk.

(3) The deductions specified in sub-section (2) shall be made also for the purposes of computing any loss under the head “Capital gains” in so far as it pertains to any long-term capital asset and, for this purpose, any reference in that sub-section to the amount of long-term capital gain arrived at after making the deductions under clause (a) of sub-section (1) shall be construed as reference to the amount of loss arrived at after making the said deductions.’

 [R518]See rule 115A.

 [R519]* For definition of “foreign currency” and “Indian currency”

 [R520]For specified cost of Inflation Index, see circular , 1993.

 [R521]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R522]Substituted for the following sub-clause (b) by the Finance Act, 1987, w.e.f. 1-4-1988:

“(b) on any distribution of assets on the dissolution of a firm, body of individuals or other association of persons, or”

 [R523]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R524]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R525]Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R526]Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [R527]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R528]Substituted for “section” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R529]Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.

 [R530]Substituted for “section” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R531]Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967.

 [R532]Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1962.

 [R533]Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985.

 [R534]Substituted for the following section 50 by the Taxa­tion Laws (Amendment & Miscellaneous Provisions), Act, 1986, w.e.f. 1-4-1988:

“50. Special provision for computing cost of acquisition in the case of depreciable assets.—Where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under this Act or under the Indian Income-tax Act, 1922 (11 of 1922) or any Act repealed by that Act, or

under executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force, the provisions of sections 48 and 49 shall be subject to the following modifications:—

(1) The written down value, as defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.

(2) Where under any provision of section 49, read with sub-section (2) of section 55, the fair market value of the asset on the 1st day of April, 1974, is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the said date, as reduced by the amount of depreciation, if any, allowed to the assessee after the said date, and as adjusted.”

The expression in italics was substituted for “1st day of Janu­ary, 1964” by the Finance Act, 1986, w.e.f. 1-4-1987 and “1st day of January, 1964” was substituted for “1st day of January, 1954” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R535]Prior to its omission, section 52 stood as under :

“(1) Where the person who acquires a capital asset from an asses­see is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liabil­ity of the assessee under section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer.

(2) Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assist­ant Commissioner, be taken to be its fair market value on the date of its transfer:

Provided that this sub-section shall not apply in any case—

(a) where the capital asset is transferred to the Govern­ment, or

(b) where the full value of the consideration for the transfer of the capital asset is determined or approved by the Central Government or the Reserve Bank of India.”

Earlier, sub-section (2) and its proviso were inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and the Finance Act, 1975 with retrospective effect from 1-4-1974, respectively. The proviso was later amended by the Finance Act, 1978, with retrospective effect from 1-4-1974.

 [R536]Prior to omission, section 53, as amended by the Taxa­tion Laws (Amendment) Act, 1984, w.e.f. 1-4-1985 and the Finance Act, 1987, w.e.f. 1-4-1988, read as under:

’53. Exemption of capital gains from a residential house.—Not­withstanding anything contained in section 45, where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property”, the capital gain arising from such transfer shall be dealt with in accordance with the follow­ing provisions of this section, that is to say,—

(a) in a case where the full value of the consideration received or accruing as a result of the transfer of such capital asset does not exceed two hundred thousand rupees the whole of the capital gain shall not be charged under section 45;

(b) in a case where the full value of such consideration exceeds two hundred thousand rupees, so much of the capital gain as bears to the whole of the capital gain the same proportion as the amount of two hundred thousand rupees bears to such consider­ation shall not be charged under section 45:

Provided that nothing contained in this section shall apply to a case where the assessee owns on the date of such transfer any other residential house.

Explanation.—In this section and in sections 54, 54B, 54D, 54E, 54F and 54G, references to capital gain shall be construed as references to the amount of capital gain as computed under clause (a) of sub-section (1) of section 48.’

 [R537]See also Circular No. 471 dated 15-10-1986, Circular No. 520, dated 11-8-1988, and Circular No. 538, dated 13-7-1989.

 [R538]Inserted by the Finance Act, 1978, with retrospective effect from 1-4-1974.

 [R539]Substituted by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R540]Substituted for “Where, in the case of an assessee being an individual” by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R541]“to which the provisions of section 53 are not applicable” omitted by the Finance Act, 1985, w.e.f. 1-4-1985.

 [R542]Substituted for “one year before or after the date on which the transfer took place purchased” by the Finance Act, 1986, w.e.f. 1-4-1987.

 [R543]Substituted for “is greater than the cost of the new asset” by the Finance Act, 1978, with retrospective effect from 1-4-1974.

 [R544]Substituted for “the house property” by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R545]Omitted by the Finance Act, 1987, w.e.f. 1-4-1988. Origi­nal Explanation, as inserted by the Finance Act, 1982, w.e.f. 1-4-1983, stood as under:

‘Explanation.—For the purposes of this sub-section, “long-term capital asset” means a capital asset which is not a short-term capital asset.

 [R546]Substituted for the following sub-section (2), as inserted by the Finance Act, 1978, with retrospective effect from 1-4-1974, amended by the Finance Act, 1982, w.e.f 1-4-1983 and the Finance Act, 1986, w.e.f. 1-4-1987, and the Finance Act, 1987, w.e.f. 1-4-1988:

‘(2) Where the transfer of the original asset is by way of com­pulsory acquisition under any law and the compensation awarded for such acquisition is enhanced by any court, Tribunal or other authority, then,—

(a) so much of the capital gains computed under section 48 by taking the compensation as so enhanced as the full value of the consideration received or accruing as a result of such transfer, as is not excluded under sub-section (1) from being charged to tax under section 45, or

(b) the capital gain attributable to the enhancement of the compensation,

whichever is less (that which is less being hereafter in this sub-section referred to as the unadjusted capital gain), shall, if the assessee has within a period of one year before or two years after the date of receipt of the additional compensation purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this sub-section referred to as the relevant asset), be dealt with in the follow­ing manner, that is to say,—

(i) if the amount of the unadjusted capital gain is greater than the cost of the relevant asset, the difference between the amount of the unadjusted capital gain and the cost of the rele­vant asset shall be charged under section 45 as the income of the previous year in which the transfer took place; and for the purpose of computing in respect of the relevant asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii) if the amount of the unadjusted capital gain is equal to or less than the cost of the relevant asset, the unadjusted capital gain shall not be charged under section 45; and for the purpose of computing in respect of the relevant asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the unadjusted capital gain.

Explanation.—For the purposes of this sub-section, sub-section (2) of section 54B and sub-section (2) of section 54D,—

(1) “additional compensation”, in relation to the transfer of any capital asset by way of compulsory acquisition under any law, means the difference between the compensation for the acqui­sition of such asset as enhanced by any court, Tribunal or other authority and the compensation which would have been payable if such enhancement had not been made;

(2) the capital gain attributable to the enhancement by any court, Tribunal or other authority of the compensation for the compulsory acquisition of any capital asset shall be—

(a) where the computation of the capital gain under section 48 by taking the compensation which would have been payable if such enhancement had not been made as the full value of the consideration received or accruing as a result of the transfer results in a loss or does not result in any profits or gains chargeable to income-tax under the head “Capital gains”, the capital gain computed under section 48 by taking the compensation as so enhanced as the full value of the consideration received or accruing as a result of the transfer; and

(b) in any other case, the difference between—

(i) the capital gain computed under section 48 by taking the compensation as so enhanced as the full value of the consid­eration so received or accruing, and

(ii) the capital gain computed under section 48 by taking the compensation which would have been payable if such enhance­ment had not been made as the full value of the consideration so received or accruing.’

 [R547]For text of Capital Gains Accounts Scheme, 1988—GSR 725(E), dated 22-6-1988, refer Circulars, 1991.

 [R548]Prior to omission, Explanation, as amended by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992, read as under:

“Explanation.—Where any amount becomes chargeable under section 45 in accordance with the proviso to this sub-section, then,—

(a) for the purposes of the deductions to be made under clause (b) of sub-section (1) of section 48, the initial deduction of fifteen thousand rupees under sub-section (2) of that section shall not be admissible; and

(b) nothing contained in section 53 shall apply in relation to such amount.”

 [R549]Inserted by the Finance Act, 1970, w.e.f. 1-4-1970.

 [R550]Inserted by the Finance Act, 1978, with retrospective effect from 1-4-1974.

 [R551]Substituted for “Where the capital gain arises” by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R552]Inserted by the Finance Act, 1978, w.r.e.f. 1-4-1974.

 [R553]Substituted for the following sub-section (2), as inserted by the Finance Act, 1978, with retrospective effect from 1-4-1974, by the Finance Act,1987, w.e.f. 1-4-1988:

“(2) Where the transfer of the original asset is by way of com­pulsory acquisition under any law and the compensation awarded for such acquisition is enhanced by any court, Tribunal or other authority, then,—

(a) so much of the capital gain, computed under section 48 by taking the compensation as so enhanced as the full value of the consideration received or accruing as a result of such trans­fer, as is not excluded under sub-section (1) from being charged to tax under section 45; or

(b) the capital gain attributable to the enhancement of the compensation,

whichever is less (that which is less being hereinafter referred to as the unadjusted capital gain), shall, if the assessee has within a period of two years after the date of receipt of the additional compensation purchased any land for being used for agricultural purposes (hereinafter referred to as the relevant asset), be dealt with in the following manner, that is to say,—

(i) if the amount of the unadjusted capital gain is greater than the cost of the relevant asset, the difference between the amount of the unadjusted capital gain and the cost of the relevant asset shall be charged under section 45 as the income of the previous year in which the transfer took place; and for the purpose of computing in respect of the relevant asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or

(ii) if the amount of the unadjusted capital gain is equal to or less than the cost of the relevant asset, the unadjusted capital gain shall not be charged under section 45; and for the purpose of computing in respect of the relevant asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced by the amount of the unad­justed capital gain.”

 [R554]For text of the Capital Gains Accounts Scheme, 1988-GSR 725(E), dated 22-6-1988; refer Circulars, 1991.

 [R555]Prior to omission, Explanation, as amended by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992, read as under:

“Explanation.—Where any amount becomes chargeable under section 45 in accordance with the proviso to this sub-section, then, for the purposes of the deductions to be made under clause (b) of sub-section (1) of section 48, the initial deduction of fifteen thousand rupees under sub-section (2) of that section shall not be admissible.”

 [R556]Inserted by the Finance Act, 1973, w.e.f. 1-4-1974.

 [R557]Inserted by the Finance Act, 1978, with retrospective effect from 1-4-1974.

 [R558]Substituted for “Where the capital gain arises” by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R559]Inserted by the Finance Act, 1978, with retrospective effect from 1-4-1974.

 [R560]Substituted for the following sub-section (2), as in­serted by the Finance Act, 1978, with retrospective effect from 1-4-1974, by the Finance Act, 1987, w.e.f. 1-4-1988:

“(2) Where the compensation awarded for the compulsory acquisi­tion of the original asset is enhanced by any court, Tribunal or other authority, then,

(a) so much of the capital gain, computed under section 48 by taking the compensation as so enhanced as the full value of the consideration received or accruing as a result of such transfer, as is not excluded under sub-section (1) from being charged to tax under section 45, or

(b) the capital gain attributable to the enhancement of the compensation,

whichever is less (that which is less being hereafter in this sub-section referred to as the unadjusted capital gain), shall, if the assessee has within a period of three years after the date of receipt of the additional compensation purchased any land or building or any right in any land or building or constructed any building for the purposes of shifting or re-establishing the undertaking referred to in sub-section (1) or setting up another industrial undertaking (such land, building or right being here­after in this sub-section referred to as the relevant asset), be dealt with in the following manner, that is to say,—

(i) if the amount of the unadjusted capital gain is greater than the cost of the relevant asset, the difference between the amount of the unadjusted capital gain and the cost of the relevant asset shall be charged under section 45 as the income of the previous year in which the transfer took place; and for the purpose of computing in respect of the relevant asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii) if the amount of the unadjusted capital gain is equal to or less than the cost of the relevant asset, the unadjusted capital gain shall not be charged under section 45; and for the purpose of computing in respect of the relevant asset any capital gain arising from its transfer within a period of there years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the unadjusted capital gain.”

 [R561]For text of the Capital Gains Accounts Scheme, 1988—GSR 725(E), dated 22-6-1988; refer Circulars, 1991.

 [R562]Prior to omission Explanation, as amended by the Fi­nance (No. 2) Act, 1991 w.e.f. 1-4-1992, read as under:

“Explanation.—Where any amount becomes chargeable under section 45 in accordance with the proviso to this sub-section, then, for the purposes of the deductions to be made under clause (b) of sub-section (1) of section 48, the initial deduction of fifteen thousand rupees under sub-section (2) of that section shall not be admissible.”

 [R563]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R564]See also Circular No. 359, dated 10-5-1983 and Circular No. 560, dated 18-5-1990.

 [R565]Substituted for “capital asset, not being a short-term capital asset” by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R566]Inserted by the Finance Act, 1992, w.e.f. 1-4-1992.

 [R567]Substituted for “full value of the consideration or any part thereof received or accruing as a result of such transfer” by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R568]Substituted for “full value of consideration received or accruing” by the Finance Act, 1979, w.e.f.1-4-1979.

 [R569]Substituted for “full value of consideration received or accruing” by the Finance Act, 1979, w.e.f.1-4-1979.

 [R570]Substituted for “full value of such consideration”, ibid.

 [R571]Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.

 [R572]Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1984.

 [R573]Inserted by the Finance Act, 1992, w.e.f.1-4-1992.

 [R574]Substituted for ‘For the purposes of this sub-section and sub-section (3), “specified asset” means any of the following assets, namely:— ‘by the Finance Act, 1979, w.e.f. 1-4-1979. The italicised words were inserted by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R575]

 [R576]Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R577]Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R578]Inserted by the Finance Act, 1979, w.e.f 1-4-1979.

 [R579]Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.

 [R580]For notification, refer Circulars, 1991.

 [R581]Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.

 [R582]Inserted by the Finance Act, 1986, w.e.f. 1-4-1987.

 [R583]For notification, refer Circulars, 1991.

 [R584]For notification, refer Circulars, 1991.

 [R585]

 [R586]Inserted by the Finance Act, 1986, w.e.f. 1-4-1987.

 [R587]For notification, refer Circulars, 1991.

 [R588]Omitted by the Finance Act, 1987, w.e.f. 1-4-1987. Omitted Explanation stood as under:

‘Explanation.—For the purposes of this clause, “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956).’

 [R589]Inserted by the Finance Act, 1989, w.e.f. 1-4-1990.

 [R590]For notification, Refer, 1991.

 [R591]Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R592]Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R593]Substituted for “full value of the consideration or any part thereof in any equity shares referred to in clause (va)” by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R594]Substituted for “2” by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R595]Substituted for “clause (vi)” by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R596]Inserted, ibid.

 [R597]Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R598]Substituted for “full value of the consideration or any part thereof received or accruing as a result of the transfer” by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R599]Substituted for “clause (vi)” by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R600]Substituted for “clause (vi)” by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R601]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R602]Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R603]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R604]Inserted by the Finance Act, 1992, w.e.f. 1-4-1992.

 [R605]Substituted for “capital assets other than short-term capital assets” by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R606]Inserted by the Finance Act, 1978, w.e.f. 1-4-1978.

 [R607]Numbered as Explanation 1 by the Finance Act, 1983, w.e.f. 1-4-1983.

 [R608]Substituted for “full value of the consideration or any part thereof received or accruing as a result of the transfer” by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R609]Substituted for “clause (vi)” by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R610]Inserted by the Finance Act, 1983, w.e.f. 1-4-1983.

 [R611]Omitted by the Finance Act, 1987, w.e.f. 1-4-1988. Original sub-section (3) was inserted by the Finance Act, 1978, w.e.f. 1-4-1978. Prior to its omission, sub-section (3) as amend­ed by the Finance Act; 1983, w.e.f. 1-4-1983 and the Finance Act, 1979, w.e.f. 1-4-1979, stood as under:

‘(3) Where the transfer of the original asset is by way of compulsory acquisition under any law or where the full value of the consideration for the transfer of the capital asset is deter­mined or approved by the Central Government or the Reserve Bank of India, and the compensation awarded for such acquisition or, as the case may be, the full value of the consideration so deter­mined or approved is enhanced by any Court, Tribunal or other authority, then, so much of the capital gain, computed under section 48 by taking the compensation or consideration as so enhanced as the full value of the consideration received or accruing as a result of such transfer, as is attributable to the enhancement of the compensation or consideration (hereafter in this sub-section referred to as the unadjusted capital gain) shall, if the assessee has, within a period of six months after the date of receipt of the additional compensation or, as the case may be, the additional consideration, invested or deposited the whole or any part of such additional compensation or consid­eration in any specified asset (hereafter in this section re­ferred to as the relevant asset), be dealt within in the follow­ing manner, that is to say,—

(a) if the cost of the relevant asset is not less than the additional compensation or consideration, the whole of the unad­justed capital gain shall not be charged under section 45;

(b) if the cost of the relevant asset is less than the additional compensation or consideration, so much of the unad­justed capital gain as bears to the whole of the unadjusted capital gain the same proportion as the cost of acquisition of the relevant asset bears to the additional compensation or con­sideration shall not be charged under section 45.

Explanation.—For the purposes of this sub-section,—

(i) “additional compensation” shall have the meaning as­signed to it in clause (1) of the Explanation to sub-section (2) of section 54;

(ii) “additional consideration”, in relation to the transfer of any capital asset the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, means the difference between the amount of consideration for such transfer as enhanced by any Court, Tribunal or other authority and the amount of consideration which would have been payable if such enhancement had not been made;

(iii) “cost” in relation to any relevant asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explana­tion 1 below sub-section (1) means the amount of such deposit;

(iiia) “specified asset” means—

(a) in relation to any additional compensation or addition­al consideration received before the 1st day of March, 1979, any of the assets referred to in clause (a) of Explanation 1 below sub-section (1);

(b) in relation to any additional compensation or addition­al consideration received after the 28th day of February, 1979, the National Rural Development Bonds referred to in clause (b) of Explanation 1 below sub-section (1);

(c) in relation to any additional compensation or addition­al consideration received after the 28th day of February, 1983, in any of the assets referred to in clause (c) of Explanation 1 below sub-section (1) by way of initial subscription thereto;

(iv) the capital gain attributable to the enhancement by any Court, Tribunal or other authority of the compensation for the compulsory acquisition of any capital asset or of the considera­tion for the transfer of any capital asset as determined or approved by the Central Government or the Reserve Bank of India shall be deemed to be so much of the capital gain arising from the transfer of the capital asset as bears to the whole of the capital gain as computed under section 48 by taking the compensa­tion or consideration as so enhanced as the full value of the consideration received or accruing as a result of the transfer, the same proportion as the amount of additional compensation or consideration bears to the compensation or consideration as so enhanced.’

 [R612]Omitted by the Finance Act, 1987, w.e.f. 1-4-1988. Original sub-section (4) was inserted by the Finance Act, 1978, w.e.f. 1-4-1978. Prior to its omission, sub-section (4) as amend­ed by the Finance Act, 1979, w.e.f. 1-4-1979, stood as under:

‘(4) Where the relevant asset is transferred, or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such relevant asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (3) shall be deemed to be income chargeable under the head “Capital gains” relating to capital assets other than short-term capital assets of the previous year in which the relevant asset is transferred or converted (otherwise than by transfer) into money.

Explanation.—Where the assessee deposits after the 27th day of April, 1978, the whole or any part of the additional compensa­tion or, as the case may be, the additional consideration re­ferred to in sub-section (3) in any relevant asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explana­tion 1 below sub-section (1), and such assessee takes any loan or advance on the security of such deposit, he shall be deemed to have converted (otherwise than by transfer) such deposit into money on the date on which such loan or advance is taken.’

 [R613]Omitted by the Finance Act, 1987, w.e.f. 1-4-1988. Original sub-section (5) was inserted by the Finance Act, 1978, w.e.f. 1-4-1978. Prior to its omission, sub-section (5), as amended by the Finance Act, 1979, w.e.f. 1-4-1979, stood as under:

“(5) Where the assessee deposits the whole or any part of the additional compensation or, as the case may be, the addition­al consideration referred to in sub-section (3) in any relevant asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explanation 1 below sub-section (1), the provisions of sub-section (1A) and (1B) shall apply in relation to such deposit as they apply in relation to the deposit referred to in the said sub-sections.”

 [R614]Sub-section (6) which was originally inserted by the Finance Act, 1978, w.e.f. 1-4-1978, was renumbered as sub-section (3) by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R615]Substituted for “clause (va) “by the Finance Act, 1979, w.e.f. 1-4-1979.

 [R616]“or clause (a) or clause (b) of sub-section (3)” omit­ted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R617]Inserted by the Finance Act,1982, w.e.f. 1-4-1983.

 [R618]Substituted for “Where, in the case of an assessee being an individual” by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R619]Inserted, ibid.

 [R620]Omitted by the Finance Act, 1987, w.e.f. 1-4-1988. Prior to its omission, clause (i) read as under:

‘(i) “long-term capital asset” means a capital asset which is not a short-term capital asset;’

 [R621]“(ii)” omitted, ibid.

 [R622]Substituted for “one year”, ibid.

 [R623]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R624]For text of the Capital Gains Accounts Scheme, 1988—GSR 725(E), dated 22-6-1988; refer Circulars, 1991.

 [R625]Prior to omission, Explanation, as amended by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992, read as under:

“Explanation: Where any amount becomes chargeable under section 45 in accordance with sub-section (2) or sub-section (3) or the proviso to this sub-section, then, for the purposes of the deductions to be made under clause (b) of sub-section (1) of section 48, the initial deduction of fifteen thousand rupees under sub-section (2) of that section shall not be admissible.”

 [R626]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R627]For text of the Capital Gains Accounts Scheme, 1988—GSR 725(E), dated 22-6-1988; refer Circulars, 1991.

 [R628]Prior to omission, Explanation, as amended by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992, read as under:

“Explanation.—Where any amount becomes chargeable under section 45 in accordance with the proviso to this sub-section, then, for the purposes of the deductions to be made under clause (b) of sub-section (1) of section 48, the initial deduction of fifteen thousand rupees under sub-section (2) of that section shall not be admissible.”

 [R629]Inserted, ibid. w.e.f. 1-10-1991.

 [R630]“, 54E” omitted by the Finance Act, 1992, w.e.f. 1-4-1992.

 [R631]Substituted for “sections 48, 49 and 50” by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R632]Omitted, ibid. Prior to its omission, clause (a), as amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, stood as under:

‘(a) “adjusted”, in relation to written down value or fair market value, means diminished by any loss deducted or increased by any profit assessed, under the provisions of clause (iii) of sub-section (1) or clause (ii) of sub-section (1A) of section 32 or sub-section (2) or sub-section (2A) of section 41, as the case may be, the computation for this purpose being made with refer­ence to the period commencing from the 1st day of April, 1974 in cases to which clause (2) of section 50 applies;’

In the omitted clause, “1st day of April, 1974” was substi­tuted for “1st day of January, *1964" by the Finance Act, 1986, w.e.f. 1-4-1987.

*“1964" was substituted for “1954” by the Finance (No.2) Act, 1977, w.e.f. 1-4-1978.

 [R633]Substituted for ‘ “cost of any improvement”, in relation to a capital asset,—’ by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R634]Substituted for “1st day of January, *1964” by the Finance Act, 1986, w.e.f. 1-4-1987. *“1964" was substituted for “1954” by the Finance (No.2) Act, 1977, w.e.f. 1-4-1978.

 [R635]Substituted for “1974” by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R636]Words “and the fair market value of the asset on that day is taken as the cost of acquisition at the option of the assessee,” omitted, ibid.

 [R637]Inserted by the Finance (No.2) Act, 1967, w.e.f. 1-4-1967.

 [R638]See also Circular No. 31(LXXVII-5)-D, dated 21-9-1962.

 [R639]Substituted for ‘For the purposes of section 48 and 49, “cost of acquisition”, in relation to a capital asset,—’ by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R640]Substituted for “1st day of January, *1964” by the Finance Act, 1986, w.e.f. 1-4-1987.

*“1964" was substituted for “1954” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R641]Substituted for “1974” by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R642]Substituted for “1st day of January, *1964” by the Finance Act, 1986, w.e.f. 1-4-1987.

*“1964" was substituted for “1954” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R643]Substituted for “1974” by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R644]Inserted by the Finance (No.2) Act, 1967, w.e.f. 1-4-1967.

 [R645]Substituted for “1st day of January, *1964” by the Finance Act, 1986, w.e.f. 1-4-1987.

*“1964" was substituted for “1954” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R646]Substituted for “1974” by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R647]Substituted for “1st day of January, *1964” by the Finance Act, 1986, w.e.f. 1-4-1987.

*“1964" was substituted for “1954” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978.

 [R648]Substituted for “1974” by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R649]Omitted by the Finance Act, 1966, w.e.f. 1-4-1966. Original clause (iv) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R650]Inserted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R651]Inserted by the Taxation Laws (Amendment) Act, 1972, w.e.f. 1-1-1973.

 [R652]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act; 1987, w.e.f. 1-4-1988.

 [R653]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act; 1987, w.e.f. 1-4-1988.

 [R654]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act; 1987, w.e.f. 1-4-1988.

 [R655]See rule 111AA.

 [R656]See rule 111AB.

 [R657]Substituted for “Wealth-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R658]See also Letter [F. No. 40/29/67-IT (A-I)], dated 22-5-1967, Circular No. 371, dated 21-11-1983, Circular No. 409, dated 12-2-1985 and Circular No. 3-D(XXXI-20), dated 30-3-1967.

 [R659]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R660]Inserted by the Finance Act, 1972, w.e.f. 1-4-1972.

 [R661]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R662]Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R663]See also Circular No. 156, dated 23-12-1974, Letter [F. No. 14/9/65-IT (A-I)], dated 22-9-1965, Instruction No. 460 (extracts) F.No. 168/3/72-IT (A-I), dated 4-10-1972, Letter [F.No. 8/2/68-IT (A-I)], dated 18-10-1968, Circular No. 25(LXVII-8)-D, dated 7-6-1955, Circular No. 594, dated 27-2-1991 and Circular No. 648, dated 30-3-1993.

 [R664]Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R665]Inserted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R666]Inserted by the Finance Act, 1987, w.e.f. 1-4-1988.

 [R667]Substituted for “sub-sections (1) and (2)” by the Taxation Laws (Amendment) Act, 1986, w.e.f. 1-4-1971.

 [R668]“, (1A)” omitted by hte Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.

 [R669]Substituted for “section 34 and 38”, ibid.

 [R670]Inserted by the Finance Act, 1989, w.e.f. 1-4-1990.

 [R671]Substituted by the Finance (No.2) Act, 1991, w.r.e.f. 1-4-1989. Prior to substitution, proviso as inserted by the Finance Act, 1976, w.e.f. 1-6-1976, stood as under:

“Provided that nothing contained in clause (i) or clause (iii) shall apply in computing the income by way of dividends in the case of an assessee, being a foreign company.”

 [R672]Prior to its omission, the Explanation stood as under:

‘Explanation.—For the purposes of this section and section 58, “foreign company” shall have the same meaning as in section 80B.’

 [R673]Inserted by the Finance Act, 1968, w.e.f. 1-4-1968 and is deemed always to have been there vide section 3 of the Income-tax (Amendment) Act, 1972.

 [R674]Inserted by the Finance Act, 1985, w.e.f. 1-4-1986.

* Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 [R675]“and in respect of which there is no person in India who may be treated as an agent under section 163” omitted by the Finance Act, 1988, w.e.f. 1-4-1989.

 [R676]Omitted by the Finance (No.2) Act, 1971, w.e.f. 1-4-1972. Original sub-clause was inserted by the Finance Act, 1968, w.e.f. 1-4-1969.

 [R677]Omitted by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to its omission, clause (b), as amended by Finance Act, 1963, w.e.f. 1-4-1963 and Finance Act, 1968, w.e.f. 1-4-1969, stood as under:

“(b) in the case of a company, any expenditure or allowance of the nature referred to in clause (c) of section 40, notwith­standing that the amount thereof is included in the total income of any person referred to in sub-clause (i) of clause (c) of section 40.”

65. Inserted by the Income-tax (Amendment) Act, 1972, with retrospective effect from 1-4-1962 subject to savings prescribed by section 5 of the Amendment Act regarding certain cases decided by the Supreme Court.

 [R678]Inserted by the Income-tax (Amendment) Act, 1972, with retrospective effect from 1-4-1962 subject to savings prescribed by section 5 of the Amendment Act regarding certain cases decided by the Supreme Court.

 [R679]Inserted by the Finance Act, 1968, w.e.f. 1-4-1968.

 [R680]Inserted by the Finance Act, 1976, w.e.f. 1-6-1976.

 [R681]Inserted by the Finance Act, 1986, w.e.f. 1-4-1987.

 [R682]Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its omission, sub-section (2) stood as under:

‘(2) When any building, machinery, plant or furniture to which clauses (ii) and (iii) of sub-section (2) of section 56 apply are sold, discarded, demolished or destroyed, the provi­sions of sub-section (2) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56 as they apply in computing the income of an assessee under the head “Profits and gains of business or profession”.’

 [R683]Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its omission sub-section (3) as inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, stood as under:

‘(3) Where any structure or work referred to in sub-section (1A) of section 32 in or in relation to a building to which clause (iii) of sub-section (2) of section 56 applies is sold, discarded, demolished or destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building, the provisions of sub-section (2A) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56 as they apply in computing the income of an assessee under the head “Profits and gains of busi­ness or profession”.’

 [R684]Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to its omission, the Explanation stood as under:

‘Explanation.—For the purpose of this section the expres­sion “sold” shall have the same meaning as in sub-section (1) of section 32.’