APPENDIX two

 

AN ANALYSIS OF RELEVANT RULES OF INCOME-TAX RULES

 

 

SECTION 2(1A)/RULES 7 AND 8: INCOME WHICH IS PARTIALLY AGRICULTURAL AND PARTIALLY FROM BUSINESS: COMPUTATION OF

 

Rule 7 provides that for disintegrating a composite business income which is partially agricultural and partially non-agricultural, the ‘market value’ of any agricultural produce, raised by the assessee or received by him as rent-in-kind and utilised as raw material in his business, is deducted. No further deduction is permissible in respect of any expenditure incurred by the assessee as cultivator or receiver of rent-in-kind.

Where agricultural produce is ordinarily sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market, the market value will be the value calculated according to the average price at which it has been so sold during the relevant previous year.

Where agricultural produce is not ordinarily sold in the market in its raw state or after application to it of any process aforesaid, the market value will be the aggregate of—

           

(i)         the expenses of cultivation;

           

(ii)        the land revenue or rent paid for the area in which it was grown; and

           

(iii)       such amount as the Assessing Officer finds, having regard to all the circum-stances in each case to represent a reasonable profit.Rule 8 provides that the income in respect of the business of growing tea leaves and manufacturing tea is computed under the Act as if it were derived from business, after making permissible deductions. 40 per cent of the income so arrived at is treated as business income and the balance 60 per cent is treated as agricultural income.In computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned. However, for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of clause (30) of section 10, is not includible in the total income.

 

Section 9/Rule 10 : Income in case of Non-residents/ Determination of Income from Transactions With non-Residents : Computation of

 

Where actual amount of income accruing or arising to any non-resident person, whether directly or indirectly :

 

n          through or from any business connection in India; or

 

n          through or from any property in India; or

 

n          through or from any asset/source of income in India; or

 

n          through or from any money lent at interest and brought into India ;is, according to Assessing Officer,not definitely ascertainable, the amount of such income can be calculated in either of the following manner :

 

n          A percentage of turnover so accruing or arising as the Assessing Officer may consider to be reasonable; or

 

n          An amount which bears the same proportion to the total profits and gains of business of such person, as thereceipts so accruing or arising bear to the total receipt of the business; or

 

n          An amount calculated in the manner which Assessing Officer may deem suitable.Profits and gains derived from any business carried on in the manner referred to in section 92 may also be determined in the manner indicated above.Before, invoking any of the three methods mentioned above, the Assessing Officer has to be satisfied that the assessee does not have the required material or even otherwise the real or actual amount of income is not ascertainable. If the actual income can be calculated by making some adjustments to income disclosed in the accounts maintained in respect of Indian income, rule 10 cannot be applied.Rule 10(i) - Relevant material for working out ‘reasonable percentage’ has to be provided by the assessee. Some of the relevant factors which Assessing Officer should take into account while applying the ‘reasonable percentage’ are : nature of business; rate of net profit made by non-resident in business; usual rate of profit in that line of businesses; type of business operation carried on in India, etc.Rule 10(ii) - Rule 10(ii) is applicable only if income is from business. Following steps need be taken :

 

n          Compute total world income of non-resident assessee from business in accordance with provisions of Indian Income-tax Laws.

 

n          Determine the proportion between the receipts accruing or arising within the taxable territories and total world receipt of business.

 

n          Determine profits or gains of business by application of that proportion for the purposes of assessment to income-tax.The income so determined will be taxable without any further allowances.

 

Section 10(14)/Rule 2BB: Prescribed Allowances Which are Exempt Upto Prescribed Limits

 

Section 10(14) grants exemption on special allowances and benefits. Clause (14) is divided into two parts.

 

(1)        Under sub-clause (i) of clause (14) of section 10, any prescribed special allowance or benefit, other than those in the nature of a perquisite, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, is exempt to the extent to which such expenses are actually incurred for that purpose. The allowances prescribed for this purpose (which are fully exempt) are spelt out in rule 2BB(1). These allowances are as follows :

 

n          Any allowance granted to meet the cost of travel on tour or on transfer, including any sum paid in connection with transfer, packing and transportation of personal effects on such transfer.

 

n          Any allowance, whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty.

 

n          Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit, provided that free conveyance is not provided by the employer.

 

n          Any allowance granted to meet the expenditure incurred on a helper, where such helper is engaged for the performance of duties of an office or employment of profit.

 

n   Any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions.

 

n          Any allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.

 

(2)        Under sub-clause (ii) of section 10(14), any prescribed allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, is exempt upto the prescribed extent. Rule 2BB(2) enumerates these allowances and the limits upto which they are exempt. These allowances are as follows :

 

 

Name of allowance/places where exempt

Extent of exemption

(i)

Any special compensatory allowance in the nature of *Special Compensatory (Hilly Areas) Allowance or High Altitude Allowance or Uncongenial Climate Allowance or Snow Bound Area Allowance or Avalanche Allowance—

 

 

(i)

At places mentioned under Item I in Col. 3 of Sl. No. 1 of the Table in rule 2BB(2)

Rs. 800* per month

 

(ii)

Siachen area of Jammu and Kashmir

Rs. 7,000* per month

 

(iii)

All other places situated at a height of 1,000 metres or more above sea level

Rs. 300* per month

(ii)

*Any special compensatory allowance in the nature of Border Area Allowance or Remote locality allowance or Difficult Area Allowance or Disturbed Area Allowance—

 

 

(a)

At places mentioned under Item I in Col. 3 of Sl. No. 2 of the Table in rule 2BB(2)

Rs. 1,300* per month

 

(b)

Installations in the Continental Shelf of India and the Exclusive Economic Zone of India

Rs. 1,100 per month

 

(c)

At places mentioned in Item III in Col. 3 of Sl. No. 2 of the Table in rule 2BB(2)

Rs. 1,050* per month

 

(d)

At places mentioned in Item IV in Col. 3 of Sl. No. 2 of the Table in rule 2BB(2)

Rs. 750* per month

 

(e)

Jog Falls in Shimoga District in Karnataka

Rs. 300 per month

 

(f)

At places mentioned in Item VI in Col. 3 of Sl. No. 2 of the Table in rule 2BB(2)

Rs. 200* per month

(iii)

*Special Compensatory (Tribal Areas/Scheduled Areas/ Agency Areas) Allowance in States mentioned in Col. 3 of Sl. No. 3 of Table in rule 2BB(2)

Rs. 200* per month

(iv)

Any allowance granted to an employee working in any transport system to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place, provided that such employee is not in receipt of daily allowance (whole of India)

70 per cent of such allowance upto a maximum of Rs. 6,000* per month

(v)

Children Educational Allowance (whole of India)

Rs. 100* per month per child upto a maximum of two children

(vi)

Any allowance granted to an employee to meet the hostel expenditure on his child (whole of India)

Rs. 300* per month per child, upto a maximum of two children

(vii)

Compensatory Field Area Allowance, at places mentioned in Col. 3 of Sl. No. 7 of Table in rule 2BB(2)

Rs. 2,600* per month

(viii)

Compensatory Modified Field Area Allowance at places mentioned in Col. 3 of Sl. No. 8 of Table in rule 2BB(2)

Rs. 1,000* per month

(ix)

Any special allowance in the nature of counter-insurgency allowance granted to the members of the armed forces operating in areas away from their permanent locations for a period of more than 30 days (whole of India)

Rs. 3,900* per month

(x)

Transport allowance granted to an employee [other than an employee referred to in (xi)] to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty (whole of India)

Rs. 800† per month

(xi)

†Transport allowance granted to an employee, who is blind or orthopaedically handicapped with disability of lower extremities, to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty (whole of India)

Rs. 1,600† per month

(xii)

Underground allowance granted to an employee who is working in uncongenial, unnatural climate in underground coal mines (whole of India)

Rs. 800‡ per month

$(xiii)

Any special allowance in the nature of high altitude (uncongenial climate) allowance granted to the member of the armed forces operating in high altitude areas

 

 

(a)

For altitude of 9,000 to 15,000 feet

Rs. 1,060 per month

 

(b)

For altitude above 15,000 feet

Rs. 1,600 per month

$(xiv)

Any special allowance granted to the members of the armed forces in the nature of special compensatory highly active field area allowance (whole of India)

Rs. 4,200 per month

£(xv)

Any special allowance granted to the member of the armed forces in the nature of Island (duty) allowance (Andaman & Nicobar and Lakshadweep Group of Islands)

Rs. 3,250 per month

 

Note : An assessee who claims exemption under (vii) and (viii) above, will not be entitled to the exemption in respect of the allowance referred to at (ii).An assessee who claims exemption under (ix) will not be entitled to the exemption in respect of the allowance referred to at (ii) (disturbed area allowance).

 

Section 32/Rule 5(2) : Depreciation : Prescribed Conditions For Claiming Higher rate of Depreciation

 

Normal rate of depreciation in case of plant and machinery is 25%. However, if the following conditions are satisfied, then plant and machinery shall be treated as a part of block of assets qualifying for depreciation at the rate of 40 per cent (50 per cent for the assessment years 1988-89 to 1991-92) by virtue of rule 5(2) :

 

n          New machinery or plant is installed during the previous year relevant to the assessment year 1988-89 (or any subsequent year), for the purposes of business of manufacture or production of any article or thing (not being any article specified in the Eleventh Schedule).

 

n          Such article or thing is manufactured or produced by using any technology (including any process) or other know-how developed in, or 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 an institution recognised in this behalf by the Secretary, Department of Scientific and Industrial Research, Government of India.

 

n          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.

 

n          The return, furnished by the assessee for any previous year in which the said machinery or plant is acquired, shall be accompanied by a certificate from the Secretary, Department of Scientific and Industrial Research, Government of India, 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.

 

Section 40A(3)/Rule 6DD : Business Disallowance - Cash Payments Exceeding prescribed limit - Prescribed Cases & Circumstances in Which Payment in Sum Exceeding - prescribed limit May be Made Otherwise than by Cheque

 

Under section 40A(3), as amended with effect from 1-4-1996, any payment made by an assessee for a sum exceeding Rs. 20,000 will qualify for deduction in full, only if such payment is made by means of a crossed cheque or by a crossed bank draft. If such a payment is made through any other means, twenty per cent of such payment will not be allowed as a deduction. Prior to 1-4-1996, this sub-section provided for a total ban on deduction of the entire amount, if payment was made otherwise than by way of crossed cheque or crossed bank draft. However, rule 6DD(j), as it stood then, provided for a general exception, in cases where the assessee satisfied the assessing authority that payment could not be made through crossed cheque/draft, (i) due to exceptional or unavoidable circumstances, or (ii) due to impracticability of making payment in the prescribed manner, or (iii) due to genuine hardship that such payment would cause to the payee. This clause (j) in rule 6DD has since been omitted with effect from 25-7-1995 and new clauses (j) to (l) are inserted in rule 6DD with effect from 1-12-1995. Henceforth the flat disallowance of 20 per cent of the amount will operate without any exception, in all situations other than those specifically excluded in rule 6DD. Under this rule, (as it stands after amendment by Twenty-first Amendment Rules, with effect from 1-12-1995), no disallowance under section 40A(3) will be made where payment is made in the following cases/circumstances :

           

1.         Where payment is made to banking and other credit institutions like RBI/SBI/Scheduled Banks/Commercial Banks in public and private sector/LIC/UTI/ICICI/IFCI/IDBI/Co-operative bank or land mortgage bank/Primary agricultural credit society/Primary credit society/Madras Industrial Investment Corporation Ltd., Madras/Andhra Pradesh Industrial Development Corporation Ltd., Hyderabad/Kerala State Industrial Development Corporation Ltd., Trivandrum/State Industrial and Investment Corporation of Maharashtra Ltd., Bombay/Public State Industrial Development Corporation Ltd., Chandigarh/National Industrial Development Corporation Ltd., New Delhi/Mysore State Industrial Investment and Development Corporation Ltd., Bangalore/Haryana State Industrial Development Corporation Ltd., Chandigarh/State Financial Corporation.

           

2.         Payments to Central and State Governments, if the rules framed by such a Government provides for payment in legal tender, such as payment of direct taxes, customs or excise duties, sales tax, railway freight, etc. Thus, in case of payments made to railways on account of railway freight charges or for booking wagons, section 40A(3) will not apply - See Circular No. 34, dated 5-3-1970.

           

3.         Payments made by book adjustment by an assessee in the account of payee against money due to assessee for any goods supplied or services rendered by him to payee.

           

4.         Payments through the banking system, like letters of credit, mail transfers, telegra-phic transfers, book adjustment in the same bank or between one bank and another, and bills of exchange including hundies made payable to a bank.

           

5.         Payments to a cultivator, grower or producer towards purchase of agricultural or forest produce or produce of animal husbandry (including hides and skins) or dairy or poultry farming or fish or fish products or products of horticulture or apiculture, whether processed or not.

           

6.         Payments to a producer towards purchase of his products if they are manufactured or processed without the aid of power in a cottage industry.

           

7.         Payments made to a person who ordinarily resides or carries on business in a village which is not served by any bank. However, if payment is made to such a villager in a town having banking facilities, the exception will not operate.

           

8.         Payments of terminal benefits like gratuity/retrenchment compensation, etc., to employees drawing salary not exceeding Rs. 7,500 per annum.

           

9.         Salary paid to an employee (after deducting tax at source under section 192) when such employee is temporarily posted for a continuance period of 15 days or more in a place other than his normal place of duty or on a ship, and he does not maintain any account in any bank at such place or ship.

           

10.       Payments required to be made on a day on which the banks are closed either on account of holiday or strike.

           

11.       Payment made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person.

           

12.       Payment made by an authorised dealer/money changer against purchase of foreign currency or travellers cheque in normal course of his business.

 

SECTION 89/RULE 21A - RELIEF WHEN SALARY IS PAID IN ARREARS OR IN ADVANCE, ETC. - RULES FOR COMPUTATION OF

 

Sometimes a salaried employee may receive lump sum payments in the form of arrears of salary, gratuity, leave encashment and commuted value of pension. These payments relate to services rendered in the past, and in the case of gratuity, leave encashment and commuted value of pension, may not be fully exempt from tax due to the fact that the prescribed conditions and monetary limits are not met with. If these lump sum payments are taxed in the year of receipt, the tax incidence will be very high due to the progressively increasing slab rates of tax. To mitigate the hardship that may be caused due to the high incidence of tax, the Act provides for allowing tax relief on such lump sum payments.Items on which relief is allowable - Relief is allowed on the following items :

 

n   Salary received in arrears or in advance

 

n   Gratuity received after putting in service of not less than five years (unexempt portion)

 

n   Compensation for termination of employment, provided that the employee had put in at least three years’ continuous service and the unexpired period of service is at least three years

 

n   Commuted value of pension (unexempt portion)

 

n   Leave encashment (unexempt portion).

 

n   Family pension referred to in Explanation to section 57(iia) [vide section 89, as amended by Finance Act, 2002, w.r.e.f. 1-4-1996.]How to compute relief on receipt of arrears of salary or salary received in advance - The relief on salary received in arrears or in advance (hereinafter to be referred as additional salary) is computed in the manner laid down in rule 21A(2) as under :

 

1.         Calculate the tax payable on the total income, including the additional salary, of the relevant previous year in which the same is received.

 

2.         Calculate the tax payable on the total income, excluding the additional salary, of the relevant previous year in which the additional salary is received.

 

3.         Find out the difference between the tax at (1) and (2).

 

4.         Compute the tax on the total income after including the additional salary in the previous year to which such salary relates.

 

5.         Compute the tax on the total income after excluding the additional salary in the previous year to which such salary relates.

 

6.         Find out the difference between tax at (4) and (5).

 

7.         The excess of tax computed at (3) over tax computed at (6) is the amount of relief admissible under section 89(1). No relief is, however, admissible if tax computed at (3) is less than the tax computed at (6). In such a case, the assessee-employee need not apply for relief.If the additional salary relates to more than one previous year, salary would be spread over the previous years to which it pertains in the manner explained above.How to compute relief in respect of gratuity - Under section 89(1), a relief can be claimed if gratuity is received in excess of the limits specified. However, no relief is admissible if taxable gratuity is in respect of services rendered for less than five years. Cases in which the relief is admissible may be divided into two categories, namely, (a) where the gratuity payable is in respect of past service of 15 years or more, and (b) where such period is 5 years or more but less than 15 years. Relief in a case belonging to the first category is worked out as under :

 

1.         Compute the average rate of tax on the total income, including the gratuity in the year of receipt.

 

2.         Find out the tax on gratuity at the average rate of tax computed at (1) above.

 

3.         Compute the average rate of tax by adding one-third of the gratuity to the other income of each of the three preceding years.

 

4.         Find out the average of the three-average rates computed in the manner specified in (3) above and compute the tax on gratuity at that rate.

 

5.         The difference between tax on the gratuity computed at (2) and that at (4) will be the relief admissible under section 89(1).In cases covered under the second category, the relief is computed on the similar lines as above with the only difference that instead of average of the average rates of the preceding three years, the average of the rates of the preceding two years is computed by adding one-half of the gratuity to the other income of each of preceding two years.Computation of relief in respect of compensation on termination of employment - If compensation is received by the assessee from his employer or former employer at or in connection with termination of his employment after continuous service for not less than 3 years and where the unexpired portion of his term of employment is also not less than 3 years, the relief is calculated in the same manner as if the gratuity was paid to the employee in respect of service rendered for a period of 15 years or more.Computation of relief in respect of payment in commutation of pension - A relief can be claimed in respect of payment in commutation of pension received in excess of the prescribed limits. Such relief is computed in the same manner as if the gratuity was paid to the employee in respect of service rendered for a period of 15 years or more.Computation of relief in respect of other payments - In respect of payment received by an employee other than those mentioned above, the relief under section 89(1) will be granted by the Central Board of Direct Taxes after examining the circumstances of each individual case.How to claim the relief - In the normal course, the assessee should claim the relief only in the return of income for the assessment year relevant to the previous year in which the lump sum payment is received. For this purpose, a mere application for relief setting out the detailed calculations can be appended to the return of income. Alternatively, he can apply to the ITO even before payment is made for a direction to the employer to deduct tax at a lower rate.As an exception to this general procedure, a special facility is afforded by the Act to an assessee who falls under any of the following categories :

 

n   a Government servant

 

n   employee of a company, co-operative society, local authority, University, institution, association or body.In the case of such an assessee, the relief can be worked out and allowed even at the time of deduction of tax at source by the employer. For this purpose, the assessee-employee will have to furnish the prescribed particulars in Form No. 10E.

 

Section 139A/Rule 114 : Permanent Account Number

 

What is a ‘Permanent Account Number’

 

1.      A ‘Permanent Account Number’ (hereafter referred to as ‘PAN’) is a ten digit alphanumerical number which is issued in the form of laminated card by an Assessing Officer of the Income-tax Department. It is required by every person (whether an assessee or not) for the purpose of (i) quoting it in all correspondence, returns, statement, etc., sent by the person to the income-tax authorities, and (ii) quoting it at the time of entering into certain specified financial transactions.

 

Persons who should compulsorily obtain PAN

 

2.      Section 139A imposes a statutory obligation on the persons specified below, to apply to the Assessing Officer for the allotment of a PAN.

 

2.1    Persons having taxable income - Every person whose total income during any previous year exceeded the maximum amount which is not chargeable to income-tax is required to apply for a PAN. Thus an individual/HUF/BOI/AOP must apply for PAN if his/its total income had exceeded, or is likely to exceed, the maximum amount which is not chargeable to income-tax. In the case of other entities (companies, firms, etc.), since there is no non-taxable income limit, they must apply for PAN if they have taxable income under the Act, without reference to the actual total income.

 

2.2    Persons carrying on business or profession - Every person who is carrying on any business or profession whose total sales, turnover or gross receipts are or is likely to exceed Rs. 5,00,000 per annum limit, must also apply for PAN. In their cases, the question whether they have any taxable income under the Act or not is not at all relevant.

 

2.3    Charitable/religious trusts - Every person in receipt of income derived from property held under trust or other legal obligation wholly or in part for charitable or religious purposes, and who is liable to be assessed as representative assessee in respect of such income, must apply for PAN.

 

2.4    Notified persons under section 139A(1A) - The Central Government may, by notification in the Official Gazette, specify any class or classes of persons by whom tax is payable under this Act or any tax or duty is payable under any other law for the time being in force including importers and exporters whether any tax is payable by them or not and such persons shall, within such time as mentioned in that notification, apply to the Assessing Officer for the allotment of a PAN.The following persons have been notified in this regard :

           

u         Exporters and Importers who are required to obtain an importer-exporter code under section 7 of the Foreign Trade (Development and Regulation) Act, 1992.

           

u         Central excise assessees.

           

u         Persons issuing invoices under the Cenvat Credit Rules, and who are required to be registered under the Central Excise Rules.

           

u         Service tax assessees.

           

u         Persons registered under the Central Sales Tax Act or State Sales Tax Laws.

 

Suo motu allotment of PAN

 

3.      Section 139A(2) empowers the Assessing Officer to allot a PAN to any person other than the persons falling under the categories mentioned in para 2.

 

Allotment of PAN on the request of any other person

 

4.      Under section 139A(3), any person not falling under the categories mentioned in para 2 and para 3, may apply to the Assessing Officer for the allotment of a PAN. In such cases, the Assessing Officer is mandatorily required to allot a PAN to the person ‘forthwith’. It is advised that even persons who are not mandatorily required to obtain a PAN may obtain a PAN, in view of the fact that the PAN is required to be quoted while entering into certain specified transactions, as explained in rules 114B to 114D. An apparently wrong notion that is prevailing is that, if a person obtains a PAN, he must statutorily file a return of income. There is no such requirement under the Act. In fact, it seems that section 139A(3) has been specifically inserted with the object of enabling persons to obtain a PAN in advance, so as to meet any eventuality that may arise in the future when they want to or may have to enter into specified financial transactions for which quoting PAN is mandatory. The PAN card may come in handy at any time, and possession of that card well in advance is thus a necessity. This apart, this card serves as an ‘identity card’ even for other purposes, especially for senior citizens, like railway reservations or airline reservations.

 

Persons to whom section 139A will not apply

 

5.    Under rule 114C(1), the provisions of section 139A shall not apply to the following persons :

           

(i)         Persons who have agricultural income and are not in receipt of any other income chargeable to income-tax.

           

(ii)        Non-residents, i.e., persons who are not ‘resident’.There is thus no obligation on the aforesaid persons to apply for and obtain a PAN.

 

Application for allotment of PAN

 

6.   Section 139A stipulates that (i) persons who are mandatorily required to obtain PAN, and (ii) persons who want to obtain a PAN even though they are not mandatorily required to obtain a PAN should apply to the Assessing Officer for the allotment of a PAN. With effect from 1-7-2003, the application can be filed with the PAN service centres (Refer para 13).

 

Form of application

 

7.   The application must be filed in Form No. 49A, as substituted by the Income-tax (Seventh Amendment) Rules, 2003 with effect from 29-5-2003. The form must be submitted in duplicate. In the case of individuals, an attested passport size photograph of the individual must be affixed.

 

To whom to apply

 

8.   The application is to be made to the Assessing Officer having jurisdiction over the person.

 

Supporting documents

 

9.   With effect from 29-5-2003, the application must be accompanied by the documents mentioned below, as proof of identity and address of the applicant.

 

Sl. No.

Applicant

 

Documents as proof of identity and address

(1)

(2)

 

(3)

1.

Individual

(i)

Proof of identity—

 

 

 

Copy of school leaving certificate or matriculation certificate or degree of a recognized educational institution or depository account or credit card or bank account or water bill or ration card or property tax assessment order or passport or voter identity card or driving licence or certificate of identity signed by a Member of Parliament or Member of Legislative Assembly or Municipal Councillor or a Gazetted Officer, as the case may be.

 

 

 

In case of a person being a minor, any of the above documents of any of the parents or guardian of such minor shall be deemed to be the proof of identity.

 

 

(ii)

Proof of address—

 

 

 

Copy of electricity bill or telephone bill or depository account or credit card or bank account or ration card or employer certificate or passport or voter identity card or property tax assessment order or driving licence or rent receipt or certificate of address signed by a Member of Parliament or Member of Legislative Assembly or Municipal Councillor or a Gazetted Officer, as the case may be.

 

 

 

In case of a person being a minor, any of the above documents of any of the parents or guardian of such minor shall be deemed to be the proof of address.

2.

Hindu undivided family

 

Copy of any document applicable in the case of an individual specified in serial number 1, in respect of karta of the Hindu undivided family, as proof of identity and address.

3.

Company

 

Copy of certificate of registration issued by the Registrar of Companies.

4.

Firm

 

Copy of certificate of registration issued by the Registrar of Firms or copy of partnership deed.

5.

Association of persons (trusts)

 

Copy of trust deed or copy of certificate of registration number issued by the Charity Commissioner.

6.

Association of persons (other than trusts) or body of individuals or local authority or artificial juridical person

 

Copy of agreement or copy of certificate of registration number issued by Charity Commissioner or Registrar of  Co-operative Societies or any other competent authority or  any other document originating from any Central or State  Government Department establishing identity and address  of such person.

 

The new series of PAN

 

10.    For providing better service to the taxpayers, the department has introduced in the year 1996 a scheme for issue of PAN under the new series. This PAN has ten alphanumeric characters and is issued in the form of a laminated card. Even persons who had applied for and were allotted PAN prior to the introduction of the new scheme, are required to apply for PAN under the new series.

 

Only one PAN for a person

 

11.    A person can have only one PAN under the new series. Section 139A(7) of the Act specifically prohibits a person who has been allotted a PAN under the new series from applying, obtaining and possessing another PAN. [See also proviso to section 139A(4)]

 

 

Time-limit for making application

 

12.  The time-limits as prescribed under rule 114 for various categories of persons are given below in tabular form :

 

Sl. No.

Category of person

Time-limit prescribed

Authority

1.

Persons whose total income during the accounting year exceeds the maximum amount which is not chargeable to income-tax (see para 2.1)

31st May of the relevant assessment year

Rule 114(3)(i)

2.

Persons not falling under (1) above, but having receipts from business or profession, the aggregate of which during any accounting year is or is likely to exceed Rs. 5 lakhs (see para 2.2)

Before the end of the said accounting year

Rule 114(3)(ii)

3.

Charitable and religious trusts (see para 2.3)

Before the end of the said accounting year

Rule 114(3)(iii)

4.

Exporters and Importers (see para 2.4)

Before making any export or import

 

 

5.

Central excise assessees (Refer para 2.4)

Before making application for registration under Central Excise Rules

 

Notification No. SO 775(E), dated 29-8-2000

6.

Service tax assessees (Refer para 2.4)

Before making application for registration under Service Tax Rules

 

 

7.

Persons registered under the Central/State Sales Tax Acts (Refer para 2.4)

Before making application for registration under the relevant sales tax law

Notification No. SO 1206(E), dated 12-12-2001

 

However, with the introduction of the new series of PAN, section 139A(4) of the Act provides that for the purpose of allotment of PAN under the new series, the Board may specify under a notification the date from which the persons covered under the said notification will have to apply for PAN.Time limit vide Notification No. SO 123(E), dated 11-2-1998, as amended by Notification SO 354(E), dated 28-4-1998 and SO 543(E), dated 3-6-1998 is as under:

 

?

Assessment year 1997-98

:

31st August, 1998

?

Assessment year 1998-99

:

31st August, 1998

?

Assessment year 1999-2000 or any subsequent assessment year

:

30th June of relevant assessment year.

 

In the case of Chandrakant Kandlal Shethprogramme for the purpose of issuance of PAN number and delivery of PAN card, and construed three months period as the maximum period for the same from the date of application.This decision has now become academic, in view of the fact that, with effect from 1-7-2003, the procedure for allotment of PAN has been partially outsourced and streamlined in such a manner that a person generally receives his PAN card within a week of applying for it.

 

Obtaining PAN through Service Centres

 

13.    From 1-7-2003, PAN Service Centres function in various cities/towns where income-tax offices are located. These Service Centres have been entrusted with the work of receiving applications for allotment of PAN, and also for the personal delivery of PAN cards to the applicants. Some of the important aspects in these clarifications are mentioned below :

           

u         Efforts will be made to issue PAN cards within a fortnight of making the application.

           

u         Grievances arising out of errors on PAN data will be attended to within 10 working days, and wherever required, new PAN cards will be issued.

           

u         The photograph to be affixed must be a coloured photograph (stamp size 3.5 cm × 2.5 cm). A photograph is compulsory only in the case of applicants who are ‘individuals’.

           

u         If the applicant cannot sign, left hand thumb impression of the applicant should be affixed on Form No. 49A at the place meant for signatures and got attested by a Magistrate or a Notary Public or a Gazetted Officer, under official seal and stamp.

           

u         Female applicants, irrespective of marital status, should write only father’s name in the application.

           

u         Mention of telephone number is not compulsory, but if provided it may help in faster communication.

           

u         In the case of non-residents, minor, lunatic, idiot, court of wards and such other persons, the application can be made by their representative assessee under section 160 of the Act.

           

u         Service Centres will assist applicants to correctly fill up Form No. 49A, but shall not receive any incomplete and deficient PAN application.

           

u         Service charge of Rs. 60 per application will have to be paid in cash to the Service Centre at the time of furnishing the application. This amount includes the cost of tamper-proof PAN card.

           

u         All PAN allotted and PAN cards issued by the department will remain valid. All persons who have been allotted a PAN need not apply again.

           

u         Persons holding PAN card issued by the department can make a fresh application to the Service Centre for the issue of the new tamper proof card, by indicating details of the existing card in the application, and in addition, by surrendering the old PAN card.

           

u         The Service Centre (UTIISL) will ensure delivery of the new PAN card at the address indicated by the applicant in Form No. 49A, against acknowledgement.

 

Section 139A/Rules 114B to 114D : Quoting of Permanent Account Number in documents pertaining to certain prescribed transactions

 

The statutory requirement

 

1.   Under section 139A(5), every person shall quote the PAN allotted to him in the following documents:

           

u         All returns submitted to any income-tax authority.

           

u         All correspondence with any income-tax authority [i.e., CBDT, Directors-General of Income-tax, Chief Commissioners of Income-tax, Directors of Income-tax, Commissioner of Income-tax, Addl./Deputy/Joint Directors, Assistant Directors/Assistant Commissioners of Income-tax, Income-tax Officers, Tax Recovery Officers, and Inspectors of Income-tax].

           

u         All challans for the payment of any sum due under the Act.

           

u            All documents pertaining to such transactions as may be prescribed by the CBDT in the interests of revenue, and entered into by him. [This aspect is explained in detail in para 3]. Section 139A(6) provides that every person receiving any document relating to such a prescribed transaction must ensure that PAN has been duly quoted in the document.Every person is also required to intimate the Assessing Officer any change in his address or in the name and nature of his business on the basis of which the PAN was allotted to him.

 

The requirements under the Rules

 

2.       Section 139A(8) of the Act, as amended with effect from 1-8-1998, provides inter alia that the Board may make rules providing for the following aspects:

           

u         The categories of transactions in relation to which PAN should be quoted by every person in the documents pertaining to the aforesaid transactions.

           

u         Class or classes of persons to whom the aforesaid requirement shall not apply.

           

u         The form and manner in which the person who has not been allotted PAN shall make his declaration.

           

u         The manner in which PAN should be quoted in the said transactions.

           

u            The time and manner in which the said transactions should be intimated to the prescribed authority.Rules 114B to 114D cover the aforesaid aspects, and they came into effect from 1-11-1998. These rules have been amended by the Income-tax (17th Amendment) Rules, 2004 with effect from 1-12-2004, so as to—

           

(i)         enlarge the scope of the ‘prescribed transactions’,

           

(ii)        omit reference to General Index Register Number with the result that, from 1-12-2004, it is mandatory to quote PAN (and PAN alone) in the documents relating to the prescribed transactions, and

           

(iii)       provide that any person who does not have a PAN and who enters into any transaction specified in rule 114B shall make a declaration in Form No. 60 (as amended), giving therein the particulars of such transactions.

 

The prescribed transactions

 

3.      Initially, some transactions were prescribed for the purpose of quoting of PAN, in cases where transactions were entered into on or after 1-11-1998 or 19-6-2002. With effect from 1-12-2004, five more transactions have been prescribed for this purpose. These transactions are explained in the succeeding paragraphs :

 

3.1       Transactions entered into on or after 1-11-1998 or 19-6-2002 - The following transactions are prescribed.

 

3.1a     Property deals - Transactions relating to sale or purchase of any immovable property valued at Rs. 5 lakhs or more are specified for this purpose. Apparently, the monetary limit will apply to the value shown in the document for transfer. Since both ‘sale’ and ‘purchase’ are covered, the seller as well as the purchaser must quote his PAN, or must file the declaration in Form No. 60.

 

3.1b     Vehicle deals - Transactions relating to sale or purchase of a motor vehicle or vehicle as defined in section 2(28) of the Motor Vehicles Act, which requires registration by a registering authority under Chapter IV of that Act are next specified for this purpose. However, sale or purchase of any two-wheeled vehicles, inclusive of any detachable side-car having an extra wheel attached to the motor vehicle, are excluded. Thus sale/purchase of scooters, mopeds and the like does not attract the requirement of quoting PAN. Here also, since both ‘sale’ and ‘purchase’ are specified, both the seller and the purchaser must quote his PAN, or file the declaration in Form No. 60.

 

3.1c     Fixed deposits in banks - Transaction involving time deposits (i.e., fixed deposits) in any bank (nationalised banks, scheduled banks, co-operative banks, etc.), are next specified, if the amount involved on each occasion exceeds Rs. 50,000. If a minor having no taxable income desires to open such an account, he must quote PAN of his father or mother or guardian, as the case may be in the document covering the transaction (i.e., application for opening account). If the parent or a guardian does not have a PAN, declaration in Form No. 60 can be filed. However, if the father does not have a PAN but the mother has a PAN, declaration in Form No. 60 cannot be filed. The PAN of the mother must be quoted. The same will apply to cases where the father has a PAN but not the mother. The PAN of the father must be quoted.

 

3.1d     Deposits in post offices - Transactions involving a deposit exceeding Rs. 50,000 in any account with Post Office Savings Bank are next specified. The use of the words ‘any account’ makes it clear that the account may be a savings bank account, or time deposit account. Investment in NSCs, IVPs are, however, not covered, since they are not ‘deposits’ in a Post Office Savings Bank.

 

3.1e     Opening bank accounts - Transactions involving opening an account in any bank (nationalised banks, scheduled banks, co-operative banks, etc.) are next specified. The ‘account’ contemplated here may be a current account, savings account, or overdraft account; time deposits referred to in para 3.1c are not covered. If a minor having no taxable income desires to open such an account, he must quote PAN of his father or mother or guardian, as the case may be, in the document covering the transaction (i.e., application for opening the account). The position explained in para 3.1c will apply in this case also.

 

3.1f      New telephone connections - Making an application for installation of a telephone connection (including a cellular telephone connection) is next specified.

 

3.1g     Hotel bills - The next item pertains to payment to hotels and restaurants against their bills, if the bills are for amounts exceeding Rs. 25,000 at any one time.

 

3.1h     Share transactions - Transactions involving contracts of a value exceeding Rs. 1 lakh, for sale or purchase of securities are next specified. For this purpose, the term ‘security’ is defined in section 2(h) of the Securities Contracts (Regulation) Act, which reads as follows :“ ‘Securities’ include—

 

(i)         Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

           

(ia)       Derivative;

           

(ib)       Units or any other instrument issued by any collective investment scheme to the investors in such schemes;

           

(ic)       Security receipt as defined in clause (zg) of section 2 of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002;

           

(id)       Units or any other instrument issued to the investors under any mutual fund scheme;

           

(ii)        Government securities;

           

(iia)      Such other instruments as may be declared by the Central Government to be securities; and

           

(iii)       Rights or interest in securities.”

 

3.1i      Cash payments to banks - The following items are prescribed :—

           

(i)         Payments in cash for purchase of bank drafts or pay orders or banker’s cheques from a banking company, for an amount aggregating Rs. 50,000 or more during any one day.

           

(ii)        Deposit in cash aggregating Rs. 50,000 or more with any banking company during any one day.

 

3.1j      Cash payments for foreign travel - Payment in cash in connection with travel to any foreign country, of an amount exceeding Rs. 25,000 at any one time, has also been prescribed. For this purpose, ‘payment in cash in connection with travel’ includes payment in cash towards fare, or to a travel agent or a tour operator, or for the purchase of foreign currency. The expression ‘travel to any foreign country’ does not include travel to the following countries :—

           

(a)        Saudi Arabia, on Haj pilgrimage organised by the Central Haj Committee, Mumbai ;

           

(b)        China, on pilgrimage to Kailash Mansarovar organised by the Ministry of External Affairs, Government of India ;

           

(c)        Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka.

 

3.2    Transactions entered into on or after 1-12-2004 - The following transactions have been prescribed by the Income-tax (17th Amendment) Rules, 2004:

 

3.2a Application for issue of a credit card - If a person makes an application to any bank, or to any banking institution, or to any other company or institution, for issue of a credit card, the said person must quote his PAN in the application for issue of such credit card.

 

3.2b Purchase of units of mutual funds - If a person applies to any mutual fund for purchase of its units for an amount of Rs. 50,000 or more, the person must quote his PAN in the relevant application made to the mutual fund. [This requirement, it may be noted, will apply only for investment in units, and not for investment in a mutual fund for any other purpose.]

 

3.2c  Acquisition of shares in companies - If a person pays Rs. 50,000 or more to a company for acquiring shares issued by it, the person must quote his PAN in the relevant application. It must be noted that the payment must be to a company directly, and such a contingency will arise only in respect of initial public issues and issue of right shares. Where payment is made for acquiring shares through a stock broker, and from shareholder, the transaction will not fall under this category.

 

3.2d Acquisition of debentures/bonds - If a person pays Rs. 50,000 or more to a company or an institution for acquiring debentures or bonds issued by such company or institution, the person must quote his PAN in the relevant application.

 

3.2e Acquisition of RBI bonds - If a person pays Rs. 50,000 or more to the Reserve Bank of India for acquiring bonds issued by the said Bank, the person must quote his PAN in the relevant application.

 

Filing of declaration by persons having no PAN

 

4.   Under the second proviso to rule 114B, as substituted by the Income-tax (17th Amendment) Rules, 2004 with effect from 1-12-2004, any person who does not have a PAN and who enters into any transaction explained in para 3 shall make a declaration in Form No. 60 giving therein the particulars of such transaction. This requirement can apply only to the persons who are not mandatorily required to obtain a PAN. Anyway, this proviso stresses the important fact that none of the transactions explained in para 3 can be entered into without quoting the PAN or filing declaration in Form No. 60.

 

Persons having agricultural income

 

5.   Under rule 114C(1)(a), the provisions of section 139A shall not apply to the persons who have agricultural income and are not in receipt of any other income chargeable to income-tax. Hence, such persons are not mandatorily required to obtain a PAN. However, under the proviso to the said provision, such persons are required to make a declaration in Form No. 61 in respect of transactions explained in para 3.

 

Non-residents

 

6.   Under rule 114C(1)(b), the provisions of section 139A shall not apply to the non-residents referred to in section 2(30) [i.e. a person who is not a ‘resident’]. Therefore, non-residents are not mandatorily required to obtain a pan. They need not file any declaration also in respect of transactions explained in para 3.

 

Government transactions

 

7.   Under rule 114C(1)(c), the provisions of section 139A shall not apply to transactions where Central Government, State Governments and Consular Offices are the payers.

 

Responsibility of the other party

 

8.   Under sub-rule (2) of rule 114C, the person who has received any document relating to a transaction explained in para 3 [refer para 8.1 for details] is required to ensure that PAN is quoted in the document concerned, and also verify that PAN quoted is correct. A photostat copy of PAN may be insisted upon for verification.

 

8.1   Persons specified in rule 114C(2) - Persons specified in rule 114C(2) are as under :

           

(a)        a registering officer appointed under the Registration Act, 1908 (16 of 1908);

           

(b)        a registering authority referred to in para 3.1b;

           

(c)        any manager or officer of a bank referred to in paras 3-1c, 3.1i and 3.2a;

           

(d)        post master;

           

(e)        stock broker, sub-broker, share transfer agent, banker to an issue, trustee of a trust deed, registrar to issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediaries registered under section 12 of the Securities and Exchange Board of India Act;

           

(f)         any authority or company receiving application for installation of a telephone by it;

           

(g)        any person raising bills referred to in para 3.1g or para 3.1j;

           

(h)        any person who purchases or sells the immovable property or motor vehicle;

           

(i)         principal officer of a company referred to in paras 3.2a, 3.2c and 3.2d;

           

(j)         principal officer of an institution referred to in paras 3.2a and 3.2d;

           

(k)        trustee of a mutual fund referred to in para 3.2b;

           

(l)         officer of Reserve Bank of India referred to in para 3.2e.

 

Follow-up action by other party

 

9.   Under rule 114D as substituted by the Income-tax (17th Amendment) Rules, 2004 with effect from 1-12-2004, the persons mentioned in para 8.1 shall forward the following documents to the Commissioner of Income-tax (Central Information Branch) having territorial jurisdiction over the area in which the transaction is entered into :

           

(i)         copies of declaration in Form No. 60, except the copies of declaration in respect of opening bank accounts, explained in para 3.1e [Refer para 4 also].

           

(ii)        Copies of declaration in Form No. 61 [Refer para 5]The transmission of these documents is required to be made in two instalments according to the following time schedule :

 

Period during which declaration is received

Due date for transmission

u 1st April to 30th September

31st October

u 1st October to 31st March

30th April

 

Provisions applicable to TDS and TCS transactions

 

10.    The following provisions have been made in respect of Deduction of Tax at Source (TDS) and Collection of Tax at Source (TCS).

 

10.1 Intimating PAN to tax deductor/tax collector - PAN has to be intimated in the following situations :

 

10.1a TDS transactions - Under section 139A(5A), every person receiving any sum or income or amount from which tax has been deducted under the provisions of Chapter XVII-B [sections 192 to 196D] shall intimate his PAN to the person responsible for deducting such tax. Till 31-3-2005, under first proviso to section 139A(5A), this requirement was not applicable to non-residents satisfying any of the following conditions :

           

(i)         their income consists only of items mentioned in section 115AC(4), viz., (a) interest from notified bonds or bonds of public sector companies sold by Government and purchased in foreign currency, (b) dividend on Global Depository Receipts, and (c) long-term capital gains on transfer of items mentioned in (a) or (b);

           

(ii)        non-resident sportsmen or sports associations referred to in section 115BBA(2);

           

(iii)          non-resident Indians having only investment income or long-term capital gains or both, referred to in section 115G.The abovesaid proviso has now been omitted with effect from 1-4-2005.

 

10.1b TCS transactions - Under section 139A(5C), every buyer or licensee or lessee referred to in section 206C shall intimate his PAN to the seller referred to in that section.

 

10.2     Quoting of PAN by tax deductor - Under section 139A(5B), the tax deductor is required to quote the PAN of the person to whom any sum or income or amount has been paid after deducting tax at source, in the following documents :—

           

(i)         Statement furnished under section 192(2C).

           

(ii)        All certificates furnished under section 203.

           

(iii)       All returns furnished to the department under section 206.This provision takes effect from 1-4-2002 in respect of banking companies and co-operative banks, and from 1-6-2001 in respect of any other persons.

 

10.3     The exception - Under the second proviso to section 139A(5B), the requirement of intimating PAN (para 10.1a) and quoting PAN (para 10.2) will not apply in the case of a person whose total income is not chargeable to income-tax or who is not required to obtain a PAN, if such person furnishes to the tax deductor a declaration in Form No. 197A in the prescribed form and manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.

 

10.4     Quoting of PAN by tax collector - Under section 139A(5D), every seller collecting tax under section 206C shall quote the PAN of every buyer or licensee or lessee in the following documents :

           

(i)         All certificates furnished in accordance with section 206C(5C).

           

(ii)        All returns furnished to the department under sub-section (5A) or sub-section (5B) of section 206C.

 

Section 203A/Rule 114A : Tax Deduction and Collection Account Number

 

The statutory background

 

1.   Section 203A of the Income-tax Act, as substituted with effect from 1-10-2004 by the Finance (No. 2) Act, 2004, requires that every person deducting tax or collecting tax in accordance with the provisions of Chapter XVII of the Act (Sections 192 to 196D and section 206C), who has not been allotted a Tax Deduction Account Number (TDAN) or a Tax Collection Account Number (TCAN), shall, within such time as may be prescribed apply to the Assessing Officer for the allotment of a Tax Deduction and Collection Account Number (TDCAN). The earlier provisions under which persons deducting tax at source have to obtain a TDAN and person collecting tax at source have to obtain a TCAN have been merged. With effect from 1-10-2004, persons deducting tax or collecting tax for the first time must obtain only a TDCAN. Rule 114A, as substituted with effect from 8-12-2004 by the Income-tax (20th Amendment) Rules, 2004, lays down the prescriptions in this regard.

 

The Form of the application

 

2.      Rule 114A(1) stipulates that the application for allotment of TDCAN shall be made in Form No. 49B. The application shall be made in duplicate.

 

To whom should the application be made

 

3.      Under rule 114A(2), the application shall be made to one of the following authorities :

           

u         Where the function of allotment of TDCAN has been assigned by the Chief Commissioner/Commissioner to any particular Assessing Officer, the application is to be made to that designated Assessing Officer.

           

u         In any other case, the application is to be made to the Assessing Officer having jurisdiction to assess the applicant.

 

Time-limit for making the application

 

4.         Rule 114A(3) fixes the time-limit for making the application, as follows :

 

Category of person

Due date for filing application

(a)

Where a person has deducted or collected tax prior to 1-10-2004.

On or before 31-1-2005.

(b)

Where a person has deducted or deducts tax, or has collected or collects tax, on or after 1-10-2004.

Within one month from the end of the month in which tax was deducted or collected, as the case may be, or 31-1-2005, whichever is later.

 

Note : Item (a) will apply only to persons who have not been allotted a TDAN or TCAN already under the old set-up, since section 203A requires only such persons to apply for TDCAN.

 

Quoting of TDCAN on certain documents

 

5.      Under section 203A(2), where a TDAN or TCAN or TDCAN has been allotted to a person, such person shall quote such number in the following documents :

           

(a)        in all challans for the payment of any tax deducted or tax collected to Government account as required under sections 200 or 206C(3);

           

(b)        in all certificates furnished for tax deducted or tax collected under section 203 or 206C(5). (It may be noted that the requirement of furnishing these certificates has been dispensed with, in respect of tax deducted/collected on or after 1-4-2005);

           

(c)        in all the returns delivered in accordance with section 206, 206C(5A) or 206C(5B);

           

(d)        in all other documents pertaining to such transactions as may be prescribed in the interests of revenue.It may be noted that mention of all the three Numbers (viz., TDAN, TCAN and TDCAN) in this sub-section itself gives a clear indication to the effect that those persons who have earlier been allotted TDAN or TCAN should continue to quote that number only in the specified documents, and that no obligation is cast on them to apply afresh for the allotment of TDCAN.

 

Section 285BA/Rule 114E: Annual Information Return

 

The statutory background

 

1.   Section 285BA, as substituted by the Finance (No. 2) Act, 2004 with effect from 1-4-2005, casts an obligation on certain specified persons to furnish an Annual Information Return containing details of certain specified transactions registered or recorded by them during every financial year. The first Return will cover such transactions for the financial year 2004-05.The scheme of section 285BA is briefly explained in this paragraph in the chronological order.

 

1.1 Persons who are obliged to furnish annual information return - Sub-section (1) prescribes the following persons who are required to furnish the annual information return :

           

u         An assessee;

           

u         Prescribed person in the case of an office of Government;

           

u         A local authority or other public body or association;

           

u         Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908;

           

u         Registering authority empowered to register motor vehicles under Chapter IV of the Motor Vehicles Act, 1988;

           

u         Post Master-General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898;

           

u         Collector referred to in clause (c) of section 3 of the Land Acquisition Act, 1894;

           

u         Recognised stock exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956;

           

u         An officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934;

           

u            A depository referred to in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996.The aforesaid persons who are responsible for registering, or maintaining books of account or other document containing a record of any ‘specified financial transaction’, under any law for the time being in force, are directed to furnish an annual information return, in respect of such financial transaction which is registered or recorded by him during any financial year beginning on or after 1-4-2004 and information relating to which is relevant and required for the purposes of the Income-tax Act. The return is required to be furnished to the prescribed income-tax authority or to such other authority or agency as may be prescribed. Thus, the first return under this provision will cover specified financial transactions recorded during the financial year 2004-05, i.e., 1-4-2004 to 31-3-2005.

 

1.2    Due date for furnishing the return - Sub-section (2) provides that the annual information return shall be furnished within the prescribed time after the end of the relevant financial year. The return is required to be in such form and manner (including on a floppy, diskette, magnetic cartridge tape, CD-ROM or any computer readable media) as may be prescribed.

 

1.3 Meaning of ‘specified financial transaction’ - Sub-section (3) defines the term ‘specified financial transaction’ as to mean—

           

(a)        transaction of purchase, sale or exchange of goods or property or right or interest in a property; or

           

(b)        transaction for rendering any service; or

           

(c)        transaction under a works contract; or

           

(d)        transaction by way of an investment made or an expenditure incurred; or

           

(e)        transaction for taking or accepting any loan or deposit,

            which may be prescribed.

 

1.4    Monetary limit on the value of transactions - The two provisos under sub-section (3) are relevant. Under the first proviso, the Board (CBDT) is empowered to prescribe different values for different transactions in respect of different persons, having regard to the nature of such transaction. This means that, in respect of the same transaction, the monetary limits can be fixed differently for certain class of persons when compared with the monetary limit prescribed for other classes of persons. Under the second proviso, the value or aggregate value during a financial year prescribed for this purpose shall not be less than Rs. 50,000. This makes it clear that any financial transaction having individual value of less than Rs. 50,000 or aggregate value for the year of less than Rs. 50,000 has been granted total immunity from the scheme of furnishing annual information return. This is bound to provide considerable relief to both the parties to such transactions.

 

1.5    Treatment of defective returns - Sub-section (4) requires the prescribed income-tax authority to intimate defects, if any, to the person who has furnished the return and to give that person an opportunity of rectifying the defect, normally within a period of one month from the date on which the defect is intimated to that person. The sub-section also vests discretion in the prescribed income-tax authority to extend the said period of one month in appropriate cases, if the person applies for such extension of time. However, if the defect is not rectified within one month or within any extended period granted by the prescribed income-tax authority, the return will be treated as an invalid return, and penal provisions will apply as if the person has failed to furnish the annual information return.

 

1.6    Notice calling for the return - Sub-section (5) provides a reprieve to such of those persons who have failed to furnish the annual return within time though they should have done so. In such cases, this sub-section provides that the prescribed income-tax authority may serve upon such person a notice requiring him to furnish such return within a specified date which should not be beyond a period of 60 days from the date of service of the notice. For example, if the notice calling for the return is served on, say, 1-10-2005, the prescribed income-tax authority can allow time upto any date which is not beyond 30-11-2005. On receipt of the notice, the person shall furnish the annual information return within the time specified in the notice. It must, however, be noted that the sub-section uses the expression ‘may serve’ and not the expression ‘shall serve’. Hence, it is entirely within the discretion of the prescribed income-tax authority to issue such a notice, and the defence of non-issue of notice is not available to the delinquent person.

 

Contents of Rule 114E

 

2       To make a beginning in giving effect to the provisions of section 285BA, the matters enumerated in paras 3 to 9 have been prescribed in the newly inserted rule 114E which has been notified under the Income-tax (17th Amendment) Rules, 2004 issued under Notification No. SO 1316(E), dated 1-12-2004.

 

Format of the return

 

3.      Under rule 114E(1), the annual information return is required to be furnished in Form No. 651, and it shall be verified in the manner indicated in that Form.

 

The notified financial transactions and persons

 

4.      The Table in rule 114E(2) specifies the financial transactions, their monetary value, and the persons who should furnish the return in respect of those transactions. These are given below in tabular form :

 

Sl No.

Nature of the transaction

Value

Person liable to file return

1.

Aggregate of cash deposits in a year in any savings account of a person maintained in the bank

Rs. 10 lakhs or more

Banking companies/institutions

2.

Aggregate of payments in a year by any person against bills raised in respect of a credit card issued to that person

Rs. 2 lakhs or more

Banking companies or institutions or any other company or institution issuing the credit card

3.

Receipts from any person for acquiring units of a Mutual Fund

Rs. 2 lakhs or more

Mutual Fund issuing the units

4.

Receipts from any person for acquiring bonds or debentures

Rs. 5 lakhs or more

Company or institution issuing said bonds or debentures

5.

Receipts from any person for acquiring shares

Rs. 1 lakh or more

Company issuing the said shares

6.

Purchase or sale by any person of immovable property

Rs. 30 lakhs or more

Registrar/Sub-Registrar registering the sale deed

7.

Aggregate of receipts in a year from any person for bonds issued by the Reserve Bank of India

Rs. 5 lakhs or more

Officer duly authorized in this behalf by the Reserve Bank of India

 

Authority to whom return is to be furnished

 

5.   Under rule 114E(3), the return is required to be furnished to the Commissioner of Income-tax (Central Information Branch). The proviso to this sub-rule stipulates that where the CBDT has authorised an agency to receive such return on behalf of the Commissioner of Income-tax (Central Information Branch), the return shall be furnished to that agency. This gives indication of outsourcing the processing of the returns to an external agency.

 

The medium in which return is to be furnished

 

6.   Rule 114E(4)(a) stipulates that the return comprising Part A and Part B of Form No. 65 referred to in sub-rule (1) shall be furnished on computer readable media being a floppy (3.5 inch and 1.44 MB capacity) or CD-ROM (650 MB or higher capacity) or Digital Video Disc (DVD), along with Part A thereof on paper.

 

Obligations cast on the person furnishing the return

 

7.    Under rule 114E(4)(b), the person responsible for furnishing the return shall ensure that—

           

(i)         if the data relating to the return or statement is copied using data compression or backup software utility, the corresponding software utility or procedure for its decompression or restoration shall also be furnished along with the computer media return or statement; and

           

(ii)        the return is accompanied with a certificate regarding clean and virus free data.

 

Due date for furnishing the return

 

8.      Rule 114E(5) requires that the annual information return shall be furnished on or before 31st August immediately following the financial year in which the transaction is registered or recorded. Thus, the first return covering transactions during the period 1-4-2004 to 31-3-2005 should be filed on or before 31-8-2005.

 

Who should sign the return

 

9.   Under rule 114E(6), the return shall be signed and verified by the following persons:

 

9.1    When person is an ‘assessee’ - Where the person is an ‘assessee’ as defined in section 2(7) of the Income-tax Act, the return must be signed by a person specified in section 140 of that Act.

         This will apply to banking companies, banking institutions and companies referred to in Sl. Nos. 1, 2, 4 and 5 of the Table given in para 4. Under section 140(c), the return in the case of a company is required to be signed by the managing director thereof. However, where for any unavoidable reasons such managing director is not able to sign the return or to verify it, or where there is no managing director, the return can be signed by any director of the company. Where the company is not resident in India, the return may be signed and verified by a person who holds a valid power of attorney from the company to do so, and a copy of such power of attorney must be attached to the return.

 

9.2    When person does not fall under para 9.1 - This covers Sl. Nos. 3, 6 and 7 of the Table given in para 4. In their cases the return must be signed and verified by the following persons :

 

?

Mutual Funds

Trustee of the mutual fund or such other person managing the affairs of the Mutual Fund as may be authorised by the trustee in this behalf.

?

Purchase/sale of immovable property

Registrar or Sub-Registrar appointed under section 6 of the Registration Act.

?

RBI Bonds

Officer of RBI who is duly authorized by the RBI in this behalf.

 

Points to be noted in respect of notified transactions

 

10     Some of the important points that must be kept note of in respect of the transactions mentioned in para 4 are explained in the succeeding paragraphs :

 

10.1  Cash deposits in banks - Two important points that must be noted at the very outset are :

           

u         The information to be furnished must be in respect of deposits made in cash by the account holder. Deposits made otherwise than by cash (like cheques, DDs and transfer adjustments) are not to be taken into account for the monetary limit of Rs. 10 lakhs in a year.

           

u            Deposits in a savings account must alone be considered. Deposits in other accounts, like current account, fixed deposit account, recurring deposit account, etc., are not to be taken into account.Generally speaking, cash inflow occurs almost on a day-to-day basis in businesses carried on by (a) retail shopkeepers, (b) milk vending booths, (c) private telephone booths, (d) cinema houses, (e) hotels and restaurants, (f) shopping malls, (g) grocery stores, (h) railway reservation centres, (i) railway booking offices (both for issue of tickets and for carriage of goods and parcels), (j) transport of passengers by road, (k) auto-rickshawallas, (l) taxi operators, etc. All these persons remit the daily sale proceeds to their bank account on the same day, if possible, or at best on the succeeding day. Most of them deposit the moneys in savings account only. If the average daily deposits made by these persons crosses Rs. 3,000, the aggregate of cash deposits made in the year will exceed Rs. 10 lakhs. The banks will have to furnish the requisite information in respect of all such persons.Another important point to be noted is that the information must be furnished by ‘a bank’ in respect of deposits held by any person in that ‘bank’.The term ‘branch of a bank’ has not been used. Therefore each ‘bank’ is the unit, both for the purpose of determining the aggregate of cash deposits made by any person as well as for the purpose of furnishing the information. Thus, if a person has more than one savings account in different branches of the same bank (which is possible as well as permissible), that bank will be required to furnish the information in respect of that person if the aggregate of cash deposits made by that person in the various branches of the bank has exceeded Rs. 10 lakhs for the year, even though such aggregate in respect of each such branch has not exceeded this limit.

 

10.2 Credit card payments - The monetary limit of Rs. 2 lakh will apply to each credit card issued by the company. If any ‘add-on’ card has been issued, that will be in a different name, and even billing in respect of such ‘add-on’ card is done separately by the company issuing the credit card. Hence, in cases where a primary credit card and an ‘add-on’ card has been issued by the same company, information will have to be furnished only in respect of that credit card through which payment has been made in excess of Rs. 2 lakhs during the year. Similarly, where a person is holding more than one credit card issued by different companies/banks, the information will be required to be furnished only by such of those companies/banks in respect of which payments made through credit cards issued by them has exceeded Rs. 2 lakhs for the year.

 

10.3 Investments in mutual funds - If a mutual fund has received more than Rs. 2 lakhs from any person for acquiring units of that fund, the said mutual fund is required to furnish the information about such person in the annual information return. It must be noted that—

           

(a)        the words ‘in a year’ have not been used, and the word ‘receipt’ has been used in singular. Therefore, the monetary limit of Rs. 2 lakhs will apply to each investment and not to the aggregate investments made during the year. If a person makes investment of, say, Rs. 1.90 lakhs each on three different occasions during the year in the same mutual fund, it seems that the mutual fund is not obliged to furnish information in respect of such person in the Annual Information Return;

           

(b)        the receipt of amount must be for ‘acquiring units’ and not for any other purpose.

 

10.4 Issue of bonds and debentures - If a company or institution has received Rs. 5 lakhs or more from any person for acquiring bonds and debentures issued by that company/institution, information in respect of that transaction is required to be furnished in the Annual Information Return by the said company/institution. Issue of bonds and debentures is only an occasional feature, and is not ‘open-ended’ as in the case of units. That is perhaps why the words ‘in a year’ have not been used, and it cannot be inferred that the aggregate receipts from the same person during the year should be considered for applying the monetary limit of Rs. 5 lakhs. Each receipt must be considered separately, and if it is less than Rs. 5 lakhs, the question of furnishing information in respect of such a receipt does not seem to arise.

 

10.5 Issue of shares - If a company has received Rs. 1 lakh or more from any person for acquiring shares issued by that company through a public or rights issue, information in respect of such a transaction is required to be furnished in the Annual Information Return by the said company. Public issues and rights issues are generally one-time affairs (even during the same year), and hence the term ‘in a year’ has not been used. The monetary limit of Rs. 1 lakh will hence apply to each receipt only. (See also para 10.4)

 

10.6 Purchase/sale of immovable property - Cases where immovable properties valued at Rs. 30 lakhs or more are purchased or sold, are required to be reported by the Registrar or the Sub-Registrar, i.e., the registering authority. Since the information is required to be furnished by the registering authority, the definition of ‘immovable property’ in the Registration Act, 1908 may be relevant. Under section 2(6) of that Act, ‘immovable property’ includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land and things attached to the earth or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass’. The monetary limit of Rs. 30 lakhs will apply to the ‘value’ adopted by the registering authority.

 

10.7 RBI Bonds - If the Reserve Bank of India (RBI) has received Rs. 5 lakhs or more in a year from any person for issue of bonds floated by RBI, information in respect of such transactions is required to be furnished in the Annual Information Return. The monetary limit applies to the aggregate of the amounts received during the year from a person and not to each and every individual receipt. Thus, if any person has subscribed Rs. 1 lakh each on five occasions during the year for issue of RBI bonds, information in respect of that person must be furnished in the Annual Information Return by the RBI.