Circular: No. 264 [F. No. 275/58/79-IT(B)], dated 11-2-1980.
SECTION 194B l WINNINGS FROM LOTTERY OR CROSSWORD PUZZLE
1075. Prizes awarded to agents under lucky dip draws scheme - Whether they are lotteries within the meaning of the section from which tax is required to be deducted at source
1. This Ministry has had an occasion to consider the question of the deduction of tax at source under section 194B from prizes awarded to lottery agents in what are popularly known as lucky dip draws.
2. Under the scheme of lucky dip draws, the agents are generally grouped into various categories according to the number of tickets purchased by them. The prizes are awarded category-wise, through draws of the lucky tickets. These prizes are lotteries within the meaning of section 194B as they are dependent wholly on the chance draw of a lucky ticket.
3. The State Governments and Union territories running lotteries are, therefore, requested to deduct tax at source at the rates prescribed by the Annual Finance Act in respect of lotteries or crossword puzzles from lucky dip prizes won by lottery agents.
4. This clarification may please be brought to the notice of all concerned under the control of the State Governments and Union territories.
Judicial Analysis
Explained in - In Commercial Corpn. of India Ltd. v. ITO [1993] 201 ITR 348 (Bom.), the above circular was commented upon with the following observations :
It must be seen in the first place that this circular has not been issued by the Central Board of Direct Taxes and the circular has been issued by the Ministry of Finance. Needless to say it covers what is known as lucky dip draws which is meant purely for agents and not for the purchases of the lottery tickets. In any case, it is the contention of the Ministry of Finance that the prizes awarded in lucky dip draws are lotteries within the meaning of section 194B on the sole ground that they are dependent wholly on a chance draw of a lucky ticket. (p. 367)
...We conclude that the principle of contemporanea expositio cannot be made available to the Income-tax Department because, firstly, there is no exposition whatsoever by the Central Board of Direct Taxes and, secondly, we are not construing an ancient statute and, lastly, for the reason that we are not concerned with the construction of any provisions of the statutes which are ambiguous or which pose difficulties. (p. 369)
Circular : No. 265 [F. No. 385/61/79-IT(B)], dated 11-4-1980.
939. Recording date of tender of cheque and date of its realisation on challans for payment of direct taxes is to be done by branch of authorised public sector bank where it is tendered for payment
Clarification 1
1. In terms of rule 80 of the Compilation of the Treasury Rules, if a cheque or draft tendered in payment of Government dues and accepted under the provisions of rule 79 is honoured on presentation, the payment is deemed to have been made on the date on which it was handed over to the Government bankers. The need to indicate on the challan the date of tender of the cheque/draft with the authorised public sector bank, was duly taken notice of by the Central Board of Direct Taxes and at the request of the Board, the Reserve Bank issued instructions to all the authorised public sector banks in November 1977 stipulating that the receiving branch should brand either an inward stamp of receipt as soon as the challan is tendered over the counter, or a date stamped with provision for two dates, i.e., the date of tender and the date of the realisation of the cheque. The specimen of the date stamp is as under:
Date of tender..............................
Received payment Rs. ...........................
Rupees.......................................
Date of realisation..........................
For.................................Bank
Authorised Signatory
2. Apart from the above procedure, the Central Board of Direct Taxes has revised the proformae of the various challans and new challan forms with colour bands are being progressively used to replace the existing ones. The new challans for the payment of self-assessment tax have already been introduced from April 1, 1979 and it will be noticed therefrom that the counterfoils of the challans meant both for the Income-tax Officer and the taxpayer contain separate columns for recording the date of tender of the cheque and date of its realisation. The other challan forms which are being introduced shortly, also contain similar columns.
3. In view of the foregoing, it is hoped that there will be no difficulty in recording, on the challan, the date of tender of the cheque/draft by the branch of the authorised public sector bank where it is tendered for payment of any of the direct taxes.
Circular: No. 261 [F. No. 385/61/79-IT(B)], dated 8-8-1979.
Clarification 2
1. In Boards Circular No. 261 dated 8-8-1979 [Clarification 1] it was stated that the Reserve Bank of India has requested the authorised public sector banks to brand the challan with the inward receipt stamp which should, inter alia, contain the date of tender of the cheque/draft and the date of its realisation. It was also stated therein that the Board was progressively introducing new-colour-band challans which would contain separate columns for recording the dates of tender of the cheque/draft and of its realisation.
2. A question has been raised as to whether the filling up of the dates of tender of the cheque/draft and its realisation in the revised colour-band-challan would be necessary if in the inward receipt stamp fixed by the receiving bank branch this information is filled in.
3. The objective here obviously is to record evidence on the counterfoils of challan about the dates of tender of the cheque/draft and its realisation. If this evidence is recorded in the inward receipt stamp of the bank, there would obviously be no objection if such dates in the challan forms are not filled. In such cases, the filling up of the relevant columns of the challan should not be insisted upon.
Circular : No. 266 [F. No. 275/12/80-IT(B)], dated 24-4-1980.
Financial year 1980-81
1687. Instructions for deduction of tax at source from salary during financial year 1980-81 at the rates specified in Part III of First Schedule to Finance (No. 2) Act, 1980
1. I am directed to invite a reference to this Ministrys Circular No. 266 [F. No. 275/12/80-IT(B)], dated 24-4-1980, wherein it was intimated that the deduction of income-tax at the same rates as were applicable during the financial year 1979-80 may continue to be made during the financial year 1980-81 from the payments of income chrgeable under the head Salaries under section 192.
2. In the Finance (No. 2) Act, 1980, some modifications in the exemption limit, etc., have been made. An extract of Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance (No. 2) Act, 1980 is given in Annex I.
3. The subsance of the main provisions in the law so far as they relate to income chargeable under the head Salaries, on which tax is to be deducted at source during the financial year 1980-81, is given hereunder :
(1) No tax will be deductible at source in any case unless the estimated salary income for the financial year exceeds Rs. 12,000. Where such income exceeds Rs. 12,000 by a small margin, the person will be entitled to marginal relief as provided in the said Sub-Paragraph I of Paragraph A. A few typical examples of calculations are given in Annex II. (Example II illustrates the calculation of the marginal relief.)
(2) The value of perquisites by way of free or concessional residential accommodation, or motor cars provided by employers to their employees shall be determined under rule 3 of the Income-tax Rules. Furhter, the value of other benefits or amenities provided free of cost or at concessional rates to the employees like supply of gas, electric energy, water for household consumption, educational facilities, etc., should also be taken into account for the purpose of computing the estimated salary income of the employees during the current financial year. [Example III in Annex II illustrates computation of some such perquisites].
(3) The amount repaid to an employee from the Additional Dearness Allowance Deposit Account under the provisions of the Additional Emoluments (Compulsory Deposit) Act, 1974 shall be liable to be included in his total income of the previous year in which it is repaid as already explained in this Ministrys Circular No. 182 [F. No. 275/12/75-ITJ], dated 28-10-1975. The amount repaid will include an element of interest also. While the repayment of the principal sum will be regarded as salary paid during the relevant financial year and assessed to tax, accordingly, the interest element will qualify for deduction in accordance with section 80L of the Act.
(4) The amount of deposit made by a taxpayer under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 is not allowable as deduction in computing his taxable income. Accordingly, such deposit has to be ignored for the purpose of determining the amount of income-tax deductible at source.
(5) Under section 16, the taxable salary is to be computed after providing a standard deduction. The standard deduction is to be allowed of an amount equal to 20 per cent of the salary up to Rs. 10,000 and 10 per cent of the salary in excess thereof, subject to a maximum of Rs. 3,500. For this purpose, the term salary will include fees, commission, perquisites or profits in lieu of or in addition to salary but will not include any payments received by the employees which are specifically exempt from tax under clauses (10),(10A), (10B), (11), (12) and (13A) of section 10. Thus house rent allowance to the extent exempt under section 10(13A) will not be taken into account for the purpose of computing the amount of the standard deduction. It is to be noted that the standard deduction on the above basis is to be allowed irrespective of whether any expenditure incidental to employment is actually incurred by the employee or not. This deduction will be available also to persons drawing pension during the current financial year at the same rates and subject to the same ceiling as the employees in actual service. Further, the standard deduction will be limited to Rs. 1,000 only in cases (a) where the employee is in receipt of a conveyance allowance at any time during the financial year, or (b) where he is provided with any motor car, motor cycle, scooter or other moped by his employer (for use otherwise than wholly and exclusively in the performance of his duties), or where he is allowed the use of any one or more motor cars (otherwise than wholly and exclusively in the performance of his duties) out of a pool of motor cars owned or hired by the employer at any time during the financial year. In this connection it may be noted that the use of motor car by the employee for the purposes of going from his residence to the place where the duties of his employment are to be performed, or from such place back to his residence will not be regarded as use of the motor car in the performance of his duties.
(6)(a) under section 80C, while computing the taxable income the disbursing officers should allow for the current financial year i.e., 1980-81, a deduction of the whole of the first Rs. 5,000, 50 per cent of the next Rs. 5,000, and 40 per cent of the balance of the qualifying amount of payments towards life insurance premia, contributions to provident fund [including contribution to Public Provident Fund constituted under the Public Provident Fund Act, 1968], contributions for participation in the Unit-linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963 and deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959. The qualifying amount of payments of all these items will be limited to 30 per cent of the estimated salary [after allowance of standard deduction referred to in item (5) above], or Rs. 30,000 whichever is less.
(b) In respect of contributions to recognised provident funds there is another monetary ceiling limit laid down in clause (d) of sub-section (2) of section 80C, in that the employers own contribution to his individual account in that fund will not exceed one-fifth of his salary during the financial year or Rs. 10,000, whichever is less. Salary for this purpose would include dearness allowance, if the terms of employment so provide, but will exclude all other allowances or perquisites. The expression recognised provident fund has been defined in section 2(38), to mean a provident fund which has been and continues to be recognised by the Commissioner in accordance with the rules contained in Part A of the Fourth Schedule and includes a provident fund established under a scheme framed under the Employees Provident Funds Act, 1952.
The additional monetary ceiling of one-fifth of salary or Rs. 10,000, whichever is less, will not be applicable to the contributions to the provident funds referred to in sub-clauses (iii) and (iv) of clause (a) of sub-section (2) of section 80C. Such provident funds are :
(i) Government provident fund and railway provident fund;
(ii) provident funds established by such local authorities and institutions as are mentioned in the Schedule to the Provident Funds Act, 1925 and those notified by the Government from time to time under section 8(3) of that Act; and
(iii) any provident fund set up by the Central Government and notified by it in the Official GazettePublic Provident Funds set up under the Public Provident Fund Act, 1968 is an example of such a fund.
(7) Section 80FF has been omitted vide section 14 of the Finance (No.2) Act, 1980 as it has become redundant with the increase in the exemption limit to Rs. 12,000. No deduction is, therefore, to be given under this section.
(8) Under section 80U, in the case of every resident individual who is blind or suffers from permanent physical disability, which substantially reduces his capacity to engage in gainful employment, a deduction of Rs. 15,000 from the total income is allowable by the employer, vide this Ministrys Circular No. 272, dated 27-5-1980. The Finance (No. 2) Act, 1980 has raised this limit to Rs. 10,000. Subject to fulfilment of the conditions prescribed in the above referred circular, deduction up to the increased limit of Rs. 10,000 may be allowed from salary for the purposes of deducting tax at source.
(9) Under section 10(13A), any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whichever name called) in respect of residential accommodation occupied by the assessee is exempt from income-tax to the extent (not exceeding Rs. 400 per month), as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. Rule 2A of the Income-tax Rules prescribes the limits in respect of the amount which is not to be included in the total income of the assessee for the purpose of section 10(13A). It has to be noted that only the expenditure actually incurred of rent in respect of residential accommodation occupied by the assessee, subject to the limits laid down in rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house rent allowance from the taxable income of the employee.
However, the Honble Punjab and Haryana High Court has held in the case of CIT v. Justice S.C. Mittal [1980] 121 ITR 503/[1980] 3 Taxman 221 that even in the case of an assessee occupying his own house, the house rent allowance received from the employer is not liable to tax subject to the limitations imposed under section 10(13A) and rule 2A. That judgment had not been accepted by this Ministry and a Special Leave Petition to the Honble Supreme Court has been filed. The disbursing authorities are, however, required to allow exemption in respect of house rent allowance granted to every employee assessable/assessed to income-tax under the jurisdiction of the Honble Punjab and Haryana High Court, and who is residing in the house/flat owned by him subject to the limits laid down in rule 2A. The actual rent paid for the purpose of the said rule would be deemed to be the annual letting value of the house/flat for which production of evidence in the form of a document showing the annual letting value fixed by the municipal authority, etc., may be insisted upon before granting the exemption. In the annual salary return asterisk (*) against the name of each such employee may be given together with the following remark at the end of the return :
*Admissible exemption of HRA allowed in view of judgment in Justice S.C. Mittals case.
(10) No deduction should be made from the salary income in respect of any donations for charitable purpose. The tax relief on such donations, as admissible under section 80G, will have to be claimed by the taxpayer separately at the time of the finalisation of the assessment. However, in cases where contributions to the National Defence Fund, Jawaharlal Nehru Memorial Fund, the Prime Ministers Drought Relief Fund, or the Prime Ministers National Relief Fund are made 50 per cent of such contributions may be deducted computing the taxable income of the employee. Deduction will not be admissible where the aggregate of all contributions for the year is less than Rs. 250.
(11) Under section 80GG, an assessee is entitled to a deduction in respect of house rent paid by him for his own residence at the places specified under rule 11B of the Income-tax Rules. Such deduction is permissible subject to the following conditions :
(a) The assessee has not been in receipt of any house rent allowance specifically granted to him which qualifies for exemption under section 10(13A).
(b) He will be entitled to a deduction in respect of house rent paid by him in excess of 10 per cent of his total income, subject to a ceiling of 15 per cent thereof, or Rs. 300 per month, whichever is less. The total income for working out these percentages will be computed before making any deduction under section 80GG.
(c) The assessee does not own any house property himself anywhere, nor does his spouse, minor child or the HUF of which he is member, owns an house property anywhere.
(d) The accommodation occupied by him for the purpose of his own residence is situated in any of the following places, namely, Agra, Ahmedabad, Amritsar, Banglore, Bombay, Calcutta, Cochin, Coimbatore, Delhi, Hyderabad, Indore, Jabalpur, Jaipur, Kanpur Lucknow, Madras, Madurai, Nagpur, Patna, Pune, (Poona), Sholapur, Srinagar, Surat, Trivandrum, Vadodara (Baroda) and Varanasi (Banaras).
The disbursing authorities should satisfy themselves that all the conditions mentioned above are satisfied before such deduction is allowed by them to the assessee. They should also satisfy themselves in this regard by insisting on production of evidence of actual payment of rent.
(12) Section 10(14) provides for exemption from income-tax of any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of clause (2) of section 17, specially granted to the employee to meet the expenses actually incurred wholly, necessarily and exclusively in the performance of duties of an office or employment of profit. In view of this provision, disbursing authorities have been authorised vide Boards Circular No. 196 [F. No. 275/29/76-ITJ], dated 31-3-1976 not to deduct tax at source from conveyance allowance granted to an employee, to the extent it is exempt under the said section. It has been stated therein that the employee in receipt of conveyance allowance would have to furnish the necessary certificate before the disbursing authority in support of the fact that the conveyance allowance is only a reimbursement of expenses laid out wholly, necessarily and exclusively in the performance of duties of an office or employment of profit. The satisfaction of the disbursing authorities would still be liable for scrutiny by the Income-tax Officer during regular assessment proceedings before him. The disbursing authority is also required to endorse a certificate in terms of section 10(14) of the tax deduction certificate issued under section 203. In this connection, attention is invited to the Explanation to section 10(14) which clarifies that any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, shall not be regarded for the purposes of that clause, as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties. This may be kept in view while deciding whether any expenditure from the special allowance has been actually incurred and, if so, the extent to which it has been incurred, to meet the expenses wholly, necessarily and exclusively in the performance of duties of an office or employment of profit.
(13) Section 80RRA provides that where the gross total income of an individual, who is a citizen of India, includes any remuneration received by him in foreign currency from any employer (i.e., a foreign employer of an Indian concern) for any services rendered by him outside India, 50 per cent of such remuneration will be deducted in computing the taxable income. It also provides that where the assessee renders continuous service abroad for more than 36 months, the remuneration received by him for any period of service after the expiry of the said 36 months will not qualify for any deduction. In the case of employees of the Central Government or any State Government, or person who was, immediately before taking up service outside India, in the employment of the Central Government or any State Government, the deduction will be allowed, only if the service of the employee is sponsored by the Central Government. In the case of other individuals the deduction will be allowed only if the individual is a technician. and the terms and conditions of his service outside India are approved for the purposes of the said section by the Central Government or the prescribed authority. It is pertinent to note that the deduction is to be allowed with reference to the remuneration received by the individual in foreign currency. Thus, if a part of the remuneration is paid to the Indian technician, etc., in Indian currency, the amount paid in Indian currency will not be taken into account for the purposes of the deduction under section 80RRA. The expression foreign employer has been defined under Explanation (b) to section 80RRA to mean
(a) the Government of a foreign State, or
(b) a foreign enterprise, or
(c) any association or body established outside India.
Where the continuous service outside India exceeds 36 months, the deduction admissible under section 80RRA may be limited to a period of 36 months. In allowing the deduction, documentary evidence should be obtained on the following points :
(a) in the case of an individual who is in the employment of the Central Government or any State Government, the fact of his having service been sponsored by the Central Government; and
(b) in the case of any other individual being a technician, the fact of the terms and conditions of his service outside India having been approved in this behalf by the Central Government (Ministry of Finance, Department of Revenue Foreign Tax Division, New Delhi).
(14) The total income computed in accordance with the provisions of the Act, should be rounded off to the nearest multiple of Rs. 10 by ignoring the fraction which is less than Rs. 5 and increasing the fraction which amounts to Rs. 5 or more to Rs. 10. The net amount of tax deductible should be similarly rounded off to the nearest rupee.
(15) Attention is also invited to section 276B, where it is provided that if a person without reasonable cause or excuse fails to deduct or after deducting fails to pay to the tax as required under the provisions of Chapter XVII-B, he shall be punishable :
(i) in a case where the amount of tax which he had failed to deduct or pay exceeds Rs. 1 lakh with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; and
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.
4. While making the payment of tax deducted at source to the credit of the Central Government, it may kindly be ensured that the correct amount of income tax and surcharge is recorded in the relevant challan. It may also be ensured that the right type of challan is used. New colour band challans are being introduced with separate numbers. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with blue colour band. Along with this colour band challan, old challan forms will also continue to be used. The old challan form numbers is ITNS 39. Wherever, the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax and surcharge is reflected therein.
5. The instructions are not exhaustive and are issued only with a view to helping the employers to understand the various relevant provisions. Wherever, there is a difference of opinion, a reference should always be made to the provisions of the Act, and the relevant Finance Act through which the changes in the tax structure are made.
Circular : No. 278 [F. No. 275/12/80-IT (B)], dated 26-8-1980.
Annex I - Extracts From Part III Of First Schedule To Finance (No. 2) Act, 1980
Paragraph A
Sub-Paragraph I
In the case of every individual or Hindu undivided family or unregistered firm or other association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other Paragraph of this Part applies :
(1)
where the total income does not exceed Rs. 8,000
Nil;
(2)
where the total income exceeds Rs. 8,000 but does not exceed Rs. 15,000
15 per cent of the amount by which the total income exceeds Rs. 8,000;
(3)
where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000
Rs. 1,050 plus 18 per cent of the amount by which the total income exceeds Rs. 15,000;
(4)
where the total income exceeds Rs. 20,000 but does not exceed Rs. 25,000
Rs. 1,950 plus 25 per cent of the amount by which the total income exceeds Rs. 20,000;
(5)
where the total income exceeds Rs. 25,000 but does not exceed Rs. 30,000
Rs. 3,200 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(6)
where the total income exceeds Rs. 30,000 but does not exceed Rs. 50,000
Rs. 4,700 plus 40 per cent of the amount by which the total income exceeds Rs. 30,000;
(7)
where the total income exceeds Rs. 50,000 but does not exceed Rs. 70,000
Rs. 12,700 plus 50 per cent of the amount by which the total income exceeds Rs. 50,000;
(8)
where the total income exceeds Rs. 70,000 but does not exceed Rs. 1,00,000
Rs. 22,700 plus 55 per cent of the amount by which the total income exceeds Rs. 70,000;
(9)
where the total income exceeds Rs. 1,00,000
Rs. 39,200 plus 60 per cent of the amount by which the total income exceeds Rs. 1,00,000;
Provided that for the purposes of this sub-Paragraph,
(i) no income-tax shall be payable on a total income not exceeding Rs. 12,000;
(ii) where the total income exceeds Rs. 12,000 but does not exceeding Rs. 16,250 the income-tax payable thereon shall not exceed thirty per cent of the amount by which the total income exceeds Rs. 12,000.
Surcharge on income-tax
The amount of income-tax computed in accordance with the preceding provisions of this Sub-paragraph shall be increased by a surcharge for purposes of the Union calculated at the rate of ten per cent of such income-tax.
Annex II - Typical Examples Of Income-tax Calculation
Rs.
1.
Total salary income
17,500
2.
Contribution to the Government Provident Fund (GPF)
2,000
3.
Payment towards Life Insurance Premia (LIP)
1,500
4.
Contribution for participation in Unit-linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963
500
5.
Deposits in 10-year account or 15-year account under the Post Office Saving Bank (Cumulative Time Deposits) Rules, 1959
6.
7.
Deduct : Amount of standard deduction u/s 16(i) Rs. 2,000 plus 10 per cent of the amount by which salary exceeds Rs. 10,000
2,750
8.
Gross total income (67)
14,750
9.
Deduct : Amount on account of contribution towards GPF, LIP, Unit-linked Insurance Plan and deposit in 10-year account or 15-year account under the Post Office Savings Bank (CTD) Rules
Total amount paid Rs. 4,500 but restricted to 30 per cent of the gross total income (Rs. 14,750), i.e., Rs. 4,425
4,425
10.
Taxable income
10,325
Rounded off under section 288A
10,330
11.
Total tax payable
Nil
Example II
[Illustrating calculation of marginal relief of income-tax]
Salary including dearness allowance
20,100
City compensatory allowance
900
21,000
Contribution to GPF
4,500
Payment towards LIP
1,000
Contribution for participation in Unit-linked insurance plan
made under section 19(1)(cc) of the Unit Trust of India Act
Deposits in 10-year account or 15-year account under the Post
Office Saving Bank (CTD) Rules
Deduct : Amount of standard deduction under section 16(i) [Rs. 2,000 plus 10 per cent of the amount by which salary exceeds Rs. 10,000]
3,100
17,900
Deduct : Amount on account of contribution towards GPF, LIP, Unit-linked insurance plan and deposit in 10-year account or 15-year account under the Post Office Saving Bank (CTD) Rules
Total amount paid Rs. 6,500 but restricted to 30 per cent of the gross total income of Rs. 17,900, i.e., Rs. 5,370
Qualifying amount : Rs. 5,370
Admissible deduction under section 80C :
- first Rs. 5,000 (100 per cent)
Rs. 5,000
- balance Rs. 370 (50 per cent)
Rs. 185
5,185
12,715
12,720
Income-tax on Rs. 12,720 (i.e., at 15 per cent of 4,720)
708
12.
Marginal relief admissibility of : Where taxable income exceeds Rs. 12,000 but does not exceed Rs. 16,250, income-tax payable is restricted to 30 per cent of amount by which income exceeds Rs. 12,000. Thus, income-tax payable on Rs. 12,720
216.00
Add: Surcharge on income-tax at 10 per cent
21.60
13.
237.60
Rounded off under section 288B
238
Note : Even though the contribution to the Government provident fund of Rs. 4,500 exceeds one-fifth of the salary (including dearness allowance) of Rs. 20,100, no part of it is to be excluded while determining the qualifying amount of deduction under section 80C [see para 3.6(c) of the circular].
Example III
[Illustrating calculation of limits under section 80C and valuation of some perquisites and limits of deduction under section 80C in case of an employee of a private company posted at Bombay]
48,000
Bonus
9,600
Contribution to recognised provident fund (RPF)
11,000
Payments towards LIP
10,000
Free gas, electricity, water, etc. (actual bills paid by the company)
2,400
Furniture at cost (including television set, radio set, refrigerator, other household appliances and an air-conditioner) belonging to the company
40,000
Furnished flat provided to the employee for which actual rent paid by the company (actual rent assumed to be equal to the fair rental value)
24,000
Rent recovered from the employee
12,000
Computation of total income
Salary
57,600
Valuation of perquisites :
Furnished flat at concessional rent under section 17(2) read with clauses (a) and (b) of rule 3 of the Income-tax Rules
Fair rental value (FRV) (assumed to be equal to actual rent) Rs. 24,000 10 per cent of salary including bonus
5,760
Add : Excess of FRV over 30 per cent of salary including bonus of Rs. 57,600 (i.e., Rs. 24,000Rs. 17,280)
6,720
Add : Perquisite value of furniture (10 per cent of the cost, i.e., Rs. 40,000)
4,000
16,480
Less : Rent paid by employee
4,480
Free gas, electricity, etc.
Less : Standard deduction under section 16(i)
3,500
Gross total income (Rs. 57,600 + Rs. 4,480 + Rs. 2,400Rs. 3,500)
60,980
Less : Deduction under section 80C :
- PF paid Rs. 11,000 but restricted to one-fifth of salary of Rs. 48,000 (excluding bonus) or Rs. 10,000 whichever is Less
- LIP contribution
19,600
The total of PF and LIP of Rs. 19,600 is to be further restricted to 30 per cent of the gross total income (i.e., 30 per cent of Rs. 60,980) or Rs. 30,000, whichever is less, i.e., to Rs. 18,294
Deduction admissible on Rs. 18,294
5,000
- next Rs. 5,000 (50 per cent)
2,500
- of the balance of Rs. 8,294 (40 per cent)
3,318
10,818
Taxable income (Rs. 60,480Rs. 10,418)
50,162
50,160
Tax payable thereon
(Rs. 12,700 + 50 per cent of excess over Rs. 50,000)
12,780
Surcharge at 10 per cent of income-tax payable
1,278
14,058
Notes :
1. In the case of a Government servant the value of perquisite of unfurnished accommodation provided free is determined in accordance with the rules framed by the Government for allotment of residence to its employees. For determining the perquisite value of free furniture, it is taken as in other cases, at 10 per cent per annum of the original cost of the furniture, or if it is hired from a third party, the actual hire charges payable.
2. Where the unfurnished accommodation is provided to its employees by the Reserve Bank of India or any other public sector body specified in sub-clause (ii) of clause (a) of rule 3 of the Income-tax Rules, say a nationalised bank, State Trading Corporation, it is taken as 10 per cent of the salary due to the employees and where the accommodation is furnished, as in other cases, an additional 10 per cent of the original cost of furniture, or if it is hired from a third party, the actual hire charges payable therefor.
3. In the example given above the actual rent has been assumed to be equal to the fair rental value. Fair rental value can, however, be different from the actual rent. It is defined in Explanation 2 below clause (a) of rule 3 to mean, in the case of an accommodation which is unfurnished. The rent which a similar accommodation would realise in the same locality, or the municipal valuation in respect of the accommodation, whichever is higher
4. In case the accommodation is situated in Bombay, Calcutta, Delhi and Madras, the excess of 30 per cent of salary over fair rental value, as against 20 per cent in other cases, is required to be added in determining the value of perquisite in view of the Boards Circular No. 130, dated 16-3-1974.
Example IV
[Illustrating limits of deduction under section 80C as well as lower standard deduction in case of conveyance allowance]
Total salary income (including Rs. 2,400 as conveyance allowance at Rs. 200 p.m. received from the employer)
30,000
Contribution to RPF
9,500
Contribution for participation in Unit-linked Insurance Plan, 1971 made under section 19(1)(cc) of the Unit Trust of India Act
Deposit in 10-year account or 15-year account under the Post Office Saving Bank (CTD) Rules
13,000
Total salary income [It is presumed that conveyance allowance is not exempt under section 10(14)]
Deduct : Amount of standard deduction under section 16(i) restricted to Rs. 1,000 in view of clause (i) of the proviso to section 16(i)
29,000
Deduction under section 80C :
-
Contribution of Rs. 9,500 to PF under section 80C(2)(d) restricted to one-fifth of salary of Rs. 30,000 or Rs. 10,000, whichever is less
6,000
LIP
Contribution to participation in Unit-linked Insurance plan made under section 19(1)(cc) of the Unit Trust of India Act
Deposit in a 10-year account or 15-year account under the Post Office Savings Bank (CTD) Rules
Restricted to 30 per cent of the gross total income or Rs. 30,000, whichever is less (i.e., 30 per cent of Rs. 29,000)
8,700
Deduction admissible on Rs. 8,700 :
- on the first Rs. 5,000 (100 per cent)
- on the next Rs. 3,700 at 50 per cent
1,850
6,850
Taxable income (89)
22,150
Income-tax payable on Rs. 22,150
2,487.50
Surcharge on income-tax at 10 per cent
248.75
Total tax payable (11+12)
2,736.25
2,736.00
1. I am directed to invite a reference to this Ministrys (Department of Revenue) Circular No. 252 [F. No. 275/16/79/-IT(B], dated 26-4-1979/10-5-1979 on the subject of deduction of income-tax from salaries paid during the year 1979-80.
2. The Finance Act, 1980 prescribes the same rates for deduction of tax from salaries during the financial year 1980-81 as were in force during the financial year 1979-80. Hence, tax at source from salaries may continue to be deducted at the same rates as are given in Part III of the First Schedule to the Finance Act,1979.
Circular : No. 267 [F.No. 275/13/80-IT(B)], dated 24-4-1980.
FINANCIAL YEAR 1980-81
1724. Instructions for deduction of tax at source during financial year 1980-81 from interest on securities at the rate specified in Part III of First Schedule to Finance (No. 2) Bill, 1980
CLARIFICATION 1
1. I am directed to invite a reference to this Departments Circular No. 267 [F.No. 275/13/80-IT(B)], dated 24-4-1980 [Clarification 2], wherein you were requested to issue instructions for deduction of income-tax at source from interest on Government securities at the same rates as were given in Part III of the First Schedule to the Finance Act, 1979.
2. In view of the Finance (No. 2) Bill, 1980 introduced in the Parliament on June 18, 1980, a draft circular on the basis of the proposed provisions contained therein is attached herewith which may please be issued immediately to all the Treasury Officers and Sub-Treasury Officers under your control individually.
Circular : No. 275 [F.No. 275/13/80-IT(B)], dated 16-7-1980.
DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS
1. I am to invite your attention to this Office Letter No...........regarding deduction of income-tax and surcharge from interest on Government securities during the financial year 1979-80.
2. According to the Finance (No. 2) Bill, 1980 except in the case of interest on securities payable to Life Insurance Corporation of India which is exempt from deduction of income-tax with effect from June 1, 1976, income-tax is to be deducted from the entire amount of interest on securities at the following rates, namely :
Income-tax
Surcharge
I.
In the case of a person other than a company :
(i)
where the person is resident in India on income by way of interest payable on any security (excluding interest payable on a tax-free security)
10 per cent
(ii)
where the person is not resident in India
(a)
on interest on securities(excluding interest payable a on tax-free security)
income-tax at 30 per cent and surcharge at 3 per cent of the amount of the interest,
or
income-tax and surcharge on income-tax in respect of the interest at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1981, if such interest income had been the total income, whichever is higher
(b)
on interest payable on a tax-free security
15 per cent
1.5 per cent
II.
In the case of a company
where the company is a domestic company on interest on securities (excluding interest payable on a tax-free security)
21.5 per cent
where the company is not a domestic company
44 per cent
3.3 per cent
on interest on other securities
70 per cent
5.25 per cent
3. The term domestic company means an Indian company or any other company which, in respect of its income liable to income-tax under the Act, for the assessment year commencing on April 1, 1980 has made the prescribed arrangements for the declaration and payment within India of the dividends (including dividends on preference shares) payable out of such income in accordance with the provisions of section 194.
4. In making payment or crediting interest on Government securities after June 18, 1980, you are requested to deduct income-tax at the rates specified above, except to cases where an exemption or abatement certificate granted by an Income-tax Officer under sub-section (1) of section 197 is produced. Where deduction of tax has already been made at the rates specified by the Finance (No. 2) Act, 1980, no adjustment need be made. The following instructions should be followed in this connection :
(1) Exemption or abatement certificates issued before April 1, 1980 authorising deduction of tax at a particular rate expressed as percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on March 31, 1981.
(2) Where a certificate is issued by the Income-tax Officer on or after April 1, 1980 authorising deduction of tax at a specified rate in respect of any person, income-tax should be deducted at the rates specified therein.
(3) No tax should be deducted in cases in which, from a certificate issued by the Income-tax Officer or otherwise, you are satisfied that the payee is a person exempt from income-tax under sections 10 to 15 of the Act.
(4) No tax should be deducted from any interest payable on 7 per cent Gold Bonds, 1980 where any such Bonds are held by a resident individual and in the case of the aforesaid Gold Bonds where the holder thereof makes a declaration in writing before the person responsible for making the payment that the total nominal value of 7 per cent Gold Bonds, 1980 held by him (including such Bonds, if any, held on his behalf by any other person) did not in either case exceed Rs. 10,000 at any time during the period to which the interest relates.
(5) No tax should be deducted from interest payable on National Savings Certificates (First Issue) including National Savings Certificates (First Issue) Bank Series or 7-year National Savings Certificates (IV Issue).
(6) No tax should be deducted from any interest payable on National Development Bonds.
(7) No tax should be deducted from any interest payable on any other security of the Central or State Government where the security is held by a resident individual, and the holder makes a declaration in writing before the person responsible for making the payment to the effect that
(a) he has not previously been assessed under the 1961 Act or under the 1922 Act ;
(b) his total income of previous year in which the interest is due is not likely to exceed the minimum amount not chargeable to income-tax; and
(c) the total nominal value of the securities held by him (including such securities, if any, are held on his behalf by any other person) did not exceed Rs. 2,500 at any time during the said previous year.
(8) No tax should be deducted from any sum payable in respect of any securities owned by a corporation established by or under a Central Act which under any law for the time being in force is exempt from income-tax on its income.
(9) Under section 288B fractions of one rupee contained in the amount of tax will have to be rounded off to the nearest rupee by ignoring amounts less than fifty paise and increasing amounts of fifty paise or more to one rupee. Hence, the amount of tax to be deducted at source should be rounded off to the nearest rupee in accordance with the aforesaid provisions of the Act.
(10) In the case of doubt, the Income-tax Officer should be consulted before making the deduction from interest on Government securities. It may be added that the above enunciated list of securities on which no tax shall be deducted is not exhaustive but is only illustrative.
CLARIFICATION 2
1. I am directed to invite a reference to this Ministrys (Department of Revenue) Circular No. 255 [F.No. 275/29/79-IT(B)], dated 23-5-1979 on the subject of deduction of income-tax from Interest on Government securities payable during the year 1979-80.
2. The Finance Act, 1980 prescribes the same rate of deduction of tax from interest on Government securities during the financial year 1980-81, as were in force during the financial year 1979-80. Necessary instructions for continuing deduction of tax at source from interest on Government securities at the same rates as are given in Part III of the First Schedule to the Finance Act, 1979 may, therefore, be issued individually to all the Treasury Officers and Sub-Treasury Officers under your control.
FINANCE ACT, 1980 - CIRCULAR NO. 268, DATED 28-4-1980
Circular : No. 269 [F. No. 279/71/80-ITJ], dated 29-4-1980.
1250. Queries regarding jurisdictional problems in regard to interpretation of sub-section (2) and scope of Boards notification under clause (i) of sub-section (2) answered
Certain jurisdictional problems in regard to the interpretation of the provisions of section 246(2) and of the corresponding sections of other Direct Tax Acts, and also in regard to the scope of the Boards Notifications issued under section 246(2)(i) have been referred to the Board for clarification. They are posed in the form of questions and answered hereunder :
Question 1 - (1) Who is to rectify any mistake in an order passed by the AAC before the appointed day, i.e., July 10,1978 in a case of a non-company assessee where the total income/loss exceeded Rs. 1 lakh, or in an order passed by the AAC before June 1, 1979 in the case of a company ?
(2) Who is to comply with the requirements of the Appellate Tribunal for a remand report or to pass a fresh order in pursuance of any remand order restoring the appeal to the file of the AAC for redisposal on a particular point or entirely, if the order of the AAC was passed before July 10, 1978 in the case of a non-company assessee with assessed income or loss exceeding Rs. 1 lakh or before June 1, 1979 in the case of a company ?
Answer - A provision for the removal of doubts has been made in this behalf in sub-section (2) of section 39 of the Finance (No.2) Act, 1977 by which the posts of Commissioners (Appeals) were created. Vide para 27.5 of the Explanatory Notes on the provisions relating to Direct Taxes in the Finance (No.2) Acts, 1977 [Circular No. 229, dated 9-8-1977], the Board have clarified that any action required to be taken after the appointed day in relation to any appeal disposed of by an AAC before that day will be taken as if the amendments directed to be made by the Finance Act had not been made. In other words, action in relation to such appeals will be taken by the AAC concerned and not by the Commissioner (Appeals). Thus the AAC may rectify any mistake in an order passed by him before the appointed day or take such action or pass such further orders as may be required in any appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal.
The words any action required to be taken connote that the requirement for any action to rectify a mistake in an order passed by the AAC before the appointed day would arise after the said date. Those words in section 39(2) of the Finance Act, 1977 would cover cases where the rectification application had been filed after the appointed day or the AAC had issued the show-cause notice on his own after that date.
As for rectification application filed or show-cause notice for rectification issued before the appointed day, the normal rule in section 154 that the authority may amend any order passed by him would apply and the same AAC or any other AAC presently having jurisdiction in respect of the concerned case of the assessee may amend the previous order.
Likewise section 39(2) of the said Finance Act would cover the cases where the Tribunals order setting aside the AAC s order wholly or partly was passed after the appointed day, i.e., July 10,1978. Where the order of the Tribunal setting aside the AACs order for redisposal on a particular point or entirely was passed before the appointed day, it would be covered under section 246(3), being an appeal pending immediately before the appointed day and would stand transferred on that day to the Commissioner (Appeals).
However, the remand order of the Tribunal requiring a remand report to be submitted after enquiry on some points, whether passed before or after July 10, 1978, would be complied with by the AAC whose order was the subject-matter of appeal before the Tribunal.
The above clarification would equally apply to orders passed by AACs before June 1, 1979 in the case of a company. Thus, the AAC may rectify any mistake in an order passed by him before June 1, 1979. He may pass such further orders as may be required in pursuance of any order of the Tribunal passed after June 1, 1979, setting aside his previous order partly or wholly with some directions. However, an appeal restored to the file of the AAC before June 1, 1979, would be treated as a pending appeal under section 246(4) and would stand transferred to the Commissioner (Appeals).
Question 2 - (1) What exactly is the connotation of the expression amount of income so assessed in clause (e) of section 246(2) (before its deletion with effect from June 1, 1979) and in the Boards Notification, dated July 7, 1978 ? Does it mean total income determined after set off of brought forward losses, unabsorbed depreciation, development rebate, etc.?
(2) Who is to deal with an appeal in the case of a non-company assessee where the business loss of the concerned year is less than Rs. 1 lakh but the amounts of brought forward loss, unabsorbed depreciation, unabsorbed development rebate or deficiency under section 80J(3) of that year, if aggregated with the business, loss, exceed Rs. 1 lakh?
Answer - (1) Under sections 143(3) and 144, the Income-tax Officer makes the assessment of the total income or loss. Clause (e) of section 246(2) and item (ii) of the Notification refer to cases where the assessee objects to the amount of income assessed or to the amount of loss computed in such order of assessment. They, therefore, refer to the total income which is determined after set off of brought forward loss, unabsorbed depreciation, etc.
(2) The sole purpose of carry forward of loss or of unabsorbed depreciation, etc., is to set off the loss/allowance against the profits of a subsequent year. According to the Supreme Court in CIT v. Harparsad & Co. (P.) Ltd. [1975] 99 ITR 118, the concept of carried forward loss presupposes the permissibility and possibility of the carried forward loss being set off against the profits and gains, if any, of the subsequent year. Therefore, whatever loss or unabsorbed allowance is to be carried forward, will not form part of the loss of the year under appeal and cannot be aggregated. In a case of such type the appeal will lie to the AAC.
Question 3 - (1) Where in the case of a non-company assessee with assessed total income/loss exceeding Rs. 1 lakh or in the case of a domestic company with assessed total income/loss exceeding Rs. 5 lakhs an appeal against the assessment was disposed of by an AAC before July 10, 1978, who is to deal with the appeal against ancillary order for the same assessment year?
(2) In the case of the type mentioned above, if no appeal had been filed against the assessment, will the appeals against the ancillary orders e.g., rectification, penalty, etc. lie to the Commissioner (Appeals)?
Answer - Under the powers vested in the Board under section 264(2)(i), the Board, having regard to the nature of the cases, the complexities involved and other relevant considerations, notified the cases of foreign companies, domestic companies whose assessed total income or loss exceeding Rs. 5 lakhs and the cases of assessee (other than a company) with assessed total income or loss exceeding Rs. 1 lakh as such person or classes of persons who would file appeal to the Commissioner (Appeals) against an order of the ITO specified in items (i), (ii) and (iii) of the Notification No. 2381, dated 7-7-1978. There is no further stipulation that an appeal against an ancillary order like penalty, rectification, etc., mentioned in clauses (d) to (o) of sub-section (1) of section 246 would lie to the Commissioner (Appeals) only if the assessment for that very assessment year had been challenged in appeal before the Commissioner (Appeals). In other words, an appeal against any ancillary order mentioned in item (i) (before its deletion by the Notification No. 2845, dated 4-6-1979) and in item (iii) [now item (ii) of the Notification, dated 4-6-1979] passed by the ITO for the same year for which the assessed total income/loss exceeds Rs. 5 lakhs or Rs. 1 lakh, as the case may be, will lie to the Commissioner (Appeals) irrespective of whether the assessment was appealed against or not or the appeal was disposed of by the AAC before July 10, 1978.
Question 4 - Whether originally assessed income or income as revised by the order of rectification would determine the jurisdiction of the first appellate authority?
Answer - Since clause (e) of sub-section (2) of section 246 and item (ii) of the Notification refer to the amount of income assessed or amount of loss computed in any order of assessment under sections 143(3) and 144, any subsequent revision of such amount will not be relevant. section 246 treats an order under section 154 separately for the purposes of appeal.
Question 5 - Who is to deal with an appeal against pre-assessment penalty orders, like an order under section 221 for default in payment of advance tax or an order under section 140A(3) in the case of a non-company assessee who is ultimately assessed on a total income/loss exceeding Rs. 1 lakh?
Answer - The use of the non obstante clause notwithstanding anything contained in sub-section (1) in sub-section (2) of section 246 would show that the appealable orders which would fall within the jurisdiction of the Commissioner (Appeals) have been excluded for that purpose from sub-section (1) thereof. If any order in not appealable within the provisions of sub-section (2) it would still remain appealable under sub-section (1) with the result that appeals against such pre-assessment orders would lie to the AAC.
2. The above would apply mutatis mutandis to other direct taxes, to the extent applicable.
3. The above clarifications may be circulated to all the officers including AACs in your charge.
Judicial analysis
Explained in - The above circular was explained in IAC v. Paliwal Glass Works [1987] 20 ITD 50 (Delhi) (TM), as follows :
. . . it would be seen from this circular that the authority to comply with the requirements of the Tribunal for a remand report or to pass a fresh order pursuant to any remand order passed by the Tribunal restoring the appeal to the file of the AAC for disposal on a particular point or entirely, was with the AAC in case the order was passed by the AAC before the appointed day. He has to take the action as if the amendments directed to be made by the Finance Act had not been made. Then the Board pointed out that the AAC may rectify any mistake in an order passed by him before the appointed day or take such action or pass such further orders as may be required in an appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal. The Board also clarified that the words any action required to be taken connote that the requirement for any action to rectify a mistake in an order passed by the AAC before the appointed day would arise after the said date.
7. It is no doubt true that the Board has clarified later in the same circular that section 39(2) (of the Finance Act) would cover the cases where the Tribunals order setting aside the order of the AAC wholly or partly was passed after the appointed day. It is relying upon these words, that the departmental representative contended that the fresh order to be passed pursuant to the direction given by the Tribunal setting aside the order of the AAC, must be by the AAC and not by the Commissioner (Appeals). The learned Judicial Member accepted this view.
8. I may mention here that reading this circular particularly these lines, on which reliance was placed by the departmental representative, it gave me the impression that the Board is placing an interpretation on section 39(2) (of the said Finance Act) in such a way as to equate the cases where the Tribunal passed a remand order with orders setting aside the AACs order either wholly or partly after the appointed day, namely, 10-7-1978. To say that the words further action to be taken used in sub-section (2) of section 39 would cover cases where the Tribunal set aside the order of the AAC to pass a fresh order, in my opinion, is to state the proposition too broadly. When the Tribunal sets aside an order passed by the AAC, the appeal gets restored to the file of the AAC for disposal de novo and the AAC has to again follow the entire procedure that he is required to follow earlier while disposing of the original appeal. There is no difference in the procedure to be followed. That fresh disposal would create the same rights and liabilities on the parties as the earlier order. Against this order the aggrieved party can file a further appeal to the Tribunal.
9. Such being the case, it is in my opinion, difficult to accept the position that those words would cover cases where the Tribunal sets aside the orders of the AAC for fresh disposal of the appeal. It may be that the Board in the interests of smooth administration and in order to avoid dislocation of work, might have prescribed this procedure. Administrative convenience is of paramount importance as it is different from legal interpretation. In this context much depends upon the interpretation to be placed on the direction given by the Tribunal. That direction has to be read in juxtaposition with the direction given in the circular of the Board.
10. Now again adverting to the circular, one would get the impression by going through the circular that the Board was prescribing the authority to deal with the situations arising out of orders passed by the Tribunal pursuant to remand order. A remand report or a remand order contemplated in the Boards circular have different connotation in law from an order setting aside an appeal. In the case of remand order, unless the matter is restored to the file of the AAC for redisposal, the Tribunal continues to be in seisin of the matter. But when the matter is set aside by the Tribunal, the Tribunal not only disposes of the appeal finally, but it has the effect of effacing the order of the AAC, as if it never existed and that order would have no legal consequences till a fresh order is passed, which is not the case in the case of a remand. To my mind, the Board was explaining the situation arising out of the remand orders though the expressions remand order and set aside were both used in the circular. Further, the expression set aside used in the paragraph relied on, must be understood in the context of what was posed in the question. The question related as to how the requirements of the Tribunal in the case of a remand report or to pass a fresh order in pursuance to a remand order have to be dealt with. It was in answer to this question that the Board said that the AAC would deal with it. Since a situation arising out of setting aside of an order was not raised in the question, a separate paragraph was added to explain that situation also treating both of them on par. It makes no difference as to who passed the subsequent order, so long as the procedure provided by the law is followed. Understood in this light, the words any action required to be taken used in section 39(2) could not include orders of set aside because in those cases, what is to be done is not to give effect to the direction of the Tribunal but giving a fresh hearing, reconsidering the matter, appreciate fresh evidence and then come to fresh conclusions. It is not like rectification of mistakes or complying with direction of ministerial nature. Thus, the words used in section 39(2) cannot cover a case of an appeal which was set aside by the Tribunal in toto. (pp. 64-66)
Circular : No. 270 [F. No. 275/17/80-IT(B)], dated 26-5-1980.
Top of Form
1749. Instructions for deduction of tax at source from winnings from lottery or crossword puzzle during financial year 1980-81 at the rates specified in Part II of First Schedule to Finance Act, 1980
1. I am directed to invite a reference to this Departments Circular No. 257 [F. No. 275/36/79-IT(B)], dated 4-6-1979, on the subject of deduction of income-tax from winnings from lottery or crossword puzzle payable during the year 1979-80.
2. The Finance Act, 1980 prescribes the same rates of tax from winnings from lottery or crossword puzzle during financial year 1980-81 as were in force during the financial year 1979-80. Necessary instructions for continuing deduction of tax at source from winnings from lottery or crossword puzzle at the same rates as are given in Part II of the First Schedule to the Finance Act, 1979 may please be issued to all concerned under the control of the State Government.
Circular : No. 271 [F. No. 275/18/80-IT(B)], dated 26-5-1980.
Financial Year 1980-81
1780. Instructions for deduction of tax at source from insurance commission during financial year 1980-81 at the rates specified in Part II of First Schedule to the Finance (No. 2) Bill, 1980
1. I am directed to invite a reference to this Departments Circular No. 271[F.No. 275/18/10-IT(B)], dated 26-5-1980 [Clarification 2], wherein it was intimated that the deduction of income-tax at the same rates as were applicable during the financial year 1979-80 may continue to be made during the financial year 1980-81 from payments of income by way of insurance commission under section 194D. The Finance (No. 2) Bill, 1980 introduced in the Parliament on June, 1980 proposes, in Part II of the First Schedule the following rates for deduction of tax at source under section 194D during the financial year 1980-81 :
In the case of a person other than a company
Nil,
In the case of a domestic company
1.5 per cent.
2. Though the provisions of section 194D apply only in relation to income by way of insurance commission paid to a resident, under the provisions of section 195 of the Act, income-tax is required to be deducted from payments (including payments of income by way of insurance commission) made to a non-corporate, non-resident taxpayer as also a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment within India of dividends in the manner prescribed under rule 27 of the Income-tax Rules. In the case of a person other than a company, who is not resident in India, the rate of deduction of tax at source as specified in item 1(b)(i) of Part II of the First Schedule to the Finance (No. 2) Bill, 1980 is 33 per cent (Income-tax at 30 per cent plus surcharge at 3 per cent) of the income by way of insurance commission or income-tax and surcharge thereon at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the said Schedule if such income had been the total income of such person, whichever is higher. In the case of a company which is not a domestic company, tax is to be deducted at the rate of 75.25 per cent (income-tax 70 per cent plus surcharge 5.25 per cent).
3. It is requested that the deduction of tax at source from payments of income by way of insurance commission may be made during the financial year 1980-81 on payments made after June 18, 1980 according to the above rates. If any deduction has already been made according to the rates prescribed in the Finance (No. 2) Act, 1980, no adjustment therefor need be made.
4. The substance of the main provisions in the law insofar as they relate to deduction of income-tax from insurance commission is given hereunder :
(1) For the purposes of deduction of tax at source, insurance commission will mean an income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to continuance, renewal or reviving of policies of insurance).
(2) Deduction will be made at the time of the credit of the income to the account of, or the payment thereof (by whatever mode) to the payee, whichever is earlier.
(3) The tax deducted should be paid to the credit of the Central Government by remitting it into the Government Treasury or the office of the Reserve Bank of India or the State Bank of India or any other authorised public sector bank within one week from the last day of the month in which the deduction is made. In cases where the income by way of insurance commission is credited to the account of the payee as on the date up to which the accounts of the business of the payer are made, the tax deducted therefrom may be paid to the credit of the Central Government within two months of the expiration of the month in which the date, up to which the accounts are made, falls.
(4) Blank challans for making payment of the tax deducted at source can be obtained from the Income-tax Officer. For the convenience of taxpayers new colour band challan forms are being progressively introduced. Each such challan form is also numbered on the top left hand corner. The payment should be made on the appropriate challan, accordingly, as indicated below :
New Challan No.
Old Challan No.
Deduction of tax from payment
of insurance commission made to companies
2 (In red colour band)
ITNS 39A
Deduction of tax from payment of insurance commission
made to non-companies, i.e., individuals, etc.
8 (In blue colour band)
ITNS 39
It is very necessary for correct accounting of tax payments in the Income-tax Department that the appropriate challan form is used for making the payment. Where the payment of tax includes any surcharge it should be shown separately in the challan, in the space provided for that purpose.
(5) The amount of tax to be deducted at source should be rounded off to the nearest rupee ignoring amounts less than 50 paise and increasing the amounts of 50 paise or more to one rupee, as required under section 288B.
(6) At the time of deducting tax from the insurance commission credited to an agents account, adjustment for any debits made in his account in respect of excess commission credited or paid to him earlier is not permissible and income-tax must be deducted from the full amount of commission credited to his account.
(7) It will be open to the recipient of the commission, other than a company, to make an application in Form No. 13D to the Income-tax Officer concerned and obtain from him a certificate authorising the person responsible for paying the income by way of insurance commission to deduct tax at such rates, or deduct no tax, as may be appropriate to his case. Such a certificate will be valid for the period specified therein unless it is cancelled by the Income-tax Officer earlier.
(8) The person responsible for making the payments should issue a certificate to the payee in Form No. 19D showing therein the amount of income by way of insurance commission credited or paid, the amount of tax deducted at source, and the date of payment to the Government account.
(9) The person making deduction of tax in accordance with the section 194D from income by way of insurance commission should send to the Income-tax Officer having jurisdiction to assess him
(a) A certificate in Form No. 26D quarterly on July 15, October 15, January 15 and April 15, in respect of deduction of tax made by him during the preceding quarter;
(b) a statement in Form No. 26E on or before June 30 each year containing details of amounts of insurance commission from which tax has been deducted by him during the immediately preceding financial year; and
(c) a statement in Form No. 26F on or before June 30 each year containing details of amount of insurance commission paid or credited during the immediately preceding financial year without deduction of tax.
Circular : No. 277 [F. No. 275/18/80-IT(B)], dated 21-7-1980.
1. I am directed to invite a reference to this Departments Circular No. 254 [F. No. 275/28/79-IT(B)], dated 23-5-1979 on the subject of deduction of income-tax from insurance commission, etc., during the financial year 1979-80.
2. The Finance Act, 1980 prescribes the same rates for deduction of tax from insurance commission, etc., during the financial year 1980-81 as were in force during the financial year 1979-80. Hence, tax at source from insurance commission, etc., may continue to be deducted at the same rates as are given in Part II of the First Schedule to the Finance Act, 1979.
Circular: No. 272 [F. No. 275/16/80-IT(B)], dated 27-5-1980.
950. Employers authorised to give deduction of allowance under section 80U from salary income while deducting tax at source on production of certificate issued by Income-tax Officer
1. Section 80U authorises deduction of Rs. 5,000 from the income of a resident individual who, at the end of the previous year, is either totally blind or 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.
2. The deduction of Rs. 5,000 is to be allowed to such a resident individual by the Income-tax Officer on production, in respect of the first assessment year for which deduction is claimed (a) in the case of a totally blind person, a certificate from a registered medical practitioner being an oculist; and (b) in the case of a permanent disabled person, a certificate from a registered medical practitioner as to the permanent physical disability referred to in clause (ii) of section 80U.
3. In order to avoid any inconvenience to such handicapped persons, the Board have been considering the question of authorising the employers to take into account this deduction while working out the tax to be deducted at source in case they derive income assessable under the head Salaries.
4. It has been decided that an employer would give a deduction of Rs. 5,000 from the income assessable under the head Salaries while deducting the tax at source thereon in any financial year on the production of a certificate. Such certificate will be issued by the Income-tax Officer in the name of the employer on a request made by the resident individual entitled to this deduction in the course of his assessment for the first assessment year or later. The certificate will be issued on completing the first years assessment if such an individual is held entitled to the deduction of Rs. 5,000 under section 80U.
5. A certificate once issued will continue to be in force till it is withdrawn by the Income-tax Officer or till the resident individual leaves the employment of the employer in whose favour the certificate is issued.
Circular : No. 273 [F. No. 180/57/80-IT(A-I)], dated 3-6-1980.
163. Delay in filing application in Form No. 10 - Boards order under section 119(2)(b) authorising Commissioner to admit belated applications
1. Charitable and religious trusts are entitled to exemption from income-tax under section 11 after they fulfil the requirements enumerated in sections 11 to 13. These trusts are allowed to accumulate or set apart income derived by them from property held under trust provided they fulfil the conditions spelt out in section 11(2) read with rule 11 of the Income-tax Rules and Form No. 10.
2. Very often trusts are not able to file the application in Form No. 10 within the time allowed under section 139(1)/139(2) as extended by the Income-tax Officer. The Board is then approached by these trusts for condoning the delay for filing applications. The Board by virtue of the powers vested in it under section 119(2)(b) has been condoning the delay in individual cases after satisfying itself that certain conditions are satisfied.
3. With a view to expediting the disposal of applications filed by trusts for condoning the delay, the Board has passed a general order under section 119(2)(b) by which the Commissioners have been authorised to admit belated applications under section 11(2) read with rule 17. A copy of this order is enclosed. All applications for condoning the delay under section 11(2) will, henceforth, be disposed of by the Commissioner in terms of the enclosed Order No. 120/57/80-IT(A-I), dated 3-6-1980 [Annex].
ANNEX - ORDER DATED 3-6-1980 REFERRED TO IN CLARIFICATION
In exercise of the powers conferred under section 119(2)(b) of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby authorise the Commissioners to admit applications under section 11(2) read with rule 17 of the Income-tax Rules, 1962 from persons deriving income from property held under trust wholly for charitable or religious purposes for accumulation of such income to be applied for such purposes in India when the aforementioned applications are filed beyond the time stipulated. The Commissioners will, while entertaining such applications, satisfy themselves that the following conditions are fulfilled:
(a) that the genuineness of the trust is not in doubt;
(b) that the failure to give notice to the Income-tax Officer under section 11(2) of the Act and investment of the money in the prescribed securities was due only to oversight;
(c) that the trustees or the settlor have not been benefited by such failure directly or indirectly;
(d) that the trust agrees to deposit its funds in the prescribed securities prior to the issue of the Government sanction extending the time under section 11(2); and
(e) that the accumulation or setting apart of income was necessary for carrying out the objects of the trust.
Applied in - The above circular was applied in CIT v. Anjuman Moinia Fakharia [1994] 208 ITR 568 (Raj.), with the following observations :
From the circular issued by the Department dated June 3, 1980, and the judgment of the apex court referred to above, it can be considered that the requirement to prescribe (sic) the time-limit is only directory and not mandatory. Non-compliance within the stipulated time should not disentitle an assessee from the exemption to which he is otherwise entitled. . . . (p. 572).
Circular : No. 274 [F. No. 220/22/80-IT(A-II)], dated 28-6-1980.
796. Requirement of filing of Form ITNS 224 not compulsory along with income-tax return
References have been received from a number of associations that the Income-tax Officers are not accepting the returns without Form ITNS 224. This form was attached along with the return for 1980-81 to be filled by the assessees to enable the Income-tax Officer to quickly segregate the return into summary assessment or scrutiny assessment and to attend to pending miscellaneous matters. However, filing of this form is not compulsory. You are, therefore, requested to inform all the officers in your charge that if this form is not filled in, the return cannot be said to be incomplete. Such returns, may, therefore, continue to be received at the counters.
Circular : No. 276 [F. No. 275/17/80-IT(B)], dated 19-7-1980.
1748. Instructions for deduction of tax at source from winnings from lottery or crossword puzzle during financial year 1980-81 at the rates specified in Part II of the First Schedule to Finance (No. 2) Bill, 1980
1. I am directed to invite a reference to this Departments Circular No. 270 [F. No. 275/17/80-IT(B)], dated 26-5-1980, wherein you were requested to issue necessary instructions for continuing to make deduction of income-tax at source from winnings from lottery or crossword puzzle at the same rates as were given in Part II of the First Schedule to the Finance Act, 1979.
2. You are aware that under section 194B, every person responsible for paying to any person, whether resident or non-resident, any income by way of winnings from any lottery or crossword puzzle in an amount exceeding Rs. 1,000 is required to deduct income-tax thereon at the rates specified in this behalf in the Finance Act of the relevant year. The rates of deduction of income-tax at source for the financial year 1980-81, as proposed in Part II of the First Schedule to the Finance (No. 2) Bill, 1980, are as follows :
I. In the case of a person other than a company :
(a) where the person is resident in India
33 per cent (IT 30 per cent + SC 3 per cent);
(b) where the person is not resident in India
income-tax and surcharge on income-tax in respect of the income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance (No. 2) Bill,1980, if the winnings from lottery or crossword puzzle had been the total income,
whichever is higher.
II. In the case of a company :
(a) where the company is a domestic company
23 per cent (IT 21.5 per cent + SC 1.5 per cent);
(b) where the company is not a domestic company
72.25 per cent (IT 70 per cent + SC 2.25 per cent).
2. It is requested that deduction of tax from winnings from lotteries and crossword puzzles may be made during the financial year 1980-81, on payments made on or after June 18, 1980, according to the above rates. No adjustments may be made for the rates of tax deduction in respect of payments already made. In case any changes are made by Parliament in the rates proposed in the Finance (No. 2) Bill, 1980, suitable instructions will be sent to you.
3. The substance of the main provisions in the law insofar as they relate to deduction of income-tax at source from winnings from lotteries and crossword puzzles is given hereunder :
(1) No tax will be deducted at source where the income by way of winnings from lottery or crossword puzzle is Rs. 1,000 or less.
(2) Where the prize is given partly in cash and partly in kind, income-tax will be deductible from each prize with reference to the aggregate amount of the cash prize and the value of the prize in kind. Where, however, the prize is given only in kind no income-tax will be required to be deducted.
(3) Income-tax will be deductible at the aforesaid rates during the financial year 1980-81, from prizes given after June 18, 1980, even if the relevant draw in respect of lottery or, as the case may be, the competition in respect of a crossword puzzle may have been held on or before that date.
(4) Where the lottery or crossword puzzle is paid in instalments, the deduction will be made at the time of actual payment of each instalment.
(5) Income-tax will be deductible from the amount of the prize money paid to the owner of the lucky ticket with reference to the amount paid to him. Income-tax is not deductible from the income by way of bonus or commission paid to lottery agents or sellers of lottery tickets on the sale made by them.
(6) In view of section 288B, the amount of tax to be deducted at source should be rounded off to the nearest rupee by ignoring amounts less than fifty paise and increasing amounts of fifty paise or more to one rupee.
(7) Tax deducted on behalf of the Government is required to be paid to the credit of the Central Government on the same day. In other cases, the tax deducted should be paid to the credit of the Central Government within one week from the date of deduction. The challans for paying in income-tax in the Government account may be obtained from the Income-tax Officer concerned. The income-tax and surcharge should be shown separately in the challans and/or while sending Account head details to the Accountants General/Zonal Accounts Officers.
(8) The relevant forms in relation to the provisions for deduction of income-tax at source from winnings from lotteries and crossword puzzle prizes are prescribed by the Income-tax Rules, 1962. In this connection, the following instructions may please be noted :
(a) In the case of any person, other than a company, it is open to the recipient of the prize to make an application in Form No. 13B to the Income-tax Officer concerned and obtain from him a certificate authorising the payer to deduct tax at such lower rates or deduct no tax as may be appropriate to his case. Such a certificate will be valid for the period specified therein unless it is cancelled by the Income-tax Officer earlier.
(b) The persons responsible for making any payment by way of winnings from lotteries or crossword puzzles should issue a certificate in Form No. 19B showing therein the amount of the prize, the amount of tax deducted at source and the date of payment in the Government account.
(c) The person making deduction of tax in accordance with section 194B from income by way of winnings from lotteries or crossword puzzles should sent to the Income-tax Officer having jurisdiction to assess him the statement in Form No. 26B quarterly on July 15, October 15, January 15 and April 15 in respect of deductions made by him during the immediately preceding quarter.
4. These instructions may be brought to the notice of all concerned under the control of the State Government.
5. In cases of doubt the Income-tax Officer concerned may be consulted.
Circular: No. 280 [F. No. 275/19/80-IT(B)], dated 20-9-1980.
1764. Instructions for deduction of tax at source from winnings from horse race during financial year 1980-81 at the rates specified in Part II of First Schedule to Finance (No. 2) Act, 1980
1. Section 194BB enjoins on any person, being a book-maker or a person to whom a licence has been granted by the Government under any law for the time being in force for horse racing in any race course and who is responsible for paying to any person any income by way of winnings from any horse race in an amount exceeding Rs. 2,500, to deduct income-tax thereon, at the rates in force, at the time of payment thereof.
2. The rates are prescribed by the Finance Act of the relevant year. The Finance (No. 2) Act, 1980 has prescribed the rates for deduction of tax at source for the financial year 1980-81 as specified in Part II of the First Schedule to the said Act. They are as in table given below :
I. In the case of a person other than a company
(a) where the person is resident
(b) where the person is not resident
income-tax and surcharge on income-tax in respect of the income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance (No. 2) Act, 1980, if such income had been the total income,
II. In the case of a company
75.25 per cent (IT 70 per cent + SC 5.25 per cent).
3. It is requested that the deduction of tax at source from the payments made after June 18, 1980 of income by way of winnings from any horse race may be made during the financial year 1980-81 according to the above rates. If any deduction has already been made according to the rates prescribed in the Finance Act, 1980, adjustment therefor may not be made.
4. The tax deducted should be paid to the credit of the Central Government by remitting it into the government treasury or the office of the Reserve Bank of India or State Bank of India or any other authorised public sector bank within one week from the last day of the month in which the deduction is made. While making the payment of tax deducted at source to the credit of the Central Government, it may please be ensured that the correct amount of income-tax and surcharge is recorded in the relevant challan. It may also be ensured that the right type of challan is used. New colour band challans are being introduced with separate numbers. The relevant challan for making payment of tax deducted at source from payments by way of winnings from horse races made to the company-assessees is No. 2 with Red Colour Band and in respect of payments made to non-company-assessees is No. 8 with Blue Colour Band. Along with these colour band challans the old challan forms will continue to be used. The old challan forms are No. ITNS 39A for payments to company-assessees and ITNS 39 for payments to non-company-assessees.
5. Attention is also invited to section 276B wherein it is provided that if a person without reasonable cause or excuse fails to deduct, or after deducting fails to pay the tax as required under the provisions of Chapter XVII-B, he shall be punishable
(i) in a case where the amount of tax which he has failed to deduct or pay exceeds Rs. 1,00,000, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; and
6. These instructions are not exhaustive and are issued only with a view to helping those responsible for making deductions of tax under this section. Whenever there is a difference of opinion, a reference should always be made to the provisions of the Act, and the relevant Finance Act through which the changes in the tax structure are made.
7. In case any assistance is required, the Income-tax Officer concerned or the local Public Relations Officer of the Income-tax Department may be approached for the same, who will, if necessary, obtain the orders of higher authorities in the matter.
FINANCE (NO. 2) ACT, 1980 - CIRCULAR NO. 281, DATED 22-9-1980
Circular : No. 282 [F. No. 454/1/80-FTD], dated 22-9-1980.
SECTION 44D l royalty income in case of foreign companies
418. Whether new section 44D applies for the entire previous year relevant to assessment year 1977-78 onwards
1. Section 44D, which was inserted with effect from June 1, 1976 by the Finance Act, 1976, provides that the deductions admissible in computing the income of a foreign company by way of royalty or fees for technical services received in pursuance of agreements made before April 1, 1976 shall not exceed 20 per cent of the gross amount of such royalty or fees for technical services as reduced by any lump sum consideration received for 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. It has been brought to the notice of the Board by the audit that in the case of one assessee the Assessing Officer applied incorrectly the new provisions of section 44D on a pro rata basis with effect from June 1, 1976 for the assessment year 1977-78 instead of applying these for the entire previous year.
2. In para 26.4 of Circular No. 202, dated 5-7-1976 containing the Explanatory Notes to the Finance Act, 1976, it has been clarified that section 44D will apply in relation to the assessment year 1977-78 and subsequent years. The relevance of the date June 1, 1976 is for purposes of section 195 only. In other words, it is merely intended to regularise any deduction made under that section up to May 31, 1976 in accordance with the earlier provision in this regard.
3. It is, therefore, once again emphasised that the restrictions placed by section 44D apply for the entire previous year relevant to the assessment year l977-78 onwards.
4. The above instructions may please be brought to the notice of all the Assessing Officers under your charge so that pending assessments are disposed of correctly and remedial action is taken in respect of assessments already completed.
Circular : No. 283 [F. No. 275/35/80/-IT(B)], dated 25-9-1980.
1689. Exemption limit of taxable income raised from Rs. 10,000 to Rs. 12,000 by Finance (No.2) Act, 1980 Persons paying salary permitted to make adjustments of tax deducted at source against tax deductible from salaries
1. I am directed to invite your attention to the Boards Circular No. 278 [F. No. 275/12/80-IT(B)], dated 26-8-1980 regarding deduction of income-tax from salaries during the financial year 1980-81.
2. You are aware that the exemption limit of taxable income has been raised from Rs. 10,000 to Rs. 12,000 by the Finance (No.2) Act, 1980. In the case of employees whose estimated annual salary income exceeded Rs. 10,000 but did not exceed Rs. 12,000 income-tax was deducted at source before the enactment of the said Act and if they were to apply to the Income-tax Officer concerned for refund of such tax deducted at source after March 31, 1981, it would cause hardship to such persons.
3. With a view to mitigate such hardship, it has been decided that the persons responsible for paying the income in respect of salaries should be permitted, as a special case, to make adjustments of the tax deducted at source, on behalf of this group of employees, against the tax deductible from salaries of employees with estimated annual salary incomes exceeding Rs. 12,000 and payable to the credit of the Central Government during the subsequent months of the current financial year. Such adjustments will be made in the following manner.
4. The persons responsible for paying the salaries should, in the first instance, determine the amount of tax deducted and paid to the credit of the Central Government in the earlier months on account of the employees whose estimated annual salary income is likely to be below Rs. 12,000 (hereinafter referred to as surplus payments). After such determination, he should, for the months of adjustment, reduce the total of the tax deducted during the month and the progressive figures by the amount of surplus payment under columns 8 and 9 of the monthly return in Form No. 21 prescribed under rule 32 of the Income-tax Rules. A list showing names of the employees and the amount of surplus payment against each should also be enclosed with the said monthly return. Simultaneously, action should be taken to revise the returns in Form No. 21 filed for the months earlier up to the month in which the adjustment of surplus payment is made and send them to the Income-tax Officer concerned so as to put matters beyond doubt. Even where any person responsible for paying the salaries has been exempted by the Commissioner under rule 34 of the Income-tax Rules, from the requirement of furnishing monthly return in Form No. 21, he should submit, in respect of the employees whose income from salary is likely to be below Rs. 12,000, the monthly returns separately for each month only up to and along with the return in respect of such employees for the month in which the adjustment of tax deducted at source is made.
5. A certificate should also be furnished with the monthly return for the month in which adjustment of surplus payment is made, to the effect that the concerned employees have been reimbursed the amount of tax deducted earlier.
6. While giving certificates of tax deduction at source under section 203 of the Income-tax Act in individual cases, the person responsible for payment should take due care to indicate therein the amount of tax deducted in excess as a result of the raising of the exemption limit and subsequently refunded to the employees concerned.
7. These instructions would apply only to non-Government employees and that also for the financial year 1980-81.
CIRCULAR NO. 284, DATED 13-10-1980
1447. Whether gifts in kind are eligible for exemption under clause (v) of sub-section (1)
1. Attention is invited to Circular No. 284, dated 13-10-1980 issued by the Board from F. No. 340/9/80-GT [Annex] on the above subject.
2. On reconsideration of the matter, Circular, dated 13-10-1980 stands withdrawn. In other words, exemption under section 5(1)(v) is not confined to donations in cash/money only but is applicable to all types of properties, movable or immovable.
Circular : No. 304 [F. No. 331/12/80-GT], dated 2-6-1981.
ANNEX - CIRCULAR NO. 284, DATED 13-10-1980 REFERRED TO IN CLARIFICATION
1. The question as to whether gifts in kind made by any person would be eligible for exemption under section 5(1)(v) has been considered by the Board in consultation with the Ministry of Law.
2. The Board have been advised that a gift other than a sum of money would not be eligible for such exemption in view of the Explanation 5 to section 80G of the Income-tax Act inserted by the Finance Act, 1976, with effect from April 1, 1976.
3. Explanation 5 to section 80G of the Income-tax Act provides : For removal of doubts, it is hereby declared that no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of money. Under section 5(1)(v) gift-tax shall not be charged in respect of gifts made to any institution or fund established or deemed to be established for a charitable purpose to which the provision of section 80G of the Income-tax Act, 1961 apply. Since the provisions of section 80G would be applicable only in respect of the donation or gifts which would be a sum of money as per Explanation 5 thereof, it follows that exemption, under section 5(1)(v) of the Gift-tax Act, would also be restricted to such gifts.
Circular: No. 285 [F. No. 275/77/79-IT(B)], dated 21-10-1980.
951. Procedure for regulating refund of amounts paid in excess of tax deducted and/or deductible
1. The Board have been considering the manner of refunding the amount paid in excess of the tax deducted and/or deductible (whichever is more) under sections 192 to 194D of the Income-tax Act. The Board are advised that such excess payment can be refunded, independently of the Income-tax Act, to the person responsible for making such payment subject to necessary administrative safeguards.
2. In supersession of the earlier instruction on the subject, the following procedure is laid down to regulate the refund of such excess payments.
3. The excess payment would be the difference between the actual payment made by the deductor and the tax deducted at source or that deductible, whichever is more. This amount should be adjusted against the existing tax liability under any of the Direct Tax Acts. After meeting such liability the balance amount, if any, should be refunded to the assessee.
4. Where the tax is deducted at source and paid by the branch office of the assessee and the quarterly statement/annual return (in case of salaries) of tax deduction at source is filed by the branch, such branch office would be treated as a separate unit independent of the head office. After meeting any existing tax liability of such a branch, which would normally be in relation to the deduction of tax at source, the balance amount may be refunded to the said branch office. The Income-tax Officer, who will refund the amount, would be the one who receives the quarterly statement/annual return (in case of salaries) of tax deduction at source from that branch office and keeps record of the payments of tax deduction at source made by that branch.
5. The adjustment of refund against the existing tax liability should be made in accordance with the present procedure on the subject. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer in favour of the income-tax department and sent to the bank along with the challan of the appropriate type. The amount adjusted and the balance, if any, refunded would be debitable under the sub-head Other refunds below the minor head Income-tax on companiesmajor head 020Corporation Tax or below the minor head Income-tax other than Union Emolumentsmajor head 021Taxes on incomes other than corporation tax according as the payment has originally credited to the major head 020Corporation tax or the major head 021Taxes on incomes other than corporation tax.
6. Since the adjustment/refund of the amount paid in excess would arise in relation to the deduction of tax at source, the recording of the particulars of adjustment/refund should be done in the quarterly statement of TDS/Annual return (in case of salaries) under the signatures of the Income-tax Officer at the end of the statement, i.e., below the signatures of the person furnishing the statement.
Circular : No. 286 [F. No. 174/79/80-IT(A-I)], dated 17-11-1980.
SECTION 10(10A) l COMMUTED PENSION
70. Exemption of commuted pension - Extent thereof under clause (10A)(i)
1. Attention is invited to Boards Instruction No. 1191 [F. No. 174/29/77-IT(A-I)], dated 1-7-1978 on the above subject. Para 5 of the said Instructions clarify that in the case of a Government servant absorbed in a public undertaking on or after 24-7-1971, the amount that would qualify for tax exemption under the provisions of section 10(10A)(i), would only be the amount representing the commuted value of one-third of the pension. The remaining two-thirds amount received by the person by way of terminal benefit would be includible in the total income subject to relief under section 89(1) read with rule 21A of the Rules.
2. The issue has been recently decided by a Division Bench of the Delhi High Court in the case of C.K. Karunakaran v. Union of India [1980] 4 Taxman 178. The High Court, while allowing a writ petition, relied upon rule 37A of the Pension Rules, 1972, which provides for payment of lump sum amount to persons absorbed in public sector corporations. It has been held that rule 37A provides for payment of lump sum in lieu of the pension. The lump sum was bifurcated into two component parts under sub-clauses (a) and (b) of rule 37A(i) but the fact that it is bifurcated into two parts neither alters the nature of the payment nor does it cease to be a payment in lieu of pension. Therefore, by virtue of the language of section 10(10A)(i) which speaks of any payment under any similar scheme applicable to the members of the civil services of the Union, the entire commutation was held to be exempt under section 10(10A)(i).
3. The Board have been advised that the decision of the Delhi High Court is to be accepted.
4. In view of the above, Instruction No. 1191 stands withdrawn with immediate effect. All appeals/revision petitions/reference applications on this point may be conceded/withdrawn in the light of this circular.
JUDICIAL ANALYSIS
Explained in - In S. Ranganatha Rao v. Accountant General [1981] 129 ITR 130 (Kar.), the abovesaid circular was explained with the following observations :
. . . In para 3 of the said circular it is stated that the Board has been advised that the decision of the Delhi High Court is to be accepted and thereafter, it is further stated that in that view of the matter instruction No. 819 stands withdrawn with immediate effect. It is, therefore, clear that the petitioners commuted pension is not liable to tax at all and if he is not liable to tax under the Act, then the Accountant-General has no jurisdiction to order deduction of the tax at source . . . . (p. 132)
Circular : No. 287 [F. No. 204/21/80-IT(A-II)], dated 4-12-1980.
307. Bonus - Whether it would be permissible for employers to claim deduction of bonus paid in excess of amount worked out as per formula laid down under Payment of Bonus Act in terms of first proviso [`1] 1to clause (ii) of sub-section (1) or under residuary section 37(1)
1. Reference is invited to Boards Circular No. 206 [F. No. 204/64/75-IT(A-II)], dated 9-8-1976 [printed at Sl. No. 306 above] which had clarified the newly inserted proviso to section 36(1)(ii) of the Income-tax Act by section 29 of the Payment of Bonus (Amendment) Act, 1976.
2. A question has been raised as to whether it would be permissible for the employers to claim deduction of bonus paid in excess of the amount worked out as per the formula laid down under the Payment of Bonus Act, 1965 under section 36(1)(ii) or under residuary section 37(1) of the Income-tax Act as ex gratia payment being made on grounds of commercial expediency.
3. Under section 36(1)(ii), an assessee carrying on business or profession is entitled to a deduction in respect of any amount paid to an employee as bonus or commission for services rendered by him. A proviso was, however, added to section 36(1)(ii) to the effect 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 apply, shall not exceed the amount of bonus payable under that Act.
4. Section 37(1) provides deduction for any expenditure other than expenditure of the nature described in sections 30 to 36 and section 80VV and not being capital expenditure or personal expenses of the assessee, laid out or expended wholly or exclusively for the purposes of business or profession. The Board have been advised that in view of the specific limitation, resort cannot be had to the provisions of section 37(1) to claim deduction in respect of any larger amount paid by way of bonus whether this be termed as bonus or ex gratia payment made in cash or in species. For example, if the amount of bonus payable as per the Payment of Bonus Act is only 10 per cent of salary, then payment of 18 per cent even when it is below the ceiling of 20 per cent is not allowable either under section 36(1)(ii) or under section 37(1) in respect of the difference of 8 per cent.
5. The above clarifications may please be brought to the notice of all the officers working under your charge. The officers may be advised to obtain the particulars of the amount of bonus payable under the Payment of Bonus Act and the amount actually paid so as to allow only the correct amount allowable under the Income-tax Act.
Applied in - This circular was cited in ITO v. Daga & Co. (P.) Ltd. [1984] 20 TTJ (Cal. - Trib.) 174, with the following observations :
6. On a perusal of sections 30 to 37 of the Act, we find that section 37 is a residuary section and in case any expenditure falls within the ambit of sections 30 to 36, it cannot be allowed under section 37 of the Act. If such interpretation is not put, the various restrictions imposed by sections 30 to 36 of the Act would become ineffective and not workable. To this extent, we have no difficulty in following the Circular No. 287, dated 4-12-1980 of the CBDT. . . . (p. 176)
Relied on in - The above circular was relied on in ITO v. English Indian Clays Ltd. 1993 Tax LR 85 (Coch. - Trib.).
Circular: No. 288 [F. No. 275/46/79-IT(B)], dated 22-12-1980.
1058. Whether payer would be liable to deduct tax at source from interest in a case where he follows mercantile system of accounting and he, instead of crediting interest income to the account of payee, credits the same to Interest payable account, etc.
1. Section 194A requires every person, other than an individual or a Hindu undivided family, to deduct income-tax at source at the prescribed rates from interest (other than interest on securities) at the time of credit of such interest to the account of the payee or at the time of payment thereof where the amount credited or paid, or likely to be credited or paid, to the assessee during any financial year exceeds Rs. 1,000. The deduction is required to be made under section 194A in the case of residents only. (For non-residents the provisions are different and are contained in section 195.)
2. Some representations have been received by the Board enquiring as to whether a person would be liable to deduct tax at source from interest where his accounts are being maintained in accordance with the mercantile system of accounting and who, instead of crediting the interest income to the account of the payee, credits the same to the Interest Payable Account or the Liability for Expense Account or Suspense Account or any other nominal account.
3. The material expression in section 194A(1) is at the time of credit of such income in the account of the payee.... When interest is debited to Interest Account, or any other nominal account, the debit is for a specific amount calculated with reference to the deductors liability to a particular creditor in accordance with the terms and conditions of the loan. What is, therefore, important is that the interest payable to a creditor has constructively been credited to the account of the payee; the apparent nomenclature of the particular account in which the credit is made is not conclusive in the matter. The nominal accounts like Interest Payable Account, Liability for Expense Account, Suspense Account, etc., are heads or captions meant to cover stray transactions of unidentifiable receipts and payments. Except in stray cases failure to credit the interest to the account of the payee cannot also be called a method of accounting regularly employed within the meaning of section 145(1) and would not, therefore, be accepted as an explanation for the consequential failure to deduct the tax at source. The burden of proving that there was a valid justification for crediting interest to any account other than the account of the payee would rest obviously on the person responsible for making the deduction. The time for deduction would be when the interest is credited.
4. It may be added that the time for making the payment of the tax deducted at source is governed by section 200 read with rule 30 of the Income-tax Rules and would reckon from the date of credit of interest made constructively to the account of the payee which would ordinarily be within one week from the last day of the month in which deduction is made. Where, however, the interest is credited by an assessee, carrying on business or profession, as on the date up to which the accounts thereof are made, the amount of tax deducted would be payable to the Central Government within two months of the expiration of the month in which the accounts of the assessee are made, falls. For example, if the accounts are made up to, say November 7, 1980, the tax deducted on the interest credited on that date would be payable to the Central Government by January 31, 1981 irrespective of when the closing entries are actually made.
5. The above clarification may please be brought to the notice of all your members so that they can comply with the requirement for deducting tax at source.
Commented upon - The above circular was adversely commented upon in Koshalya Investments (P.) Ltd. v. ITO [1990] 83 CTR (Trib.) (Ahd.) 143, with the following observations :
6.3 The reliance placed by the authorities below and the learned Departmental Representative on Boards Circular No. 288, dated 22nd December, 1980 is not valid as the clarifications issued by the Board are not in consonance with the clear interpretation based on the plain language of section 194A. If the interpretation as clarified by the Board in the aforesaid circular would have been possible on the basis of interpretation of section 194A as it existed prior to insertion of Explanation in section 194A, there would have been no need to insert the aforesaid Explanation in section 194A by the Finance Act, 1987. The provisions of section 194A clearly prescribe that the liability for deduction of tax at source will arise only when the amount of interest is credited to the account of the payee or when the same is paid to them, whichever is earlier. The Board in the aforesaid circular has mentioned that even if the amount is credited to nominal accounts like interest payable account, liability for expenses account, suspense account, etc., it should be treated as constructively been credited to the account of the payee when the specific amount calculated with reference to the deductors liability to a particular creditor in accordance with the terms and conditions of the loan has been provided for; such an interpretation, in the absence of such specific words in the language of section 194A would amount to extending the scope of section 194A as it stood prior to insertion of Explanation to the said section w.e.f. 1st June, 1987. The very fact that the framers of the law considered it necessary to insert an Explanation in section 194A clearly supports the assessees contention that but for the aforesaid Explanation the plain language of section 194A as it stood prior to the insertion of the aforesaid Explanation did not cover a case like that of the assessee and the assessee, according to the original section 194A was not liable to deduct tax at source at the time of crediting the interest in the interest payable account. (pp. 159-160).
Commented upon - In Alkapuri Investment (P.) Ltd. v. D.S. Khoba [1997] 226 ITR 506 (Guj.) it was held that Circular No. 288, dated December 22, 1980, was not in consonance with the true import of section 194A and cannot be given effect to.
See also Sivakami Finance (P.) Ltd. ITO [1983] 6 ITD 351 (Mad. - Trib.)
I am directed by the Committee of the Federation to address you as under : Under section 194A of the Income-tax Act, an assessee is required to deduct income-tax at source from the interest income of a resident at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or otherwise.
Many assessees, while finalising their accounts, do not necessarily credit the amount of interest payable to each creditor; instead they credit the interest payable on the amount of loans raised by them in a separate interest payable account. Since such assessees do not credit the amount of interest to the account of the respective payee, they do not deduct tax at the time of finalising the accounts. Tax is, however, deducted at the time when the interest is either actually credited to the account of the respective payee or is paid to them. It has been brought to the notice of the Federation that the Department is insisting upon deduction of tax at source even at the time of crediting the amount of interest to the interest payable account as aforesaid and has even launched prosecution for alleged failure to deduct tax at source and pay to Government.
The section, as it is worked, requires deduction of tax at source only at the time when the interest is credited to the account of the payee or payment thereof. There is, therefore, no obligation on the part of assessee to deduct tax at the time of making a provision in the accounts in respect of interest payable by him. The crediting of interest to the account of the payee is not the same thing as crediting the interest to the interest payable account. It is, therefore, suggested that suitable instructions be issued to the authorities below not to insist deduction of tax at source at the time of crediting the interest to the interest payable account. All pending penal or prosecution proceedings may also be directed to be withdrawn immediately.
Letter : No. 276/72/77-IT (B), dated 25-1-1979.
[Source : Arundathi Investments Ltd. v. ITO [1984] 10 ITD 754 (Mad.) (TM), 759, 760].
CLARIFICATION 3
3. The matter has been examined and the Board are advised that section 194A indicates not only the circumstances in which the person responsible to deduct tax at source has to do so but also specified the time at which the deduction has to be made. Thus, where payment has to be made in cash or by issue a cheque or draft, the deduction is to be made at the time of payment. But, if the payment is not made physically, but by way of book adjustment, as in the mercantile system of accounting then the income-tax at source is to be deducted at the time of credit of such income to the account of the payee. The question under consideration here rests on the exact meaning of the expression credit of the income to the account of the payee. These words have to be taken to mean that the persons should have credited the amount in the personal account of the payee or in some other manner to indicate his immediate intention to effect the transfer of the amount of interest to the payee. The mere fact of posting the entry in the Interest Payable Account or the Liability for Expenses Account does not amount to crediting the entry in the account of the payee, even though it would be indicative of an acknowledgement of the liability to the creditors with respect to that amount of interest. As such the obligation to deduct the tax could not arise at that time but would arise when subsequently, the payment of interest is made to the payee or it is credited to his account.
Instruction : No. 1215 [F. No. 385/61/78-IT (B)], dated 8-11-1978. [Source : Paterson Engg. Co. (P.) Ltd. v. ITO [1989] 30 ITD 454 (Bom.), 456]
Circular : No. 289 [F. No. 210/19/77-IT(A-II)], dated 29-12-1980.
926. Whether renewal of registration can be refused merely because renewal had been refused in the immediately preceding year on technical grounds
1. The Board has considered the question as to whether renewal of registration can be granted to a firm for a particular year on the basis of a declaration in Form No. 12, if in the immediately preceding year, the same was refused on technical grounds or whether Form No. 11 should be insisted upon for granting registration for that year.
2. The Patna High Court in the case of Purusottam Lal Kishorilal v. CIT [1978] 115 ITR 377 following the decision in the cases of S.P. Pandey v. CIT [1974] 96 ITR 515 and CIT v. Sitaram Bhagwandas [1976] 102 ITR 560 has held that the ITO is not justified to refuse renewal of registration to the firm merely because renewal had been refused in the immediately preceding year on technical grounds, so long as there is no change in the constitution of the firm or in the shares of the partners. The judgment of the Patna High Court has been accepted by the Board.
[`1] 1. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.