Circular : No. 404 [F. No. 178/50/82-IT (A-I)], dated 15-1-1985.

491. Special Frontier Force Group Insurance Scheme - Allowability of deduction of contributions made thereto under clause (a)(i) of sub-section (2)

1. The Cabinet Secretariat have introduced with effect from January 1, 1980 an insurance Scheme called the "Special Frontier Force Group Insurance Scheme" for the welfare of employees. The objective of the Scheme is to provide, at a low cost and on a wholly contributory and self-financing basis, the benefits of an insurance cover for the families of the employees in the event of their death while in service and a lump sum payment to the employees on their retirement, discharge, etc., from service.

2. A question has been raised whether the contributions made by the officers and staff towards the Special Frontier Force Group Insurance Scheme would entitle the contributors to relief under section 80C(2)(a)(i) of the Income-tax Act. It has been decided that the amount contributed by the employees of this organisation to the Special Frontier Force Group Insurance Scheme will be treated as an insurance premium and will qualify for relief subject to the condition imposed in section 80C(4).

Circular : No. 405 [F. No. 178/1/84-IT(A-I)]

501. Subscriptions to National Savings Certificates (VI Issue/VII Issue) - Clarifications on certain issues regarding their eligibility for deduction under the section

1. Under section 80C(2)(h), an individual or Hindu undivided family or an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu is entitled to a deduction in respect of any sums paid in a previous year out of his or its income chargeable to tax, as subscription to any such security of the Central Government as may be specified in the Official Gazette. National Savings Certificates (NSCs) VI and VII Issues have been specified as securities for the purposes of section 80C(2)(h) and the notification has come into force from April 2, 1983.

2. The following clarifications are issued in this connection :

(1) Whether income-tax exemption under section 8OC can be claimed by first named person in case of joint holding of NSCs VI Issue/VII Issue? The deduction under section 80C can be claimed by the person who has contributed the monies out of his income chargeable to tax. It can be claimed by the first named person in a joint holding if the first named person has so contributed the amount.

(2) Whether rebate of income-tax under section 80C will be available where (a) NSCs VI Issue/VII Issue are purchased in the name of spouse and minor children, and (b) jointly by husband and wife ? - The answer to question (1) will apply also here. The deduction under section 80C is to be given to the person who has purchased the NSCs out of his income chargeable to tax.

(3) Whether the interest accruing to the NSCs would be included in the hands of individual or in the case of person(s) in whose name(s) the subscription has been made? - The interest accruing on the subscription to the NSCs will be included in the hands of the person who has subscribed from his income chargeable to tax.

(4) Since the interest on 6-Year NSC VI Issue is deemed to have been re-invested whether the holder of the NSC-VI Issue is entitled to claim benefit of section 80C on this re-invested interest [Rules 19 and 28 of NSC-VI Issue Rules, 1981]?- The amount of interest re-invested will satisfy the test of having been paid out of income chargeable to tax to get the NSC and so will be entitled to deduction under section 80C.

(5) Whether a karta of a HUF can buy NSCs in the name of any member of the HUF ? - Where subscription to the NSCs in the name of any member of the HUF, is shown by the family to have been made out of its income chargeable to tax and the beneficial ownership in such certificates vests in the family, the family would be entitled to a deduction under section 80C with reference to such contribution.

(6) Whether the interest accrued on the subscription would be included in the hands of the individual or in the hands of the person in whose name the subscription has been made ? - The interest accrued would be included in the hands of the persons who purchased the NSC out of their income chargeable to tax.

Circular : No. 405 [F. No. 178/1/84-IT(A-I)], dated 15-1-1985 as corrected by Circular : No. 418 [F. No. 178/1/84-IT(A-I)], dated 2-5-1985.

Circular : No. 406 [F. No. 178/289/84-IT(A-I)], dated 15-1-1985.

592. Interest on deposit made under National Deposit Scheme - Whether taxable in the year of accrual

1. The National Deposit Scheme was launched by the Central Government with effect from 30-7-1984. Interest on deposits under this Scheme is paid or compounded on half-yearly basis. The Central Government has amended the Scheme to provide that in respect of deposits made in financial year 1984-85, interest up to 31-3-1985 will be deemed to have accrued on 31-3-1985 even though the actual payment or compounding is made on half-yearly basis.

2. The Board is of the view that such interest is taxable in the year of accrual.

Judicial analysis

Referred to in - The above circular was referred to in Mrs. Ira Nenazie v. Fifth ITO [1993] 46 ITD 1 (Bom.) with the following observations :

. . . the assessees case is supported not only by the terms of the fixed deposit receipt but also the decision of the Supreme Court in the case CIT v. T.N.K. Govindarajulu Chetty [1987] 165 ITR 231 as well as the CBDT Circular No. 371, dated 21-11-1983 and No. 406, dated 15-1-1985. Moreover, under section 4 of the Income-tax Act, total income of the previous year is assessable to tax and section 5 defines total income to include income which accrues or is received. Obviously, it has to be taxed at the earliest point of time, namely, accrual, unless the assessee chooses to offer it on receipt basis by maintaining the cash system of accounting. In the present case, the assessee had, no doubt, offered the entire receipt originally but on the footing that it was a capital receipt. Once it is held that it is a revenue receipt, the assessee has to be given the option as indicated in the Circulars of the CBDT and consequently the assessee is entitled to succeed in the claim that only the interest which accrued in the previous year should be assessed to tax in this previous year . . . . (p. 3)

Circular : No. 409 [F. No. 178/2/85-IT(A-I)], dated 12-2-1985.

455. Interest on cumulative deposit schemes of private sector undertakings - Whether should be taxed on accrual basis annually

1. The issue regarding taxability of interest on cumulative deposit schemes of the private sector undertakings has been considered by the Board. The point for consideration is whether interest on cumulative deposit schemes would be taxable on accrual basis for each year during which the deposit is made or on receipt basis in the year of receiving the total interest.

2. The Central Government has decided that interest on cumulative deposit schemes of private sector undertakings should be taxed on accrual basis annually.

3. The private sector undertakings will intimate the individual depositors about the accrued interest so as to enable them to disclose it in their returns of income filed before the income-tax authorities.

Circular : No. 410 [F. No. 178/68/83-IT (A-I)], dated 12-2-1985.

92. Whether interest earned from cumulative time deposit held under Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, is also exempt under clause (15)(ii) of section 10

1. Section 10(15)(ii) provides for exemption from tax in respect of interest on various specified securities, interest on deposits in Post Office Savings Bank and bonus in respect of deposits under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959.

2. The Board have considered a reference on the eligibility of interest received under Post Office savings Bank (Cumulative Time Deposits) Rules, 1959. Since the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959 is only one kind of account under the Post Office Savings Accounts, such interest in respect of Post Office Savings Bank (Cumulative Time Deposits) Account is also exempt under section 10(15)(ii) to the extent to which the deposit does not exceed the maximum amount to be deposited or invested therein (in accordance with the regulations of the postal bank).

Circular : No. 411 [F. No. 317/5/85-WT], dated 25-2-1985.

1374. Whether deposits held by a person of Indian origin or citizen in NRE Account during his residence in the foreign country will also be exempt under clause (xxxiii) of sub-section (1)

1. The provisions of section 6 of Wealth-tax Act, read with section 10(4A) of the Income-tax Act, allow exemption from wealth-tax on the moneys lying to the credit in a Non-resident (External) [NRE] Account belonging to a person resident outside India within the meaning of section 2(q) of the Foreign Exchange Regulation Act, 1973. Section 5(1)(xxxiii) provides that in the case of an assessee, being a person of Indian origin or a citizen of India who was ordinarily residing in a foreign country and who has returned to India with the intention of permanently residing in India, moneys and the value of assets brought by him into India and the value of the assets acquired by him out of such moneys are exempt from wealth-tax for a period of seven successive assessment years commencing with the assessment year next following the date on which such person returned to India.

2. A question has arisen as to whether the moneys deposited by a person of Indian original or a citizen of India in a NRE Account during the course of his residence in the foreign country will also be eligible for the deduction under section 5(1)(xxxiii) as stated above.

3. The moneys to the credit in a NRE Account held by a person resident outside India as defined in the Foreign Exchange Regulation Act, are exempt from wealth-tax in India under section 6 of the Act. It is further clarified that it would also be exempt from wealth-tax under section 5(1)(xxxiii), for a period of seven successive assessment years after the return of an Indian citizen or a person of Indian origin, hitherto ordinarily residing in a foreign country with the intention of permanently residing in India.

Judicial analysis

Explained in - The above circular was explained in Dr. V.P. Gopinathan v. CWT [1996] 221 ITR 401 (Ker.), with the following observations :

A reference to Circular No. 411 dated February 25, 1985, of the Central Board of Direct Taxes would show that this exemption is understood to be applicable even by the Department with regard to the monies deposited by such an assessee in a Non-resident (External) Account during the course of his residence in the foreign country. Equally, whether the assets are acquired in India or in the foreign country also would have no importance in the context provided the assets are acquired out of such monies which are either brought by him or which are deemed to have been brought by him by virtue of the addition of Explanation 2.

Circular : No. 412 [F. No. 200/84/79-IT(A-I)], dated 2-3-1985.

801. Filing of returns by political parties/its units at State or district level in terms of sub-section (4B) - Obligation therefor

1. Section 13A has been inserted by the Taxation Laws (Amendment) Act, 1978 and has come into effect from 1-4-1979. Under section 13A, any income of a political party chargeable under the heads Interest on securities, Income from house property, Income from other sources or any income by way of voluntary contributions is exempt from income-tax.

2. Under Explanation to section 13A, political party means an association or body of individual citizens of India registered with the Election Commission of India as a political party under paragraph 3 of the Election Symbols (Reservation and Allotment) Order, 1968, and includes a political party deemed to be registered with that Commission under the proviso to sub-paragraph (2) of that paragraph.

3. The exemption under section 13A is subject to the fulfilment of three conditions specified in the proviso to section 13A. These conditions are :

(1) The political party keeps and maintains such books of account and other documents as would enable the Income-tax Officer to properly deduce its income therefrom.

(2) In respect of each voluntary contribution in excess of ten thousand rupees, such political party keeps and maintains a record of such contributions and the name and address of the person who has made such contributions.

(3) The accounts of such political party are audited by an accountant as defined in the Explanation below to sub-section (2) of section 288.

4. Sub-section (4B) has been inserted in section 139 by the Taxation Laws (Amendment) Act, 1978 under which every political party is obliged to file every year a return of total income voluntarily. The total income for this purpose is to be computed without giving effect to the provisions of section 13A. If such total income exceeds the maximum amount which is not chargeable to tax, the liability of the political party to file the return of income voluntarily arises. As regards filing of returns by the units of a political party at State or District levels is concerned, it will depend upon whether these units are only branches of the national party and their receipts and expenditure form part of the account of the national party. If so, the units need not file separate returns of income. In the case where units are separately registered as political parties with the Election Commission of India in terms of para 2 above, the requirement of filing of returns by these units will apply as in the case of parent unit.

Circular : No. 413 [F. No. 194/9/79-IT(A-I)], dated 4-3-1985.

54. How exemption is to be allowed qua value of leave travel concession where employee is entitled to more than one LTC in a block of 4 years

1. Section 10(5) provides for grant of exemption from income-tax to the value of leave travel concession granted by an employer to an employee. In regard to assessment for the assessment years 1971-72 and onwards this concession is dealt with in section 10(5)(ii) which spells out two situations, the first is where an employee receives travel concession or assistance from his employer for himself and his family in connection with his proceeding on leave to any place in India. The second is where an employee receives travel concession or assistance from his employer or former employer for himself and his family in connection with his proceeding to any place in India after retirement from service or after the termination of his service. A proviso to this sub-clause spells out that the amount exempted under either of these situations shall not, except in the case of circumstances prescribed by rule 2B of the Income-tax Rules, exceed the value of the travel concession or assistance which would have been received by or due to the individual in connection with his proceeding to his home district in India on leave or, as the case may be, after retirement from service or on the termination of his service. Under rule 2B the following cases are specified as being exceptions to the ceiling laid down in the aforementioned proviso :

a. where the individual is entitled to such travel concession or assistance once in a block of four calendar years commencing from the calendar year 1974, the value of such travel concession or assistance availed of in each such block;

b. where the individual is entitled to such travel concession or assistance more than once in any such block of four calendar years, the value of the travel concession or assistance first availed of by him in each such block;

c. where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, the value of the travel concession or assistance, if any first availed of by the individual during the first calendar year of the immediately succeeding block of four calendar years.

2. It has been represented that Income-tax Officers are interpreting section 10(5), read with rule 2B, to allow exemption in respect of leave travel concession for visiting any place in India other than the home town once in a block of four years and if more than one leave travel concession is allowed to an employee in this block, no exemption under section 10(5) in respect of the second concession is allowed. The Board have examined the matter. Under section 10(5), read with rule 2B, the value of leave travel concession is exempt completely in a block of four years. However, if the employee is entitled to more than one leave travel concession in a block of four years, then full exemption is to be given for the first concession under rule 2B and subsequent concession in the same block is limited to an amount that would have been admissible had the employee visited his home town. It is only the excess of the concession over the fare to the home town that has to be treated as perquisite and taxed as part of salary income in respect of the second leave travel concession for going to any place in India in the same block of four years.

Circular : No. 414 [F. No. 204/21/80-IT(A-II)], dated 14-3-1985.

308. Bonus - Whether deduction under clause (ii), first proviso[`1] 1, is admissible if it is within the minimum 8.33 per cent of salary and maximum 20 per cent of salary as per limits laid down under the Payment of Bonus Act

Reference is invited to Boards Circular No. 287, dated 4-12-1980 [Sl. No. 307 ante]. Under first proviso to section 36(1)(ii) deduction for payment of bonus or commission to an employee for services rendered by him is restricted to the amount payable under the Payment of Bonus Act, 1965. Under this Act, a minimum of 8.33 per cent and a maximum of 20 per cent of salary is payable as bonus depending on the circumstances of the case. Deduction under first proviso to section 36(1)(ii) is not necessarily restricted to the minimum of 8.33 per cent of the salary in all cases. Whatever amount of bonus is payable in the case within these two limits under the Payment of Bonus Act, is admissible for deduction under the first proviso to section 36(1)(ii).

Circular : No. 415 [F. No. 207/7/85-IT(A-II)], dated 14-3-1985.

SECTION 2(42A) l SHORT-TERM CAPITAL ASSET

21. Whether gains arising on exchange of gold bonds at the time of their redemption is short-term gain - Whether answer to this query would depend upon the time that has passed between their date of redemption and subsequent sale

1. The Government of India had issued in the year 1965, National Defence Gold Bonds, 1980. These Bonds were redeemable after 15 years, i.e., on or after 2-10-1980. It was clarified in the Press Communique bearing No. MMS/MMM/ANT/361/3, dated 22-9-1980 issued by the Department of Economic Affairs, Ministry of Finance, that :

No capital gains will arise when the Bonds are exchanged for gold on redemption. However, any subsequent sale, exchange or transfer of such gold within the meaning of section 2(47) would attract capital gains tax in respect of capital gains arising from such sale, exchange or transfer. For the purpose of computation of capital gains, the cost of acquisition of gold would be the market value of the bonds on the date of redemption.

2. A question has arisen as to whether such capital gains should be treated as long-term or short-term capital gains. The question has been examined by the Board. The exchange of gold bonds at the time of redemption is an altogether fresh transaction when an assessee acquires a different asset. It has also been decided above that for the purposes of the computation of capital gains, cost of acquisition of gold would be the market value of the bonds on the date of redemption. The material date in this case would, therefore, be the date of redemption of gold bonds which would be treated as the date of acquisition of the gold. As per section 2(42A) short-term capital asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of transfer. The question as to whether the gains arising in such cases would be short or long-term would, therefore, depend upon the time that has passed between the date of redemption of gold bonds and the subsequent sale of gold.

JUDICIAL ANALYSIS

Explained in - In CIT v. Oriental Containers Ltd. [1993] 70 Taxman 374 (Bom.), it was observed that this circular merely states that no capital gain will arise when the Bonds are exchanged for gold on redemption. However, any subsequent sale, exchange or transfer of such gold would attract capital gains tax in respect of capital gains arising from such sale, exchange or transfer. This Circular has no application at all to the facts of the present case, namely, where assessee sold National Defence Gold Bonds, 1980 and claimed that excess realisation on such sale was neither taxable as income nor as capital gains.

Explained in - In CIT v. Debmalya Sur [1994] 207 ITR 996 (Cal.), the above circular was explained with the following observations :

In this connection, our attention has been drawn to a Circular No. 415, dated March 14,1985, which, in fact, takes the same view as has been canvassed by the Revenue. In the said circular, the Central Board of Direct Taxes has made it clear that no capital gains will arise when the bonds are exchanged for gold on redemption. However, subsequent sale, exchange or transfer of such gold would attract capital gains tax and the question as to whether the gains arising in such cases would be short or long-term would depend upon the passage of time between the date of redemption of the bonds and the subsequent sale of gold received on redemption.... (p. 1002)

referred to in - In Smt. L.M. Parikh v. Sixth ITO [1990] 81 CTR (Bom. - Trib.) 97, this circular was referred to, with the following observations:

. . . . We are of the opinion that the Circular No. 415, dated 14th March, 1985, is very clear on the point that the date of redemption of the gold bonds would be treated as the date of acquisition of the gold and while computing the capital gains, the cost of acquisition of gold would be the market value of the bonds on the date of redemption. The circular lays down that capital gains will not arise when the bonds are exchanged for gold on redemption but would arise on subsequent sale of the gold and for this purpose the computation shall be on the premise that the cost of acquisition of gold is the market value of the bonds on the date of redemption. The plea of the assessee that the date of redemption means the actual date of redemption is misplaced. The press communique issued by the Finance Ministry on 22nd Sept., 1980, incorporating the guidelines states that for the purposes of computation of capital gains, the cost of acquisition of gold is the market value of the bonds on the date of redemption. On the date when the press communique was issued, only one date of redemption was conceivable and that was the date when the bonds were going to mature. Obviously, therefore, what is implied in the press communique is the date of maturity of the bonds, and could not be the actual date of redemption. It may also be stated that the bonds were also in the nature of debt or liability and their date of discharge would be the date when the same were due to be discharged which, in this case, was 27th Oct., 1980. When the gold bond is issued to a person, there is an agreement between him and the Government that the bond will be returned on a certain future date, called the maturity date, and during that time, he has the right to interest and he can also assign the bond. Under the terms of agreement, the holder has a right to get back the gold on the maturity date whereupon the interest would cease and it would not longer be assigned. Therefore, on the maturity date, the character of this document which was the bond, would change. It would not bear interest and it would lose assignability. On the maturity date, it is merely a document of title to the gold and its presentation to the Reserve Bank would entitle the holder of that document to the delivery of the gold. . . . . (p. 100)

Circular : No. 416 [F. No. 176/11/84-IT(A-I)], dated 11-4-1985.

524. Fund/institution recognised under section 10(23C)(iv)/(v) - Whether recognition under section 80G is automatic

The Board had occasion to consider whether the recognition under section 80G of the Income-tax Act is automatic in the case of a fund or an institution notified by the Central Government under section 10(23C)(iv)/(v). The Board is of the view that this is not so. Recognition for purposes of section 80G is available when the fund or institution satisfies all the five conditions listed under section 80G(5). There may be instances of funds or institutions notified under section 10(23C)(iv)/(v) not fulfilling some of the conditions of section 80G(5). Explanation 3 to section 80G lays down that for the purpose of the section charitable purpose does not include any purpose the whole or substantially the whole of which is of a religious nature, whereas such institution may be notified under section 10(23C)(v).

Circular : No. 417 [F. No. 296/8/84-ED],dated 26-4-1985.

SECTION 6 l VALUATION OF GIFTS

1454. Valuation of agricultural land comprised in tea, coffee, rubber and cardamom plantations - Whether guidelines laid down in Circular No. 357 are to apply for the purposes of gift-tax

The Board have decided that the guidelines for valuation of coffee plantations laid down in Circular No. 357, dated 26-5-1983 for wealth-tax purposes may be made applicable for valuation of such assets in respect of pending cases in the State of Karnataka under the Estate Duty and Gift-tax Acts also.

Circular : No. 418

501. Subscriptions to National Savings Certificates (VI Issue/VII Issue) - Clarifications on certain issues regarding their eligibility for deduction under the section

2. The following clarifications are issued in this connection :

Circular : No. 405 [F. No. 178/1/84-IT(A-I)], dated 15-1-1985 as corrected by Circular : No. 418 [F. No. 178/1/84-IT(A-I)], dated 2-5-1985.

Circular: No. 419 [F. No. 333/3/85-GT], dated 1-6-1985.

Gift-tax Act[`2] *

Section 2

Definitions

SECTION 2(xii) l GIFT

1435. Whether gifts made by karta on marriage of his daughter fall within the ambit of gift under clause (xii)

In the case of CGT v. Basant Kumar Aditya Vikram Birla [1982] 137 ITR 72 (Cal.), the karta of the assessee-HUF gave jewellery, cash and fridge of the value of Rs. 67,744 to his daughter at the time of her marriage. The assessee-HUF claimed that these were marriage expenses and did not fall within the ambit of the term gift as defined in section 2(xii) of the Gift-tax Act, 1958. The Calcutta High Court has upheld the assessees contention on the ground that being an unmarried daughter of the family the daughter has a right to have the expenses of her marriage incurred out of the joint family fund. The joint family is under a legal obligation to provide for such marriage expenses. The Department has accepted, in principle, the judgment of the High Court.

Circular : No. 420 [F. No. 204/10/83-IT(A-II)], dated 4-6-1985.

342. Security deposited with postal authorities for telex connection - Whether admissible as business expenditure

1. It has been brought to the notice of the Board that, as per an amendment made in the Indian Telegraph Rules with effect from 26-2-1983, a subscriber for a telex connection (either for existing one or a new one) is required to pay Rs. 10,000 towards security deposit to cover a part of the cost of the departmental equipment installed at the premises of the subscriber which will also protect the Postal Department against any unpaid dues by the subscriber. It has been urged that the said amount of security deposit may be allowed as a bona fide business expenditure for the year in which the said amount is paid on the same lines as the initial payment for a telephone connection under the Own Your Telephone Scheme.

2. The matter has been examined and the Board are of the opinion that since the said deposit of Rs. 10,000 for a telex connection does not earn any interest when the telex machine is installed, at that stage, this amount may be treated as a revenue expenditure allowable as a deduction, if the assessee makes such a claim. However, when the amount is returned by the postal authorities when the telex connection is finally closed, the refund of Rs. 10,000 shall be treated as an income of the assessee of the year in which the amount is refunded.

FINANCE ACT, 1985 - CIRCULAR NO. 421, DATED 12-6-1985

Circular : No. 422 [F. No. 201/156/85-IT(A-II)], dated 19-6-1985.

408. Clarification regarding penalty under section 271B for failure to comply with provisions of section 44AB for assessment year 1985-86

1. The Board had vide Circular No. 422, dated 19-6-1985 (see Clarification 2) decided that the penalty proceedings under section 271B of the Income-tax Act, 1961, for failure to comply with the provisions of section 44AB should not be initiated for assessment year 1985-86, in cases where :

(i) the Audit Report prescribed under section 44AB read with rule 6G has been obtained by 30th September, 1985; and

(ii) the self-assessment tax under section 140A of the Act has been paid within the normal period prescribed under section 139(1) of the Act for filing return of income.

Subsequently, on receipt of representations, the matter was reconsidered and Circular No. 582 was issued on 23-10-1990 clarifying that no penalty would be imposed for the assessment year 1985-86 under section 271B in cases where the audit report prescribed under section 44AB read with rule 6G had been obtained by 30th September, 1985.

2. The matter has been reconsidered by the Board in consultation with the Ministry of Law and it has been decided to withdraw the Circular No. 582, dated 23-10-1990. [Clarification 1].

Circular : No. 628, dated 6-3-1992.

CLARIFICATION 1

1. Vide Circular No. 422, dated 19th June, 1985 (Clarification 2), the Board had directed that the penalty proceedings under section 271B of the Income-tax Act, leviable for non-compliance of the provisions of section 44AB of the Act, should not be initiated for the assessment year 1985-86 in cases where :

(i) the audit report prescribed under section 44AB, read with rule 6G has been obtained by 30th September, 1985; and

(ii) the self-assessment tax under section 140A of the Act has been paid within the normal period prescribed under section 139(1) of the Act for filing return of income.

2. Representations were subsequently received requesting the Board to clarify whether the conditions mentioned at (i) & (ii) above were cumulative or independent. The Revenue Audit has also raised objections that penalty under section 271B should have been levied in cases where self-assessment tax was not paid within the normal period prescribed under section 139(1) of the Act, but was paid within the extended period, i.e., 30th September, 1985.

3. Penalty under section 271 B of the Act is leviable only for non-compliance with the provisions of section 44AB of the Act and not for delay in payment of self-assessment tax. Therefore, there seems to be an obvious anomaly in the said Circular No. 422 insofar as it linked imposition of penalty under section 271B with the payment of self-assessment tax.

4. It is, therefore, clarified that no penalty will be imposed for the assessment year 1985-86 under section 271B in cases where the audit report prescribed under section 44AB, read with rule 6G, has been obtained by 30th September, 1985. This clarification applies only to assessment year 1985-86, being the first year of operation of section 44AB of the Act.

Circular : No. 582, dated 23-10-1990.

JUDICIAL ANALYSIS

Explained in - In Auto Square v. ITO [1992] 43 ITD 259 (Pat.-Trib.), it was observed as under :

The circular obviously shows that the revenue itself has delinked the payment of self-assessment tax, a natural consequence of filing return under section 139(1), from purview of audit report under section 44AB (sic). I have emphasised the word only in the Circular of the CBDT, which manifests the view of the CBDT in these matters. In my view as the assessee had obtained the audit report before the prescribed date of section 44AB and had filed it with the return, which was accepted, no penalty under section 271B should be levied.

clarification 2

1. Section 44AB lays down that every person carrying on business, whose sales, turnover or gross receipts exceed rupees forty lakhs or carrying on a profession, whose gross receipts exceed rupees ten lakhs, shall get his accounts of such previous year audited before the specified date and obtain before that date the report of such audit in the prescribed form.

2. Under Explanation of this section, specified date means the date of the expiry of four months from the end of the previous year, or where there are more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year or 30th day of June of the assessment year, whichever is later.

3. Rule 6G of the Income-tax Rules, 1962 inserted by the Income-tax (Amendment) Rules, 1985 with effect from 1-4-1985, prescribes the manner and Forms in which the audit report required under section 44AB is to be submitted. These rules were notified on 31-1-1985.

4. A number of representations have been received from assessees and various trade associations expressing their difficulties in getting the accounts audited by the specified date this year. The matter has accordingly been considered by the Board. This being the first year of the operation of the section and considering that the relevant rule was notified only on 31-1-1985, the Board has decided that the penalty proceedings under section 271B for failure to comply with the provisions of section 44AB should not be initiated for the assessment year 1985-86, in cases where :

(i) the audit report prescribed under section 44AB read with rule 6G has been obtained by 30-9-1985; and

(ii) the self-assessment tax under section 140A has been paid within the normal period prescribed under section 139(1) for filing return of income.

Note : The above circular was referred to in ITO v. Arun Kumar Bhuwalka [1992] 40 ITD 373 (Cal.) 377.

Circular : No. 423

FINANCE ACT, 1985

Amnesty Circulars

Circular : No. 424

ESTATE DUTY ACT, 1953

SECTION 4 l ESTATE DUTY AUTHORITIES

1511. Extent of powers of Commissioners of Income-tax (Appeals) appointed as Appellate Controllers of Estate Duty - Notification issued under sub-section (2A)

In exercise of the powers conferred by sub-section (2A) of section 4 of the Estate Duty Act, 1953 (34 of 1953), and in partial modification of all previous notifications and orders on the subject, the Central Board of Direct Taxes hereby directs that the Commissioners of Income-tax (Appeals) appointed as Appellate Controllers of Estate Duty shall exercise their powers in respect of all estates of deceased persons including cases where the principal value as assessed to estate duty by the Assistant Controller of Estate Duty is less than Rs. 2 lakhs. In cases where the assessed principal value of the estate is less than Rs. 2 lakhs, the above Appellate Controllers shall perform their functions only in respect of assessment orders passed on or after 1st January, 1980.

Notification : No. SO 93, dated 27-1-1979.

1512. Appointment of estate duty valuers for different categories of assets and scale of charges for their remuneration - Notification issued under sub-section (3)

1. In supersession of all the previous notices issued by this Ministry regarding appointment of valuers under section 4(3) of the Estate Duty Act, 1953, it is notified for general information that the Central Government proposes to appoint persons as valuers under section 4(3) of the Estate Duty Act, 1953, for different categories of assets and to fix a scale of charges for their remuneration.

2. Persons desiring to be appointed as approved valuers must satisfy the conditions mentioned in Annex I to this notice and should apply for appointment in the form prescribed in Annex II.

3. No person shall qualify for appointment as an approved valuer, other than as a Valuer of Works of Art, if he is employed under Government or any other employer.

4. No person shall qualify for appointment as an approved valuer, if

(a) he has been dismissed or removed from Government service ; or

(b) he has been convicted of an offence connected with any proceedings under the Income-tax Act, 1961 (43 of 1961) or the Wealth-tax Act, 1957 (27 of 1957) or the Gift-tax Act, 1958 (18 of 1958) or a penalty has been imposed on him under clause (iii) of sub-section (1) of section 271, or clause (i) of section 273 of the Income-tax Act, 1961 or under clause (iii) of sub-section (1) of section 18 of the Wealth-tax Act, 1957 or under clause (iii) of sub-section (1) of section 17 of the Gift-tax Act, 1958 ; or

(d) he has been convicted of any offence and sentenced to a term of imprisonment or has been found guilty of misconduct in his professional capacity which, in the opinion of the Central Government, renders him unfit to be registered as a valuer.

The requirement laid down in Annex I that the applicant should have, for a period of not less than five years,

(i) rendered service in any capacity, or

(ii) taught any subject, or

(iii) practised any profession, or

(iv) gained experience in any other capacity or field, as specified therein,

shall be deemed to have been fulfilled if the period for which the applicant has rendered such service, taught such subject, practised such profession or otherwise gained experience in such other capacity or field, taken either singly or collectively, is not less than five years and the Central Government is of opinion that the applicant has acquired sufficient experience in the valuation of the class of assets of which he seeks to be approved as a valuer.

5. Scale of fees to be charged by the approved valuer : (1) Subject to the provisions of items (2) and (3) below the fees to be charged by an approved valuer for valuation of any asset shall not exceed the amount calculated at the following rates, namely :

- on the first Rs. 50,000 of the asset as valued : ¹/₂ per cent of the value ;

- on the next Rs. 1 lakh of the asset as valued : ¹/₄ per cent of the value ; and

- on the balance of the asset as valued : ¹/₈per cent of the value.

(2) Where two or more assets are required to be valued by an approved valuer at the instance of an assessee, all such assets shall be deemed to constitute a single asset for the purposes of calculating the fees payable to such approved valuer.

(3) Where the amount of fees calculated in accordance with items (1) and (2) is less than Rs. 50, the approved valuer may charge Rs. 50 as his fees.

Notification : F. No. 300/355/74-ED, dated 1-8-1975.

ANNEX I - CONDITIONS TO BE SATISFIED

1. A valuer of immovable property (other than agricultural lands, plantations, forests, mines and quarries) shall have the following qualifications, namely :

(i) he must either be a graduate in civil engineering, architecture or town planning of a recognised university or possess a qualification recognised as sufficient qualification for the purposes of recruitment to superior posts and services under the Central Government ; or

(ii) (A) he must be a person formerly employed,

(a) in a post under Government as a gazetted officer ; or

(b) in a post under any other employer carrying a remuneration of not less than Rs. 1,000 per month,

and in either case must have retired or resigned from such employment after having rendered service for not less than five years as a valuer, architect, or town planner, or in the field of construction of buildings, designing of structures or development of land ; or

(c) as a professor, reader or lecturer in a university, college or any other institution preparing students for a degree in civil engineering, architecture or town planning, or for an equivalent qualification referred to in clause (i), and must have retired or resigned from such employment after having taught for not less than five years any of the subjects of valuation, quantity surveying, building construction, architecture, or town planning; or

(B) he must have been in practice as a consulting engineer, surveyor, or architect for a period of not less than five years and must have, in the opinion of the Central Government, acquired sufficient experience in any of the following fields :

(a) valuation of buildings and urban lands;

(b) quantity surveying in building construction;

(d) construction of buildings or development of land.

2. A valuer of agricultural lands [other than plantations] referred to in sub-rule (3) shall have the following qualifications, namely :

(i) he must be graduate in agricultural science of a recognised university and must have worked as a farm valuer for a period of not less than five years; or

(ii) he must be a person formerly employed in a post under Government as a Collector, Deputy Collector, Settlement Officer, Land Valuation Officer, Superintendent of Land Records, Agricultural Officer, Registrar under the Registration Act, 1908 (16 of 1908), or any other officer of equivalent rank performing similar functions and must have retired or resigned from such employment after having rendered service in any one or more of the posts aforesaid for an aggregate period of not less than five years.

3. A valuer of coffee plantation, tea plantation, rubber plantation or, as the case may be, cardamom plantation shall have the following qualifications, namely :

(i) he must have, for a period of not less than five years, owned or acted as manager of a coffee, tea, rubber, or as the case may be, cardamom plantation having an area under plantation of not less than four hectares in the case of a cardamom plantation or forty hectares in the case of any other plantation; or

(ii) he must be a person formerly employed in a post under Government as a Collector, Deputy Collector, Settlement Officer, Land Valuation Officer, Superintendent of Land Records, Agricultural Officer, Registrar under the Registration Act, 1908 (16 of 1908) or any other officer of equivalent rank performing similar functions and must have retired or resigned from such employment after having rendered service in any one or more of the posts aforesaid for an aggregate period of not less than five years, out of which not less than three years must have been in areas wherein coffee, tea, rubber or as the case may be, cardamom, is extensively grown.

4. A valuer of forests must be a person formerly employed in a post under Government and must have retired or resigned from such employment after having rendered service for not less than five years in a gazetted post requiring specialised knowledge in forestry.

5. A valuer of mines and quarries shall have the following qualifications, namely :

(i) he must be a graduate in mining of a recognised university, or must possess a qualification recognised as sufficient qualification for the purposes of recruitment to superior posts and services under the Government of India; or

(ii) he must be a person formerly employed

(a) in a post under Government as a gazetted officer, or

(b) in a post under any other employer carrying a remuneration of not less than Rs. 1,000 per month,

and, in either case, must have retired or resigned from such employment after having rendered service as a mining engineer for not less than five years.

6. A valuer of stocks, shares, debentures, securities, shares in partnership firms and of business assets including goodwill, but excluding those referred to in sub-sections (1) to (5) and (7) to (10) shall have the following qualifications, namely :

(i) he must be a member of the Institute of Chartered Accountants of India or the Institute of Cost & Works Accountants of India or the Institute of Company Secretaries of India; and

(ii) (A) he must have been in practice as a Chartered Accountant or a Cost and Works Accountant for a period of not less than five years, or

(B) he must be a person formerly employed

(a) in a post under Government as a gazetted officer, or

(b) in a post under any other employer carrying a remuneration of not less than Rs. 1,000 per month, or

(c) as a Company Secretary or an Assistant Company Secretary in a post carrying a remuneration of not less than Rs. 1,000 per month and must have retired or resigned from such employment after having rendered service for a period of not less than five years,

and, in either case, must have retired or resigned from such employment after having rendered service for a period of not less than five years in the field of audit and accounts or taxation works.

7. A valuer of machinery and plant shall have the following qualifications, namely :

(i) he must either be a graduate in mechanical engineering or electrical engineering of a recognised university, or possess a qualification which is recognised as sufficient qualification for the purposes of recruitment to superior posts and services under the Central Government; or

(ii) (A) he must be a person formerly employed

(a) in a post under Government as a gazetted officer, or

(b) in a post under any other employer carrying a remuneration of not less than Rs. 1,000 per month,

and, in either case, must have retired or resigned from such employment after having rendered service as a mechanical or electrical engineer for a period of not less than five years, or

(c) as a professor, reader or lecturer in a university, college or institution preparing students for a degree in mechanical or electrical engineering or for an equivalent qualification referred to in clause (i), and must have retired or resigned from such employment after having taught for a period of not less than five years, or

(B) he must have been in practice as a consulting engineer for a period of not less than five years and must have, in the opinion of the Central Government, acquired sufficient experience in the valuation of machinery and plant.

8. A valuer of jewellery must have been, for a period of not less than five years, a sole proprietor or partner in a partnership firm carrying on jewellery business which has a turnover of not less than Rs. 1 lakh or profits of not less than Rs. 15,000 in two out of the three accounting years immediately preceding the year in which the application for appointment as an approved valuer is made by him.

9. A valuer of works of arts shall have the following qualifications, namely :

(i) he must have specialised by virtue of his academic and professional pursuits in the particular line of art, for the works of which he seeks to be registered as a valuer; and

(ii) he must have served in any one or more of the following capacities, namely,

(a) Director General or Superintending Archaeologist of the Archaeological Survey of India;

(b) Director of National Museum, New Delhi, Salar Jung Museum, Hyderabad, Prince of Wales Museum, Bombay, Indian Museum, Calcutta, Asutosh Museum, Calcutta, Madras Museum, Madras, or Bharat Kala Bhavan, Varanasi;

(d) Member of the Art Purchase Committee of any of the Museums referred to in sub-clause (b), or of the Lalit Kala Akademi.

10. A valuer of life interest reversions and interest in expectancy shall have the following qualifications, namely :

(i) he must be a graduate of recognised university; and

(ii) (A) he must have been in practice as an actuary under the Insurance Act, 1938 (4 of 1938) for a period of not less than five years; or

(B) he must have rendered continuous service for a period of not less than five years as an actuary under Government or in the Life Insurance Corporation of India established under the Life Insurance Act, 1956 (31 of 1956);

(C) he must have practised as an actuary or served as such under Government or in the Life Insurance Corporation of India referred to in sub-clause (b) for an aggregate period of not less than five years.

ANNEX II - FORM OF APPLICATION

Application for appointment as a valuer under section 4(3)
of the Estate Duty Act, 1953

The Secretary,

Central Board of Direct Taxes,

New Delhi.

Sir,

I hereby apply for appointment as a valuer of .........................................................................

(class of assets) under section 4(3) of the Estate Duty Act, 1953. The following particulars are furnished herewith :

1. Name in full (Block letter)

2. Fathers/Husbands name

3. Permanent address

4. Present address :

(i) Office

(ii) Residence

5. Income-tax Permanent Account Number

6. Date of birth

7. Educational qualifications, including professional or

technical qualifications (Enclose attested copy of degree or

diploma certificate)

8. If member of any professional or technical institution, give particulars

9. (a) Present occupation and since when

(b) If a partner of a firm, name, address and business/profession of the firm (Date of joining the partnership to be indicated)

10. If already engaged in the profession or calling of a valuer, whether

(a) on your own behalf (since when)

(b) in partnership with others (give names and addresses of other partners) (Date of joining the partnership to be indicated)

11. Date of commencement of practice as a valuer

12. (a) Give full details of your experience which qualifies you for appointment as valuer (Documentary evidence to be given)

(b) A list of assets valued or works executed during the last three years should be enclosed

13. Whether you have been appointed as valuer under section 34AB of the Wealth-tax Act, 1957? If so, give registration No. with File No. and date

14. Name, occupation and address of three persons (not being relatives or business partners) with whom you have had regular contact over the last five years (one of whom should preferably be a valuer) and of whom you authorise the Board to enquire regarding your reputation and character

15. (a) State if any liability towards income-tax, wealth-tax or gift-tax outstanding against you

(b) If so, whether satisfactory arrangements for payment thereof have been made

16. Whether you have been convicted of any offence and sentenced to a term of imprisonment? If so, give details of offence and sentence

17. Whether you have been found guilty of misconduct in your professional capacity? If so, give details

I hereby declare that I am not disqualified from applying for appointment by reason of any of the provisions contained in clauses (a) to (d) of paragraph (4) of Notification No. 300/355/74-ED, dated 1-8-1975.

I further declare that I shall

(a) make an impartial and true valuation of any asset which I may be required to value;

(b) furnish the report of such valuation in the prescribed form;

(d) not undertake any valuation of any asset in which I have a direct or indirect interest.

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

Signature of Applicant

Verification

I, ....................................................................................., do declare

[name in block letters]

(i) that what is stated in the above application is true and correct to the best of my knowledge and belief, and

(ii) that the copies sent herewith are the true copies.

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

Place ............................ Signature of Applicant

Date ............................

LIST OF ENCLOSURES

etc.

Circular: No. 425 [F. No. 275/31/85-IT(B)], dated 24-7-1985.

FINANCIAL YEAR 1985-86

1759. Instructions for deduction of tax at source from winnings from horse races during financial year 1985-86 at the rates specified in Part II of the First Schedule to Finance Act, 1985

1. I am directed to invite a reference to this Departments Circular No. 389 [F. No. 275/16/84-IT(B)], dated 4-8-1984 on the above subject, wherein the rates at which deduction of tax under section 194BB to be made during the financial year 1984-85 from winnings from horse races were communicated.

2. The Finance Act, 1985 prescribes the rates for deduction of tax at source for the financial year 1985-86 as specified in Part II of the First Schedule to the said Act. They are as below :

Rates of income-tax including surcharge

(i) In the case of a person other than a company :
(a) where the person is resident	IT 30 per cent, SC Nil;
(b) where the person is not resident	IT 30 per cent of the amount of the income;
	or
	income-tax and in respect of the income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1985 (Annex), if such income had been the total income,
	whichever is higher.
(ii) In the case of a company :
(a) where the company is a domestic company	22.575 per cent (IT 21.5% + SC 1.075 per cent)
(b) where the company is not a domestic company	68.25 per cent (IT 65 per cent + SC 3.25 per cent)

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

4. Attention is also invited to section 276B wherein it is provided that if a person without reasonable cause or excuse fails to deduct, or after deducting fails to pay the tax as required under the provisions of Chapter XVII-B, he shall be punishable

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

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

5. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making deductions of tax under this section. Whenever there is a difference of opinion, a reference should always be made to the provisions of the Act, and the relevant Finance Act through which the changes in the tax structure are made.

ANNEX - EXTRACT FROM THE FINANCE ACT, 1985 - SUB-PARAGRAPH I
OF PARAGRAPH A OF PART III OF THE
FIRST SCHEDULE

Paragraph A

Sub-Paragraph I

In the case of every individual or Hindu undivided family or unregistered firm or other association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other paragraph of this Part applies.

Rates of income-tax

(1)	where the total income does not exceed Rs. 18,000	Nil;
(2)	where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000	25 per cent of the amount by which the total income exceeds Rs. 18,000;
(3)	where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000	Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(4)	where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000	Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000;
(5)	where the total income exceeds Rs. 1,00,000	Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.

Circular: No. 426 [F. No. 275/32/85-IT(B)], dated 24-7-1985.

Financial year 1985-86

1775. Instructions for deduction of tax at source from insurance commission during financial year 1985-86 at the rates specified in Part II of First Schedule to Finance Act, 1985

1. I am directed to invite a reference to this Departments Circular No. 391 [F. No. 275/17/84-IT(B)], dated 8-8-1984 wherein the rates at which the deduction of income-tax was to be made during the financial year 1984-85 from payments of income by way of insurance commission under section 194D were intimated.

The Finance Act, 1985 prescribes in Part II of the First Schedule, the following rates for deduction of tax at source under section 194D during the financial year 1985-86:

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

2. Though the provisions of section 194D apply only in relation to income by way of insurance commission paid to a resident, under the provisions of section 195 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 declaration and payment within India of dividends in the manner prescribed under rule 27 of the Income-tax Rules, 1962. In the case of a person other than a company, who is not resident in India, the rate of deduction of tax at source, as specified in item 1(b)(i) of Part II of the First Schedule to the Finance Act, 1985, is income-tax at 30 per cent of the income by way of insurance commission or income-tax in respect of the income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the said Schedule (extracts given in Annex) 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 on insurance commission is to be deducted at the rate of 68.25 per cent (income-tax 65 per cent plus surcharge 3.25 per cent).

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

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

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

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

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

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

It is very necessary for correct accounting of tax payments in the Income-tax Department that the appropriate challan form is used for making the payments.

Where the payment of tax includes any surcharge, it should be shown separately in the challan, in the space provided for that purpose.

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

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

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

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

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

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

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

(c) A statement in Form No. 26F on or before 30th day of June each year containing details of amount of insurance commission paid or credited during the immediately preceding financial year without deduction of tax.

ANNEX I - EXTRACT FROM SUB-PARAGRAPH I OF PARAGRAPH A OF PART III OF THE FIRST SCHEDULE TO FINANCE ACT, 1985

Paragraph A

Sub-Paragraph I

Rates of income-tax

(1)	where the total income does not exceed Rs. 18,000	Nil;
(2)	where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000	25 per cent of the amount by which the total income exceeds Rs. 18,000;
(3)	where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000	Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(4)	where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000	Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000;
(5)	where the total income exceeds Rs. 1,00,000	Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.

Circular: No. 427 [F. No. 275/25/85-IT(B)], dated 31-7-1985.

FINANCIAL YEAR 1985-86

1719. Instructions for deduction of tax at source from interest on securities during financial year 1985-86 at the rates specified in Part III of First Schedule to Finance Act, 1985

1. I am directed to invite a reference to the Boards Circular No. 393 [F. No. 275/14/84-IT(B)], dated 5-9-1984, wherein you were requested to issue necessary instructions for making deduction of income-tax at source from the payments of Interest on Government securities as prescribed in the Finance Act, 1983, as modified by the Finance Act, 1984.

2. A few changes in the rates of tax at which deduction has to be made from the payments of interest on Government securities during the financial year 1985-86 have been made in the Finance Act, 1985. I am accordingly, enclosing a copy of the draft circular letter setting out the rates at which income-tax and surcharge should be deducted from such payments after March 31, 1985. You may please issue a circular on the basis of this draft to all Treasury Officers and Sub-Treasury Officers under your control individually with a view to ensuring that the provisions of the Act are strictly adhered to by them.

DRAFT CIRCULAR REFERRED TO IN INSTRUCTIONS

1. I am to invite your attention to this office letter regarding deduction of income-tax and surcharge from interest on Government securities during the financial year 1984-85.

2. According to the Finance Act, 1985, except in the case of interest on securities payable to Life Insurance Corporation of India which is exempt from deduction of income-tax, income-tax is to be deducted during the financial year 1985-86, from the entire amount of interest on securities at the following rates, namely :

					Rate of		Rate of
					Income-tax		Surcharge
I.	In the case of a person other than a company :
	(i)	Where the person is resident in India on- income by way of interest payable on any security (excluding interest payable on a tax-free security)			10 per cent		Nil
	(ii)	Where the person is not resident in India
	(1)		In the case of a non-resident Indian
	(A)			on investment income and long- term capital gains	20 per cent		Nil
	(B)			on income by way of interest payable on a tax-free security	15 per cent		Nil
	(C)			on the whole of the other income	Income-tax at 30 per cent of the amount of the income
					or
					income-tax in respect of the income at the rates prescribed in Sub-paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1985 (Annex. I), if such income had been the total income, whichever is higher.
	(2)		In the case of any other person,
	(A)			on the whole of income (excluding interest payable on a tax-free security)	[As against 1(c) above]
	(B)			on income by way of interest payable on a tax-free security	15 per cent	Nil

II.	In the case of a company :

	(i)	Where the company is a domestic company on interest on securities (excluding interest payable on a tax-free security)			21.5 per cent	1.075 per cent
	(ii)	Where the company is not a domestic company
	(A)			on interest payable on a tax-free security	44 per cent	2.2 per cent
	(B)			on interest on other securities	65 per cent	3.25 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 the 1st day of April, 1985, 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 April 1, 1985, you are requested to deduct income-tax at the rates specified above, except in cases, where an exemption or abatement certificate granted by an Income-tax Officer under sub-section (1) of section 197 is produced. In this connection, the following points should be kept in view :

(1) Exemption or abatement certificates issued before April 1, 1985, 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, 1986.

(2) Where a certificate is issued by the Income-tax Officer on or after 1st April, 1985, authorising deduction of tax at a specified rate in respect of any person, income-tax should be deducted at the rates specified therein.

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

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

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

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

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

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

ANNEX I - EXTRACT FROM THE FINANCE ACT, 1985 - SUB-PARAGRAPH I
OF PARAGRAPH A OF PART III OF THE
FIRST SCHEDULE

Paragraph A

Sub-Paragraph I

Rates of income-tax

(1)	Where the total income does not exceed Rs. 18,000	Nil ;
(2)	Where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000	25 per cent of the amount by which the total income exceeds Rs. 18,000;
(3)	Where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000	Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(4)	Where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000	Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000;
(5)	Where the total income exceeds Rs. 1,00,000	Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.

ANNEX II - DECLARATION UNDER SECTION 197A

FORM NO. 15F

[See rule 29C(1)]

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

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

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

Description of securities	Number of securities	Dates of securities	Amount of securities	Date(s) on which the securities were acquired by the declarant

2. that my present occupation is.........................;

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

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

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

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

	........................................................
	Signature of the declarant

VERIFICATION

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

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

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

Notes :

1. @ Give complete postal address.

2. The Declaration should be furnished in duplicate.

3. *delete whichever is not applicable.

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

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

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

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

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

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

3. Period for which interest is paid.

4. Amount of interest.

5. Date on which interest is paid.

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

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

Circular : No. 428 [F. No. 275/30/85-IT(B)], dated 8-8-1985.

FINANCIAL YEAR 1985-86

1743. Instructions for deduction of tax at source from winnings from lottery or crossword puzzle during financial year 1985-86 at the rates specified in Part II of First Schedule to Finance Act, 1985

1. I am directed to invite a reference to the Boards Circular No. 390 [F. No. 275/15/84-IT(B)], dated 8-8-1984, wherein you were requested to issue necessary instructions for making deduction of income-tax at source from the winnings from lottery or crossword puzzles at the rates given in Part II of the First Schedule to the Finance Act, 1984.

2. You are aware that under section 194B, every person responsible for paying to any person, whether resident or non-resident, any income by way of winnings from any lottery or crossword puzzle in any amount exceeding Rs. 1,000 is required to deduct income-tax thereon at the rates specified in this behalf in the Finance Act of the relevant year. The rates of deduction of income-tax, at source for the financial year 1985-86 specified in Part II of the First Schedule to the Finance Act, 1985, are as follows :

Rates of income-tax including surcharge

(i) In the case of a person other than a company :
(a) where the person is resident in India :
(i) on income by way of winnings from lotteries	IT 25 per cent SC Nil;
(ii) on income by way of winnings from crossword puzzles	IT 30 per cent SC Nil;
(b) where the person is not resident in India	30 per cent of the amount of income;
	or
	income-tax in respect of income at the rates prescribed in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1985 [Annex I], if the winnings from lottery or crossword puzzles had been the total income,
	whichever is higher.
(ii) In the case of a company :
(a) where the company is a domestic company	22.575 per cent (IT 21.5 per cent + SC 1.075 per cent);
(b) where the company is not a domestic company	68.25 per cent (IT 65 per cent + SC 3.25 per cent).

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

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

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

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

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

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

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

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

(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 thereon unless it is cancelled by the Income-tax Officer earlier.

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

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

Annex. - Extract from the Finance Act, 1985 - Sub-paragraph I of
paragraph A of Part III of the First Schedule

Paragraph A

Sub-Paragraph I

Rates of income-tax

(1)	where the total income does not exceed Rs. 18,000	Nil;
(2)	where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000	25 per cent of the amount by which the total income exceeds Rs. 18,000;
(3)	where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000	Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(4)	where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000	Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000;
(5)	where the total income exceeds Rs. 1,00,000	Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.

Circular : No. 429 [F.No. 275/35/85-IT(B)], dated 8-8-1985.

Financial year 1985-86

1682. Instruction for deduction of tax at source from salary during the financial year 1985-86 at the rates specified in Part III of First Schedule to Finance Act, 1985

1. I am directed to invite a reference to this Ministrys Circular No. 388 [F.No. 275/13/84-IT(B)], dated 16-7-1984 and Circular No. 407 [F.No. 275/13/84-IT(B)], dated 1-2-1985 wherein the rates of income-tax deduction during the financial year 1984-85 from the payment of income-tax chargeable under the head Salaries under section 192 were intimated.

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

3. In the Finance Act, 1985, some modifications have been made. An extract of Sub-Paragraph I of Paragraph A of Part III of the First Schedule is at Annex 1.

4. The substance of the main provisions of law insofar as they relate to income chargeable under the head Salaries on which tax is to be deducted at source during the financial year 1985-86 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. 18,000. Some typical examples of calculation are at Annex II.

(2) The value of perquisites by way of free or concessional residential accommodation, or motor cars provided by employers to their employees, shall be determined under rule 3 of the Income-tax Rules, 1962. Further the value of other benefits or amenities provided free of cost or at concessional rates to the employees, like supply of gas, electric energy, water for household consumption, educational facilities, etc., should also be taken into account, for the purpose of computing the estimated salary income of the employees during the current financial year (Example II at Annex II illustrates computation of some such perquisites). As regards colliery allowance it is to be noted that only the excess over Rs. 100 per month or 50 per cent of the actual colliery allowance paid by Coal India Ltd., whichever is more, is to be treated as perquisite and the balance amount on account of the payment of said allowance may be allowed to be deducted while computing income under the head Salaries for purpose of deduction of tax at source.

(3) Exemption in computing total income :

(a) Clause (10) of section 10 provides exemption of death-cum-retirement gratuity from inclusion in computing total income. The Government have issued a Notification bearing No. 537(E), dated 1-7-1985 raising the limit of Rs. 36,000 mentioned in sub-clause (iii) of clause (10) of section 10 to Rs. 50,000 for all the three purposes for which the said limit has been mentioned in the provisions of the said clause.

(b) Sub-clause (1) of clause (10AA) of section 10 provides for exemption of any payment received by an employee as cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement on superannuation or otherwise; and

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

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

(5) Under section 10(10B), as amended by section 4 of the Finance Act, 1985 with effect from 1-4-1986, any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947) or under any other Act or Rule, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise at the time of retrenchment, is exempt from the payment of income-tax; the amount exempt under these provisions shall not exceed :

(i) an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947; or

(ii) fifty thousand rupees, whichever is less. However, these limits shall not apply in respect of any compensation received by a workman in accordance with any Scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such Scheme applies and other relevant circumstances, approve in this behalf.

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

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

(b) Para 4, Circular No. 407, dated 1-2-1985 read with Circular No. 408, dated 8-2-1985 may be treated as withdrawn in view of section 6(c) of the Finance Act, 1985.

(c) In respect of salary paid during the financial year 1985-86, the value of any benefit or amenity granted or provided free of cost or at concessional rate by an employer to an employee (not being a director of the company or a person who has substantial interest in the company) is not regarded as a perquisite received by the employee unless the employees income under the head Salaries exclusive of the value of any benefits or amenities not provided for by way of monetary payment exceeds Rs. 24,000. In cases where salary is received from more than one employer, the aggregate salary from these employers will have to be taken into account for the purpose.

(8)(a) Under section 80C while computing the taxable income the disbursing officers should allow deduction of the whole of the first Rs. 6,000, 50 per cent of the next Rs. 6,000 and 40 per cent of the balance of the qualifying amount of payment towards life insurance premium, contributions to provident fund (including contributions to Public Provident Fund constituted under the Public Provident Fund Act, 1968), contributions for participation in the Unit-linked Insurance Plan, 1971 made under section 19(1)(cc) of the Unit Trust of India Act, 1963, deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959 and subscription to the National Savings Certificates (VI Issue) and the National Savings Certificates (VII Issue). The interest on National Savings Certificates (VI Issue) is deemed to be re-invested and therefore the holder thereof is entitled to the benefits of section 80C.

(b) In respect of contributions to recognised provident funds there is another monetary ceiling limit laid down in clause (d) of sub-section (2) of section 80C, in that the employees own contribution to his individual account in the fund will not exceed one-fifth of his salary during the financial year or Rs. 10,000, whichever is less. Salary for this purpose would include dearness allowance if the terms of the employment so provide but will exclude all other allowances or perquisites. The expression recognised provident fund has been defined in section 2(38) to mean a provident fund which has been and continues to be recognised by the Commissioner in accordance with the Rules contained in Part A of the Fourth Schedule to the Act and includes a provident fund established under a Scheme framed under the Employees Provident Funds Act, 1952.

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

(A) Government Provident Fund and Railways Provident Fund.

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

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

(d) Under clause (b) of sub-section (2) of section 80C where the assessee is a Hindu undivided family, the deduction is allowable in respect of

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

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

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

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

(e) The aggregate of the sums referred to in (a) and (d) above which qualifies for the purpose of computing the deduction under section 80C shall not exceed

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

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

(9) No deduction should be made from the salary income in respect of any donations for charitable purposes. The tax relief on such donations as admissible under section 80G will have to be claimed by the taxpayer separately at the time of finalisation of the assessment. However, in cases where contributions to the National Defence Fund, Jawaharlal Nehru Memorial Fund, the Prime Ministers Drought Relief Fund, the National Childrens Fund or the Indira Gandhi Memorial Trust are made, 50 per cent of such contributions may be deducted in computing the total income of the employee. Under section 80G of the Act as amended by section 18 of the Finance Act, 1985 the donation to the Prime Ministers National Relief Fund will be eligible for hundred per cent deduction which would be effective from 1-4-1986, and would, accordingly, apply in relation to the assessment year 1986-87. Thus, deduction in this respect maybe allowed while computing the total income for the purpose of deduction of income-tax at source for financial year 1985-86. Deduction will not be admissible where the aggregate of all contributions for the year is less than Rs. 250.

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

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

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

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

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

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

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

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

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

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

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

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

The expression foreign employer has been defined in Explanation (b) to section 80RRA to mean (i) the Government of a foreign State; or (ii) a foreign enterprise; or (iii) any association or body established outside India. While allowing the deduction under this section, documentary evidence should be obtained on the following points :

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

(ii) In the case of any other individual being a technician, the fact of the terms and conditions of his service outside India having been approved in this behalf by the Central Government (Ministry of Finance, Department of Revenue, Foreign Tax Division, New Delhi).

[It should also be ensured that the deduction is allowed with reference to the remuneration received in foreign currency in respect of the period of service outside India. The fact that deduction is admissible only in relation to the first 36 months of continuous service outside India should also be kept in view.]

(13) Under section 80U: (a) In computing the total income of an individual, being a resident, who, as at the end of the previous year,

(i) is totally blind, or

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

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

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

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

(b) The Board has by Notification No. SO 529(E), dated 17-7-1985 specified the physical disabilities which will be reckoned as permanent physical disabilities for purposes of deduction under this section. According to the said notification a permanent physical disability shall be regarded as a permanent physical disability for purposes of clause (ii) of sub-section (1) of section 80U, if it falls in any one of the categories specified below, namely :

(i) Permanent physical disability of more than 50 per cent in one limb.

(ii) Permanent physical disability of more than 60 per cent in two or more limbs.

(iii) Permanent deafness with hearing impairment of 71 decibels and above.

(iv) Permanent and total loss of voice.

The deduction of Rs. 10,000 from the total income is allowed by the employer subject to the production of a certificate from the Income-tax Officer in favour of the employer as laid down in this Ministrys Circular No. 272, dated 27-5-1980. The certificate once issued will continue to be in force till it is withdrawn by the Income-tax Officer.

(14) The total income computed in accordance with the provisions of the Act should be rounded off to the nearest multiple of ten rupees by ignoring the fraction which is less than five rupees and increasing the fraction which amounts to five rupees or more to ten rupees. The net amount of tax deductible should be similarly rounded off to the nearest rupee.

(15) Section 201 providers :

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

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

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

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

(16) Attention is also invited to section 276B, where it is provided that if a person without reasonable cause or excuse fails to deduct or after deducting fails to pay the tax as required under the provisions of Chapter XVII-B of the Income-tax Act, 1961, he shall be punishable :

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

5. While making the payment of tax deducted at source to the credit of the Central Government it may kindly be ensured that the correct amount of income-tax and surcharge is recorded in the relevant challan. It may also be ensured that the right type of challan is used. The relevant challan for making payment of tax deducted at source from salaries is No. 9 with Blue Colour Band. Where the amount of tax deducted at source is credited to the Central Government through book adjustment, care should be taken to ensure that the correct amount of income-tax is reflected therein.

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

ANNEX I - EXTRACT FROM THE FINANCE ACT, 1985 - PART III OFTHE FIRST SCHEDULE

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 sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other Paragraph of this Part applies :

Rates of income-tax

(1)	where the total income does not exceed Rs. 18,000	Nil;
(2)	where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000	25 per cent of the amount by which the total income exceeds Rs. 18,000;
(3)	where the total income exceeds Rs. 25,000 but does not exceed exceeds Rs. 50,000	Rs. 1,750 plus 30 per cent of the amount by which the total income Rs. 25,000;
(4)	where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000	Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000.
(5)	where the total income exceeds Rs. 1,00,000.	Rs. 29,250 plus 50 per cent of the amount Rs. 1,00,000 by which the total income exceeds

ANNEX II - TYPICAL EXAMPLES OF INCOME-TAX CALCULATION

Example I

		Rs.	Rs.
1.	Total salary income		30,000
2.	Contribution to Government provident fund	5,000
3.	Payment towards life insurance premia	1,000
4.	Contribution for participation in Unit-linked Insurance Plan, 1971, made under section 19(1)(cc) of the Unit Trust of India Act, 1963	300	6,800
5.	Deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959	500
6.	Total salary income		30,000
7.	Deduct: Amount of standard deduction under section 16(i) @ 25% of the amount subject to a maximum of Rs. 6,000		6,000
8.	Gross total income (6-7)		24,000
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 Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959. The total amount paid Rs. 6,800		6,400
10.	Total income		17,600
11.	Total tax payable		Nil

Example II

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

		Rs.
1.	Salary including dearness allowance	48,000
2.	Bonus	9,600
3.	Contribution to recognised provident fund	11,000
4.	LIP	10,000
5.	Subscription to National Savings Certificates (VI & VII Issues)	10,000
6.	Interest accrued for the first year on NSC (VI Issue) @ Rs. 12.40 for every Rs. 100 or say Rs. 5,000	620
7.	Free gas, electricity, water etc. (actual bills paid by the company)	2,400
8.	Furniture at cost (including television set, radio set, refrigerator, other household appliances and an air-conditioner) belonging to the company	40,000
9.	(i) Furnished flat provided to the employee for which actual rent paid by the company (actual rent assumed to be equal to the Fair Rental Value)	42,000
	(ii) Rent recovered from the employee	12,000

Computation of total income

1.	Salary		48,000
2.	Bonus		9,600
			57,600
3.	Valuation of perquisites:
	(a) Furnished flat at concessional rent under section 17(2) read with clauses (a) and (b) of rule 3 of Income-tax Rules, 1962 Fair Rental Value (FRV) (assumed to be equal to actual rent Rs. 42,000) 10 per cent of salary including bonus		5,760
	Add : Excess of (FRV) over 60 per cent of salary including bonus of Rs. 57,600 (i.e., Rs. 42,000Rs. 34,560)	7,440
	Add: Perquisite of the furniture (10 per cent of cost, i.e., Rs. 40,000)	4,000
		17,200
	(b) Less : Rent paid by the employee	12,000	5,200
			62,800
4.	Free gas, electricity, etc.		2,400
			65,200
5.	Less : Standard deduction under section 16(i) @ 25 per cent subject to maximum of Rs. 6,000		6,000
6.	Gross total income		59,200
7.	Less: Deduction under section 80C :
	- P.F. paid Rs. 11,000 but restricted to 1/5th of salary Rs. 48,000 (excluding bonus) or Rs. 10,000, whichever is less		9,600
	- LIP		10,000
	- National Savings Certificates (VI & VII Issues) and interest accrued on Rs. 5,000 for the first year of NSC (VI Issue) (Rs. 10,000 + 620)		10,620
	Total of PF, LIP, NSC of Rs. 30,220 (maximum allowable up to Rs. 40,000)		30,220
	- First Rs. 6,000 (100%)		6,000
	-Next Rs. 6,000 (50%)		3,000
	- On balance Rs. 18,220 (40%)		7,228
			16,288
8.	Total income (67) (Rs. 59,200Rs. 16,288)		42,912
			42,910
9.	Tax payable thereon (Rs. 1,750 + 30% of excess over Rs. 25,000, i.e., on Rs. 17,910)		7,123

[Rate at which monthly deduction from salary is required to be made works out to Rs. 594]

Notes :

1. In the case of a Government servant, the value of perquisites 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 unfurnished accommodation is provided to its employee by the Reserve Bank of India or any other public sector body specified in sub-clause (2) of clause (a) of rule 3 of the Income-tax Rules, say, a nationalised bank, State Trading Corporation, etc., it is taken as 10 per cent of the salary due to the employee and where the accommodation is furnished as in other cases, 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 be excess over 60 per cent of salary over fair rental value, as against 50 per cent in other cases, is required to be added in determining the value of perquisites in view of Boards Circular No. 374, dated 14-12-1983.

Example III

[Illustrating limits of deduction under section 80C]

		Rs.	Rs.
1.	Total salary income (including Rs. 2,400 as conveyance allowance @ Rs. 200 p.m. received from the employer)		36,000
2.	Contribution to recognised provident fund	9,500
3.	Payment to life insurance premia	1,000
4.	Contribution for participation in Unit-linked Insurance Plan, 1971 made under section 19(1)(cc) of the Unit Trust of India Act, 1963	1,500
5.	Deposit in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959	1,000
6.	Total salary income		36,000
7.	Deduct : Amount of standard deduction under section 16(i) @ 25 per cent of the amount subject to maximum of Rs. 6,000		6,000
8.	Gross total income (67)		30,000
9.	Deduction under section 80C :
	Contribution of Rs. 9,500 to PF under section 80C(2)(d) restricted to 1/5th of salary of Rs. 36,000 or
	Rs. 10,000, whichever is less, i.e.,	7,200
	- Life Insurance Premia	1,000
	- Contribution to participation in Unit-linked Insurance Plan, 1971 made under section 19(1)(cc) of the Unit Trust of India Act, 1963	1,500
	- Deposit in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959	1,000
	Deduction admissible on Rs. 10,700
	- on the first Rs. 6,000 (100%)	6,000
	- on the balance Rs. 4,700 @ 50%	2,350	8,350
10.	Total income (89)		21,650
11.	Income-tax payable at Rs. 21,650 (Rs. 21,65018,000 = Rs. 3650 @ 25%)		912.50
12.	Rounded off under section 288B		913
	[Rate at which monthly deduction is required to be made works out to Rs. 76]

Example IV

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

		Rs.
1.	Salary (excluding allowances and perquisites)	40,000
2.	House rent allowance received	8,400
3.	Actual rent paid	11,400
4.	Contribution to recognised provident fund	6,000
5.	LIP	3,000
6.	Deposits in a 10-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959	1,000

Computation of total income

1.	Salary		40,000
2.	House rent allowance received		8,400
			48,400
3.	Less: Allowance u/s 10(13A)
	Actual rent paid	11,400
	Less: 10% of salary	4,000
		7,400
	20 per cent of salary (accommodation being situated at Delhi)	8,000
	Maximum allowable @ Rs. 400 p.m.	4,800	4,800
			43,600
4.	Less : Standard deduction under section 16(i) @ 25% subject to the maximum of Rs. 6,000		6,000
5.	Gross total income		37,600
6.	Less : Deduction under section 80C :
	Total PF, LIP and CTD Rs. 10,000. These contributions being within the prescribed admissible limits, the deduction is admissible on Rs. 10,000
	- First Rs. 6,000 (100%)	6,000
	- On balance Rs. 4,000 (50%)	2,000
		8,000
			8,000
7.	Total income		29,600
8.	Tax payable thereon Rs. 1,750 + 30% of Rs. 4,600 (Rs. 29,600Rs. 25,000)		3,130
	[Rate at which monthly deduction is required to be made works out to Rs. 261.]

Circular : No. 430

SECTION 84 l PARTICULARS OF DECEASED PERSONS TO BE
FURNISHED TO CONTROLLER

1555. Whether transfer of shares referred to in sub-section (1) includes transmission of shares by operation of law

1. Under section 84(2)¹, an Indian company is prohibited from registering any transfer of shares standing in the name of a deceased member of the company unless the transferee has acquired the shares for valuable consideration or a certificate from the Controller of Estate Duty is produced before the company that estate duty in respect of the shares has been paid or will be paid or none is due. It appears that in view of the provisions of section 84(2), many Indian companies insist on the production of estate duty clearance certificates before allowing mutation of the shares in the names of the heirs or successors of the deceased, who are thereby put to great inconvenience.

2. In the Boards view the transfer of shares referred to in section 84(2) does not include transmission of shares by operation of law, such as occurs when the shares devolve on the legal heirs of a deceased member of a company or on the survivor or survivors of two or more joint shareholders. The provisions of section 84(2) are not, therefore, considered to be applicable to cases where the heirs or the survivors of two or more joint shareholders apply for registration in their names of the shares held by the deceased.

3. The Government of India have recently issued a Press Note clarifying the position as stated above for the information of the general public and of all Indian companies concerned. A copy of the Press Note is printed below [here printed as Annex] for information of all officers.

Circular : No. 7-D, dated 23-6-1960.

ANNEX - PRESS NOTE, DATED 21-1-1960 REFERRED TO IN CLARIFICATION

The attention of the Government of India has been drawn to the insistence by many Indian companies on the production of estate duty clearance certificate under the provisions of section 84(2) before allowing mutation of shares held by the deceased members in the names of their heirs and successors. The Government, therefore, wish to clarify that in their view the transfer of shares referred to in section 84(2) does not include transmission of shares by operation of law, such as occurs when the shares devolve on the legal heirs of a deceased member or on the survivor or survivors of two or more joint shareholders. Therefore, the provisions of section 84(2) are not considered to be applicable to cases where the heirs or the survivor or survivors of two or more joint shareholders apply for registration in their names of the shares held by the deceased. In view of this clarification, it is hoped that Indian companies will not in future insist on the production of estate duty clearance certificate in such cases.

Circular : No. 431 [F. No. 174/43/82-IT (A-II)], dated 12-9-1985.

624. Relief in case of encashment of leave salary by an employee while in service - Whether admissible

1. Section 89(1) provides for relief to an assessee when salary, etc., is paid in arrears or in advance or if he receives in one financial year salary for more than 12 months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary and therefore, his income is assessed at a rate higher than at which it would have otherwise been assessed. This relief is granted by the Income-tax Officer on an application made to him in this behalf.

2. The question of admissibility of relief under section 89(1) in respect of amounts received on encashment of leave salary while in service was considered by the Board. The Board are advised that relief under section 89(1) read with rule 21A of the Income-tax Rules would be admissible in respect of encashment of leave salary by an employee when in service. The encashment of leave salary on retirement whether on superannuation or otherwise has already been exempted, by insertion of clause (10AA) in section 10, by the Finance Act, 1982 with effect from 1-4-1978.

Circular : No. 432,440,441

FINANCE ACT, 1985

Amnesty Circulars

Circular : No. 433 [F.No. 275/30/82-IT(B)], dated 25-9-1985.

1110. Tax deduction at source from payments to contractors and sub-contractors in bidi manufacturing industry - Whether munshis are contractors

CLARIFICATION 1

1. Under section 194C, a liability is cast on any person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between him and

(a) the Central Government or any State Government; or

(b) any local authority; or

(d) any company ; or

(e) any co-operative society, or

to deduct an amount equal to two per cent of such sum as income-tax on income comprised therein.

2. In the bidi manufacturing industry, generally there are three parties, the manufacturer, the munshis and the workers. The manufacturer provides the raw material, i.e., leaves, tobacco, thread, etc., to the munshis who distribute the same to the workers who work at home. At regular intervals, the munshis collect the bidies prepared by the workers and hand over the same to the manufacturer. For this work, the manufacturer pays to the munshis, who in turn, make the payment to the workers. The workers as well as munshis get their payments at the rates agreed to.

3. The Board have had occasion to examine the question whether a munshi engaged by the bidi manufacturer is a contractor or an agent and whether the provisions of section 194C would apply to the payments made to him. The Board are advised that in view of the position that the definition of the expression contractor in the Bidi and Cigar Workers (Condition of Employment) Act, 1966, includes sub-contractor, agent, munshi, thekedar or sattedar, the provisions of section 194C would apply in respect of payments made to munshis. It may be clarified that the provisions of section 194C are wide enough to cover oral contracts also. By the very nature of the functions performed by the munshis, there is an implied contract between the manufacturer and the munshis and consequently the munshis are contractors even though there is no written contract or agreement. As such, the provisions of section 194C would apply in respect of payments made to them.

CLARIFICATION 2

1. Under File No. 275/30/82-IT(B), dated 25-9-1985, a Circular No. 433 [Clarification 1] was issued clarifying that the provisions of section 194C would apply in respect of payments made to munshis and that would apply to payments under oral contracts also. The payments to munshis which would be hit by the provisions of section 194C covered not only the payments to them for raw material but also the payments to the workers.

2. Board have received representations that many of the workers to whom such payments are made are entitled to the benefits of Employees Provident Funds and Miscellaneous Provisions Act, 1952. Boards attention has also been drawn to the judgment of the Supreme Court dated 25th September, 1985, in the Writ Petitions Nos. 3605 to 3609 of 1978 and others in the case of P.M. Patel & Sons v. Union of India [1985] 67 FJR 457. In the judgment in para 3, the Supreme Court has dealt with three kinds of bidi workers :

(a) directly employed by the manufacturers;

(b) employed through the medium of agency such as munshis but the workers bring bidi to the factory for quality check and for getting their payments;

It is held that in the types covered by category (b) above, the bidi workers are employees entitled to the benefits of provident fund, etc.

3. In view of the above judgment, it is now further clarified that the deductions under section 194C to be made from the payments to munshis need not include payments to such home workers as fall in category (b) above.

Circular : No. 487 [F.No. 275/34/86-IT(B)], dated 8-6-1987.

ESTATE DUTY (AMENDMENT) ACT, 1985 - CIRCULAR NO. 434, DATED 7-10-1985

CIRCULAR NO. 438

Section 5 l Levy of Estate duty

1513. Adopting States subsequently added in Schedule I - Notification under sub-section (2)

State	Date of passing the adopting resolution	Notification
State	Date of passing the adopting resolution	No.	Date
1. Assam	18-3-1954	SRO 1138	7-4-1954
2. Bihar	15-3-1954	SRO 1138	7-4-1954
3. Travancore-Cochin	19-3-1955	SRO 904	22-4-1955
4. Madras	2-4-1955	SRO 1227	6-6-1955
5. Andhra Pradesh	7-7-1955	SRO 1877	22-8-1955
6. Mysore	18-10-1955	SRO 3660	9-12-1955
7. Patiala and East Punjab States Union	10-4-1956	SRO 966	20-4-1956

Circular: No. 439 [F. No. 225/86/85-IT(A-II)], dated 15-11-1985.

Effect of higher returns for the assessment year 1986-87 in respect of wealth-tax assessments - The Finance Act, 1985 has rationalised the rates of personal income-tax and corporate tax and has also liberalised the provisions of the Wealth-tax Act considerably. Taxpayers liable to wealth-tax should avail of this opportunity to come forward and file returns of wealth showing their true net wealth irrespective of what they might have done earlier. They need not have any apprehension that they will be subject to penalty or prosecution so long as they come forward suo motu before detection by the department. Similarly, where for earlier years there has been any suppression of assets or undervaluation of assets for the purposes of wealth-tax the taxpayers would be well advised to come forward and disclose such undervaluation or suppression now to the Commissioner whether the wealth-tax assessments for those years are pending or completed. They will, of course, have to pay wealth-tax on those assets at the rates applicable to those years, but will not be subject to any penalty or prosecution. Taxpayers would appreciate that this liberal attitude on the part of the Government should elicit response from the wealth-tax payers within a reasonable time and cannot be expected to continue for all time to come. Such immunity from penalty and prosecution will be available only to such persons who come forward and show their true wealth and pay tax thereon by March 1986.

CIRCULAR NO. 442