Circular : No. 529, dated 13-2-1989.

1182. Clarification regarding discontinuance of Form No. 16B

1. Reference is invited to the Boards Circular No. 597[`1] *, dated 27-3-1991[`2] *, containing instructions regarding the use of Form Nos. 16, 16A and 16B for issuing certificates of tax deducted at source, under the various provisions of the Income-tax Act, 1961. These three forms had replaced the earlier unified Form No. 16 with effect from 28-2-1991 vide the Income-tax (Sixth Amendment) Rules, 1991 notified under SO 148(E), dated 28-2-1991.

2. In the light of the experience gained from the use of Form No. 16B, and, with a view to further streamlining the work of issue of certificates for tax deducted at source, the Central Government have decided to discontinue the use of Form No. 16B and to substitute it with Form No. 16A, with effect from 1st July, 1993. In other words, TDS certificates which were required to be issued in Form No. 16B, will now be issued in Form No. 16A, with effect from 1-7-1993. For this purpose, Rule 31 of the Income-tax Rules, 1962 has been suitably amended by the Income-tax (Eleventh Amendment) Rules, 1993 published under notification No. SO 405(E), dated 21st June, 1993. A copy of this notification is enclosed for information and guidance at Annexure I. In addition, the following points may also be noted for guidance and compliance :

(i) Under the provisions of section 203 of the Income-tax Act, every person deducting tax in accordance with the provisions of sections 192 to 194, 194A, 194AA, 194B, 194D, 194E, 194EE, 194F, 194G, 194H, 195, 196A, 196B, 196C and 196D, is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and any other particulars that may be prescribed. This certificate has to be furnished within the period prescribed under rule 31 of the Income-tax Rules, 1962 to the persons to whose account credit is given or to whom the payment is made or the cheque or warrant is issued, as the case may be.

(ii) The existing Form No. 16 shall continue to be used for issuing certificates of tax deducted at source under section 192, relating to salaries.

(iii) The existing Form No. 16A shall, with effect from 1-7-1993, be used for issuing the certificates of tax deducted at source under :

(a) Section 193, relating to interest on securities;

(b) Section 194, relating to dividends;

(d) Section 194B, relating to winnings from lotteries or crossword puzzles;

(e) Section 194BB, relating to winnings from horse races;

(f) Section 194C, relating to payment to contractors and sub-contractors;

(g) Section 194D, relating to insurance commission;

(h) Section 194E, relating to payment to non-resident sportsmen/Sports Associations;

(i) Section 194EE, relating to payment in respect of deposits under the National Savings Scheme;

(j) Section 194F, relating to payment on account of repurchase of units by a Mutual Fund or the Unit Trust of India;

(k) Section 194G, relating to payment of commission, remuneration or prize on sale of lottery tickets;

(l) Section 196, relating to payment of other sums to a non-resident or a foreign company;

(m) Section 196A(2), relating to income of foreign company;

(n) Section 196B, relating to income from units payable to an offshore fund;

(o) Section 196C, relating to income from foreign currency bonds or shares of an Indian company; and

(p) Section 196D, relating to income of Foreign Institutional Investors from securities.

(iv) Both Form Nos. 16 and 16A will be issued by tax-deductors on their own stationery, including computer stationery or, on printed forms which may be available from the market. Tax-deductors should take care while procuring these forms that the same are in the prescribed proforma.

(v) Form Nos. 16 and 16A shall not bear any serial number as before. Copies of these forms are enclosed as Annexures II and III.

(vi) As Form No. 16B is exactly similar to Form No. 16A excepting that it bears a serial number, it has been decided that tax-deductors can utilise these forms by scoring out the serial number and writing 16A in place of 16B, till stocks last with them. Similarly, the Income-tax Department would continue to sell these forms by converting them to Form No. 16A, till stocks last.

3. As per the provisions of sub-rule (3) of rule 31, the aforesaid TDS certificates are to be furnished to the payee within a period of one month and fourteen days from the date of credit or payment of the sum, or as the case may be, from the date of issue of a cheque or warrant for payment of any dividend to shareholders, subject to the exceptions covered by the proviso to sub-rule (3). For deduction under section 192 or 194D, the certificates can be issued within one month from the close of the financial year in which deductions were made. Failure to issue these certificates within the prescribed time invites penalty under section 272A of the Income-tax Act at the rate of a minimum of Rs. 100 and a maximum of Rs. 200 for every day during which the failure continues.

4. According to the provisions of section 206 of the Income-tax Act, 1961, read with rule 37 of the Income-tax Rules, 1962, the person responsible for deducting tax under any of the provisions of Chapter XVIIB of the Income-tax Act is required to file an annual return of tax, deducted at source, within the prescribed time, after the end of financial year during which deduction is made. For ready reference, the table given below rule 37 which has specified the various annual returns, the forms in which these returns are to be furnished, and, the months by the end of which these returns have to be filed with the concerned Assessing Officer (as per rule 36A), is reproduced below :

Sl. No.	Nature of returns	Form No.	Month
(1)	(2)	(3)	(4)
1.	Annual return of deduction of tax under section 192 from Salaries	24	May
2.	Annual return of deduction of tax under section 193 from Interest on securities	25	June
3.	Annual return of deduction of tax under section 194 from Dividends	26	April
4.	Annual return of deduction of tax under section 194A from Interest other than interest on securities	26A	June
5.	Annual return of deduction of tax under section 194B from Winnings from lotteries or crossword puzzles	26B	May
6.	Annual return of deduction of tax under section 194BB from Winnings from horse races	26BB	May
7.	Annual return of deduction of tax under section 194C from Payments to any contractor or sub-contractor	26C	June
8.	Annual return of deduction of tax under section 194D from Insurance commission	26D	June
9.	Annual return of insurance commissions paid/credited during the year without deduction of tax	26E	June
10.	Annual return of deduction of tax under section 194EE from Payments in respect of deposits under National Savings Scheme	26F	June
11.	Annual return of deduction of tax under section 194F from Payments on account of repurchase of units by Mutual Fund or Unit Trust of India	26G	June
12.	Annual return of deduction of tax under section 194G from Commission, etc., on sale of lottery tickets	26H	June
13.	Annual return of deduction of tax under section 194H from Commission, brokerage, etc.	26-I	June
[N.B. - Deduction of tax at source under section 194H was applicable during the period 1-10-1991 to 31-5-1992 only].

It may be mentioned that if a person fails to furnish in due time, any of the aforesaid annual returns, he shall be liable to pay a penalty under section 272A of the Income-tax Act, at the rate of a minimum of rupees one hundred and a maximum of rupees two hundred for every day during which the failure continues, subject, however, to the condition that the amount of such penalty shall not exceed the amount of tax which was deductible or collectible, at source.

This may please brought to the notice of all Disbursing Officers of the Departments of Government of India, State Governments, Public Sector Undertakings, etc. In case any assistance is needed, the Income-tax Officer concerned and/or the Public Relations Officer of the Income-tax Department may please be contacted.

Circular : No. 664, dated 29-9-1993.

Clarification I

1. Under the provisions of section 203 of the Income-tax Act, 1961, every person deducting tax in accordance with the provisions of sections 192 to 194, 194A, 194B, 194BB, 194C, 194D and 195 of the Income-tax Act is required to furnish a certificate to the effect that tax has been deducted, and to specify therein, inter alia, the amount deducted and any other particulars that may be prescribed. The certificate has to be furnished within the period prescribed under rule 31 of the Income-tax Rules, 1962, to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued as the case may be.

2. So far different forms were prescribed under rule 31 for certificates of tax deducted under different sections of the Act. By Notification No. SO 937(E), dated 10-10-1988, however, old rule 13 has been substituted by a new rule which provides for a unified form to be issued in Form No. 16 in respect of tax deducted under all the aforementioned sections. Another important departure from the existing provisions is that the said certificate shall now be issued on a paper serially numbered and printed by the Central Government in book form and supplied for a nominal consideration to the person deducting tax at source on an application to be made by him in Form No.17 to the Commissioner having jurisdiction over him in this regard. This amendment shall come into force on 1-4-1989.

3. In this connection, attention is invited to the provisions of section 272A(2)(g) of the Income-tax Act according to which if a person fails to furnish a certificate as required by section 203 he shall pay, by way of penalty, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200, for every day during which the failure continues.

Clarification 2

1. Under the provisions of section 203 of the Income-tax Act, every person deducting tax in accordance with the provisions of sections 192 to 194, 194A, 194B, 194BB, 194C, 194D, 194E, 195 and 196A is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia the amount deducted, and any other particulars that may be prescribed. The certificate has to be furnished within the period prescribed under rule 31 of the Income-tax Rules, 1962, to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be.

2. With a view to streamlining the work of issue of certificates for tax deducted at source, and avoiding the problems experienced in the use of the unified Form No. 16 [which was brought into force with effect from 1-4-1989 vide Notification No. SO 937(E), dated the 10th October, 1988 (Ref. Boards Circular No. 529, dated 13-2-1989, the Central Government have now introduced a new scheme for the issue of these certificates. The main features of the scheme are as under :

(i) Instead of the existing common Form No. 16 for various deductions, three different forms, viz, Form Nos. 16, 16A and 16B have been introduced by amending, inter alia, rule 31 of the Income-tax Rules through Notification No. SO 148(E), dated 28-2-1991.

(ii) The new Form No. 16 shall be used for issuing the certificates for tax deducted at source under section 192 relating to salaries.

(iii) Form No. 16A shall be used for issuing the certificates of tax deducted at source under section 193 relating to interest on securities, section 194 relating to dividends and section 194D relating to insurance commission.

(iv) Form No. 16B shall be used for issuing the certificates of tax deducted at source under section 194A relating to interest other than interest on securities, section 194B relating to winnings from lotteries or crossword puzzles, section 194BB relating to winnings from horse races, section 194C relating to payments to contractors or sub-contractors, section 194E relating to payments to non-resident sportsmen or sports associations, section 195 relating to other sums, and section 196A relating to income payable to unit-holders of Mutual Fund.

(v) Form Nos. 16 and 16A can be issued on private stationery of the tax deductor or the printed forms available in the market, without approaching the Income-tax Department. However, these forms must be in the prescribed proforma.

(vi) Form No. 16B shall be issued on a paper serially numbered and printed by the Central Government in book form and supplied for a consideration to the person deducting tax at source on an application made by him in Form No. 17 to the Chief Commissioner or Commissioner of Income-tax having jurisdiction over him in this regard. However, in the case of companies which have adopted computerisation for furnishing such certificates, the Commissioner of Income-tax can waive the stipulation of the issue of certificates on forms printed by the Government. Such companies can issue the certificates through computers, but in the prescribed proforma.

(vii) The new forms are to be used by the tax deductors for issuing any certificates for tax deducted at source after 28-2-1991.

3. It may be mentioned that as per sub-rule (3) of rule 31, the aforesaid TDS certificates are to be furnished to the payee within a period of one month from the date of credit or payment of the sum, or as the case may be, from the date of issue of a cheque or warrant for payment of any dividend to a shareholder, subject to the exceptions covered by the provisos to sub-rule (3). For deductions under sections 192 and 194D, the certificates can be issued within one month from the close of the financial year in which the deductions were made. Non-furnishing of these certificates within the prescribed time invites penalty under section 272A of the Income-tax Act at the rate of a minimum of rupees one hundred and a maximum of rupees two hundred per day for the period of default.

4. According to rule 37 of the Income-tax Rules, a person responsible for deducting tax under any of the provisions of Chapter XVIIB of the Income-tax Act is required to file an annual return of tax deduction by the end of the specified month. The annual return for deduction from salaries (Form No. 24) was hitherto required to be filed by the 30th of April every year. This date has now been changed to 31st May by the aforesaid Notification of 28th February, 1991. Form No. 24 has also been modified vide Notification No. SO 220 (E), dated 26th March, 1991. The returns this year may be filed in the new form.

5. For ready reference, the Table below rule 37, which specifies the Form numbers and the months by the end of which the annual return of tax-deduction have to be filed, is reproduced below :

Sl. No.	Nature of returns	Form No.	Month
(1)	(2)	(3)	(4)
1.	Annual return of deduction of tax under section 192 from Salaries	24	May
2.	Annual return of deduction of tax under section 193 from Interest on securities	25	June
3.	Annual return of deduction of tax under section 194 from Dividends	26	April
4.	Annual return of deduction of tax under section 194A from Interest other than interest on securities	26A	June
5.	Annual return of deduction of tax under section 194 from Winnings from lotteries or crossword puzzles	26B	May
6.	Annual return of deduction of tax under section 194BB from Winnings from horse races	26BB	May
7.	Annual return of deduction of tax under section 194C from Payments to any contractor or sub-contractor	26C	June
8.	Annual return of deduction of tax under section 194D from Insurance commission	26D	June
9.	Annual return of insurance commission paid/credited during the year without deduction of tax	26E	June

It may be mentioned that if a person fails to furnish in due time, any of the aforesaid annual returns he shall be liable to pay penalty under section 272A of the Income-tax Act, at the rate of a minimum of rupees one hundred and a maximum of rupees two hundred per day for the period of default.

Circular : No. 597, dated 27-3-1991.

Clarification 3

1. Reference is invited to Boards Circular No. 597, dated 27-3-1991 containing detailed instructions on the use of new Form Nos. 16, 16A and 16B in lieu of the unified Form No. 16 which was in force from 1-4-1989 to 28-2-1991.

2. As stated in paragraph 2(vii) of the said Circular, the new forms are to be used by the tax-deductors for issuing any certificate for tax deducted at source after 28-2-1991. However, representations have been received by the Board from various quarters that since the new Form No. 16B was not available in adequate numbers at many places after 28-2-1991, TDS certificates issued after that date in the unified Form No. 16 may be accepted by the Income-tax Department.

3. The matter has been considered by the Board and it has been decided that the TDS certificates issued in the unified Form No. 16 after 28-2-1991, will also be accepted by the Assessing Officers in lieu of Form No. 16B for the assessment year 1991-92. In other words, the unified Form No. 16 will also be accepted in lieu of Form No. 16B in cases where tax has been deducted at source under sections 194A, 194B, 194BB, 194C, 194E, 195 and 196A of the Income-tax Act during the financial year 1990-91.

Circular : No. 605, dated 12-6-1991.

Clarification 4

1. Reference is invited to Boards Circular No. 605, dated 12-6-1991, conveying the Boards decision that in view of the shortage of the new Form No. 16B, the Assessing Officers may accept the TDS certificates in the old Form No. 16 also in respect of deductions of tax at source under sections 194A, 194B, 194BB, 194C, 194E, 195 and 196A of the Income-tax Act, 1961, for the assessment year 1991-92.

2. Despite measures taken to make Form No. 16B available in adequate numbers at all places, the shortage of these forms is still continuing. The Board have, therefore, decided that TDS certificates issued in the old Form No. 16 may also be accepted by the Assessing Officers in lieu of Form No. 16B in respect of tax deducted at source up to 31st December, 1991. Simultaneously, the Field Officers may also sell the existing stock of Form No. 16 lying with them, till 31-12-1991.

3. It may be clarified here that the old Form No. 16 shall be accepted only for the categories of TDS for which the new Form No. 16B has been prescribed. Form No. 16B shall also remain in force along with old Form No. 16 and the tax-deductors can use either of the two forms.

Circular : No. 607, dated 4-7-1991.

Clarification 5

1. Reference is invited to Boards Circular No. 607, dated 4-7-1991 conveying Boards decision that the TDS certificates issued by tax deductors in the old (unified) Form No. 16 would continue to be accepted by the Income-tax Department in lieu of the new Form No. 16B, till 31-12-1991.

2. The position in this regard was recently reviewed by the Board and it has been decided that the TDS certificates issued up to 31st March, 1992 in the old (unified) Form No. 16 will continue to be accepted by the Assessing Officers, in lieu of Form No. 16B.

3. It may be clarified that the unified Form No. 16 shall be accepted only for those categories of TDS for which the new Form No. 16B is prescribed at present. Form No. 16B shall also remain in force along with the old (uniform) Form No. 16 and the tax deductors can use either of the two forms till 31-3-1992. TDS certificates issued after 31-3-1992 will not be accepted in the aforesaid Form No. 16.

Circular : No. 625, dated 12-2-1992.

Circular : No. 530, dated 6-3-1989.

1215. Whether Assessing Officer can exercise discretion under section 220(6) to treat assessee as not being in default in respect of amounts disputed in first appeal pending before Deputy Commissioner (Appeals)/Commissioner (Appeals)

Clarification 1

1. Under section 220(6) of the I.T. Act, 1961 where an assessee has presented an appeal u/s 246 of the Act before the Deputy Commissioner (Appeals) or the Commissioner (Appeals), the Assessing Officer may, in his discretion, and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of.

2. Having regard to the proper and efficient management of the work of collection of revenue, the Board has considered it necessary and expedient to order that on an application being filed by the assessee in this behalf, the Assessing Officer will exercise his discretion u/s 220(6) of the Act (subject to such conditions as he may think fit to impose) so as to treat the assessee as not being in default in respect of the amount in dispute in the appeal in the following situations :

(i) the demand in dispute has arisen because the Assessing Officer had adopted an interpretation of law in respect of which, there exist conflicting decisions of one or more High Courts or, the High Court of jurisdiction has adopted a contrary interpretation but the Department has not accepted that judgment, or

(ii) the demand in dispute relates to issue that have been decided in favour of the assessee in an earlier order by an appellate authority or Court in assessees own case.

3. It is clarified that in the situations mentioned in para 2 above, the assessee will be treated as not in default only in respect of the amount attributable to such disputed points. Further, where it is subsequently found that the assessee has not co-operated in the early disposal of appeal or where a subsequent pronouncement by a higher appellate authority or Court alters the situation referred to in para 2 about, the Assessing officer will no longer be bound by the instructions and will excercise his disertion independently.

4. In respect of other cases, not covered by para 2 above, the Assessing Officer will take into account all the relevant factors and communicate his decision to the assessee in the form of a speaking order. While exercising discrtion under the provision, the financial capacity of the assessee to pay demand will not be relevant.

Judicial analysis

Explained in - The above circular was explained in Madhu Silica (P.) Ltd. v. CIT 1996 Tax L.R. 521 (Guj.), as follows :

8. From the aforesaid provision of the Act and Circular issued by the Board of Direct Taxes, it is apparent that in the case where the assessee has preferred an appeal under section 246, the Assessing Officer has been vested with the discretion to treat the assessee as not being in default in respect of the amount in dispute in appeal as long as the appeal remains undisposed of even though time for payment of demand under the assessment has expired. The power being discretionary, general guidelines laying down the circumstances in which the assessee may be treated not being in default, was issued by the Board in exercise of its power under section 119 of the Act which has been reproduced hereinabove. As per the instructions contained in clause 2 of the circular it is obvious that where the demand in dispute relates to issue that have been decided in favour of the assessee in an earlier order by an appellate authority or court in the assessees own case, the assessee is not to be treated being in default in respect of that amount in dispute in appeal. While laying down that guidelines it has been further clarified that in that situation the assessee will be treated as not in default only in respect of the amount attributable to such disputed points, namely, which have been decided in favour of the assessee in earlier order by the appellate authority. We also notice that another Circular No. 589, dated 16-1-1991 had been issued by the Board wherein the Board clarified under clause (2) of its instruction contained in the circular that according to para 2 of the Circular No. 530, the Assessing Officer in two situations referred to in that para 2 was bound to treat the assessee not in default in respect of the amount in dispute in appeal.

9. It is not in dispute that the aforesaid circular being in the nature of laying down general guidelines for proper administration of the Act for those who are employed in the execution of the Act are bound to observe such instruction particularly ones which are beneficial to the assessee. (p. 523)

Explained in - Gujarat State Fertilizers & Chemicals Ltd. v. Dy. CIT [1997] 226 ITR 270/98 Taxman 100 (Guj.) it was observed as follows :

As per Circular No. 530, dated March 6, 1989, on an application being filed by the assessee the Assessing Officer will exercise his discretion under section 220(6) subject to such conditions as he may think fit to impose, so as to treat the assessee as not being in default in respect of the amount in the appeal in the situations indicated in paragraph 2 of the circular. Accordingly, where the demand in dispute relates to issues that have been decided in favour of the assessee in an earlier order by an appellate authority or a court in the assessees own case, the assessee is to be treated as not being in default in respect of the amounts attributed to such disputed amounts.

Clarification 2

1. Reference is invited to Boards Circular No. 530 [F. No. 404/82/88-ITCC], dated March 6, 1989 regarding the above-mentioned subject.

2. According to paragraph 2 of the said Circular, the Assessing Officer is, in the two situations referred to in that paragraph, bound to treat the assessee as not in default in respect of the amount in dispute in appeal. In respect of other cases, the Circular stated in paragraph 4

In respect of other cases, not covered by para 2 above, Assessing Officer will take into account all the relevant factors and communicate his decision to the assessee in the form of a speaking order. While exercising discretion under this provision, the financial capacity of the assessee to pay the demand will not be relevant.

3. Representations have been received by the Board that the exclusion of financial capacity of the assessee to pay the demand, from the factors relevant for exercise of Assessing Officers discretion under section 220(6) of the Income-tax Act, is prejudicial to those assessees who are not financially sound.

4. The matter has been reconsidered by the Board. It has been decided to substitute paragraph 4 of Circular No. 530 by the following paragraph :

In respect of other cases not covered by paragraph 2 above, the Assessing Officer, while considering the situation for treating the assessees to be not in default, would consider all relevant factors having a bearing on the demand raised and communicate his decision to the assessee in the form of a speaking order.

Circular : No. 589, dated 16-1-1991.

Circular : No. 531, dated 17-3-1989.

510. Date of application of annuity plan of LIC

1. Section 80CCA of the Income-tax Act, 1961, as substituted by the Finance Act, 1988, with effect from 1st April, 1988, provides for a deduction, inter alia, of amounts paid to effect or keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification in the Official Gazette, specify. For the assessment year 1988-89, the amount qualifying for deduction is Rs. 20,000 and the subsequent assessment years, the qualifying amount is Rs. 30,000.

2. The Central Government has, by Notification No. GSR 903(E), dated 6-9-1988 specified Jeevan Dhara and Jeevan Akshay plans of the Life Insurance Corporation as annuity plans of that Corporation for the purposes of section 80CCA.

3. The Board have decided that amounts paid under the two annuity plans during the previous year relevant to the assessment year 1988-89 would be eligible for deduction under section 8OCCA even though such payments may have been made before the date of the aforesaid notification.

Circular : No. 532, dated 17-3-1989.

511. Taxability of repayment of amount from the account under National Savings Scheme to the legal heirs of assessee

1. Sub-section (2) of section 80CCA of the Income-tax Act, 1961, provides that where any amount standing to the credit of an assessee under the National Savings Scheme, in respect of which a deduction had been allowed under sub-section (1) of the said section, is withdrawn in whole or in part in any previous year, the amount withdrawn shall be deemed to be the income of the assessee of that previous year.

2. A question has been raised whether the amount received under the National Savings Scheme by the legal heirs of an assessee after his death can be deemed to be the income of the legal heirs under section 80CCA(2).

3. The Board is of the view that where the amount credited to the account of an assessee under the National Savings Scheme is paid on the death of the assessee to his legal heirs, the amount so paid will not fall within the ambit of section 8OCCA(2) and, accordingly, the amount of such repayment will not be chargeable to tax in the hands of the legal heirs.

4. Similarly, the amount paid by way of Gross Insurance Value Element under the annuity plans of Life Insurance Corporation as referred to in clause (ii) of sub-section (1) of section 80CCA to the nominee or legal heirs of the assessee after his death will also not be covered by the provisions of section 80CCA(2) and will, accordingly, not be chargeable to income-tax in their hands.

JUDICIAL ANALYSIS

Explained in - In CIT v. Dr. Rodhan H. Shroff [1994] 207 ITR 957 (Bom.), the above circular was referred to in the context of repayment of annuity deposit to legal heirs under section 280D. The High Court accepted the submission of the assessee that a deemed provision which is made in respect of an assessee, therefore, does not ipso facto extend to the legal heirs or nominee of the assessee. (p. 962)

Circular : No. 533, dated 27-3-1989.

602. Application for approval [`3] 1of agreement to be made in prescribed form and verified in prescribed manner

1. Attention is invited to the Boards Circular No. 187, dated 23-12-1975, wherein the form of application to be filed before the Central Board of Direct Taxes under section 80-O of the Income-tax Act, 1961, was prescribed.

2. By an amendment made to this section by the Finance Act, 1988, it has now been provided that the application for approval of the agreement should be made in the prescribed form and verified in the prescribed manner. Vide Notification No. S.O. 1108(E), dated 28-11-1988, a new rule 11E has been inserted in the Income-tax Rules, 1962, with effect from 1-4-1989, prescribing that the application form for approval of the agreement under section 80-O should be in Form No. 10F.

3. Further the powers of the Board to approve the agreement have been delegated to the Chief Commissioners/Directors General of Income-tax with effect from 1-4-1989. Every application pending for approval under this section with the Board immediately before 1-4-1989 shall stand transferred to the concerned Chief Commissioner/Director General of Income-tax for disposal.

4. With effect from 1-4-1989, the application for approval of the agreement under section 80-O of the Income-tax Act, 1961 in the Prescribed form should be filed before the concerned Chief Commissioner/Director General of Income-tax. As per the present practice, the application along with enclosures signed by the person authorised to sign the return of income on behalf of the applicant, should be filed in triplicate.

Circular : No. 534, dated 7-4-1989.

512. Repayment of amount on the closure of account under NSS - Taxability of

1. Clause (a) of sub-section (2) of section 80CCA of the Income-tax Act, 1961, provides that where any amount standing to the credit of an assessee under the National Savings Scheme in respect of which a deduction has been allowed under sub-section (1) of that section (including interest thereon) is withdrawn in whole or in part in any previous year, the amount withdrawn shall be deemed to be the income of the assessee of that previous year.

2. The Central Government has notified the National Savings Scheme Rules, 1987 under Notification GSR No. 335(E), dated 30-3-1987. Rule 9 of the said Rules provides for the closure of an account opened under the scheme. Under the said rule, the closure of an account is permitted on the expiry of three years from the end of the year in which the last deposit was made, but in the event of the death of the account holder, the account can be closed at any time after his death.

3. A question has been raised whether the amount paid to an assessee on the closure of the account by him after the expiry of the stipulated period of three years would be treated as the income of the relevant previous year in terms of sub-section (2) of section 80CCA.

4. It is, therefore, clarified that the amount withdrawn by an assessee on the closure of the account would also fall within the purview of sub-section (2) of section 80CCA. It may be noted that clause (a) of sub-section (2) of the said section refers to withdrawal of the amount to the credit of an assessee, in whole or in part. On the closure of an account, the whole amount to the credit of the assessee in the account is withdrawn by him. Hence, the amount paid to the assessee on the closure of the account is clearly covered by sub-section (2) of section 80CCA and will be deemed to be the income of the assessee of the previous year in which the amount is withdrawn on the closure of the account. However, as clarified vide Boards Circular No. 532, dated 17-3-1989, the provisions of sub-section (2) of section 80CCA will not apply in respect of the amount paid to the legal heirs of the assessee on the closure of his account in the event of his death.

Circular : No. 535, dated 26-6-1989.

Section 206C l Profits And Gains From Business of Trading In Alcoholic liquor, Forest Produce, etc.

1189. Instructions regarding deduction of tax at source on profits and gains from the business of trading in alcoholic liquor, forest produce, etc.

Clarification I

1. Considerable difficulty has been felt in the past in assessing income of persons who take contracts for sale of liquor, forest produce, etc. It has been the Departments experience that for taking such contracts, firms or associations of persons are specifically constituted and very often no trace is left of them or their members after the contract has been executed. Persons have also been found to have taken contracts in benami names by floating undertakings or associations for short periods. Since tax is payable in the assessment years on the incomes of the previous years, the time by which the incomes from such sources become assessable, such persons become untraceable. Moreover, at the time of assessment years in these cases, either the accounts are not available or they are mostly incorrect or incomplete. Thus, even if assessments could be made on ex parte basis, it becomes almost impossible to collect the tax found due, either because it becomes difficult to establish the identity of the persons and trace them or because of the fact the persons in whose names contracts were taken are men of no means. With a view to combating large scale tax evasion by persons deriving incomes from such business, the Finance Act, 1988 has inserted a new section 44AC to provide for determination of income in such cases. Further, with a view to facilitating collection of taxes from such assessees, the Finance Act, 1988 has inserted a new section 206C to provide for collection of such tax at source.

2. Sections 44AC and 206C are reproduced below :

(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in case of an assessee, being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction, tender, or any other mode, conducted by any other person or his agent (hereafter in this section referred to as the seller),

(a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head Profits and gains of business or profession;

(b) the right to receive any goods of the nature specified in column (2) of the Table below, or such goods as the case may be, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table of the amount paid or payable by the buyer in respect of the sale of such right or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head Profits and gains of business or profession.

Table

Sl. No.	Nature of goods	Percentage
(1)	(2)	(3)
(i)	Timber obtained under a forest lease	Thirty-five per cent
(ii)	Timber obtained by any mode other	Fifteen per cent
	than under a forest lease
(iii)	Any other forest produce not being timber	Thirty-five per cent

(2) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to a buyer (other than a buyer who obtains any goods from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1).

(3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee.

Explanation : For the purposes of this section, Seller means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm.

The provisions of this section will apply only to an assessee being a person other than a public sector company, referred to as buyer of any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor) or such goods as are mentioned in clause (b) of sub-section (1) of section 44AC, at the point of first sale. The provisions of this section shall not apply to any buyer in the second or subsequent sale of such goods. This amendment will take effect from 1st April, 1989 and will accordingly apply to assessment year 1989-90 and subsequent years :

(1) Every person, being a seller referred to in section 44AC, shall, at the time of debiting of the amount payable by the buyer referred to in that section to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax on income comprised therein :

Table

Sl. No.	Nature of goods	Percentage
(1)	(2)	(3)
(i)	Alcoholic liquor for human consumption (other	Fifteen per cent
	than Indian-made foreign liquor)
(ii)	Timber obtained under a forest lease	Fifteen per cent
(iii)	Timber obtained by any mode other than under	Ten per cent
	a forest lease
(iv)	Any other forest produce not being timber	Fifteen per cent.

Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force.

(2) The power to recover tax by collection under sub-section (1) shall be without prejudice to any other mode of recovery.

(3) Any person collecting any amount under sub-section (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs.

(4) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable.

(5) Every person collecting tax in accordance with the provisions of this section shall, within ten days from the date of debit or receipt of the amount, furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed.

(6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3).

(7) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of two per cent per month or part thereof on the amount of such tax from the date on which such tax was collectable to the date on which the tax was actually paid.

(8) Where the tax has not been paid as aforesaid, after it is collected, the amount of tax together with the amount of simple interest thereon referred to in sub-section (7) shall be charged upon all the assets of the seller.

It may be noted that the sum collected at source in accordance with the provisions of section 206C should be increased by a surcharge for the purpose of the Union calculated on the income-tax at the rates in force. Tax is required to be collected from the buyer either at the time of debiting the said amount to the account of the buyer or at the time of receipt of that amount from the buyer, whichever is earlier. This mode of recovery of tax shall be without prejudice to any other mode of recovery. The tax so collected by the seller shall be paid to the credit of the Central Government or as the Board directs within 7 days from the date of collection. It will be treated as tax paid on behalf of the person from whom the tax had been collected and credit shall be given for such amount in the assessment made under the Income-tax Act on production of a certificate. This section also provides that if a seller does not collect or after collecting fails to pay the tax, he shall be deemed to be an assessee in default in respect of the tax and the amount of tax together with the amount of simple interest calculated at the rate of 2 per cent per month or part thereof shall be a charge upon the assets of the seller. It may be noted that failure to pay the tax collected at source will attract the penal provisions of section 276B according to which such a person will be punishable with rigorous imprisonment, for a term between 3 months and 7 years and with fine.

This amendment will be effective from 1st June, 1988.

The Board by Notification No. SO 557(E), dated 9th June, 1988 has made necessary amendments in the Income-tax Rules, 1962 in this regard. It may be noted that failure to pay tax collected at source, a new challan form has been devised.[`4] *

Circular : No. 525, dated 24-11-1988.

Clarification II

1. Attention is invited to this Departments Circular No. 525, dated 24-11-1988 wherein the rates at which collection of income-tax have to be made at source during the financial year 1988-89 in respect of profits and gains from the business of trading in alcoholic liquor (other than Indian-made foreign liquor), timber and other forest produce were communicated.

2. Subsequent to the issue of the aforesaid circular, the Direct Tax Laws (Amendment) Act, 1989 substituted the words Ten per cent by words Five per cent occurring in column 3 against item (iii) of the table below sub-section (1) of section 206C of the Income-tax Act, thereby providing that in respect of the timber obtained by any mode other than forest lease, income-tax shall be collected at the rate of 5 per cent of the purchase price payable by the buyer. The said amendment has come into effect from 1-6-1988. The Direct Tax Laws (Amendment) Act has also inserted a new sub-section (5A) in section 206C to provide that every person collecting tax in accordance with the provisions of section 206C shall prepare half-yearly returns for the period ending on the 30th September and 31st March in each financial year and deliver or cause to be delivered to the prescribed income-tax authority such returns in such form and verified in such manner and setting forth such particulars as may be prescribed in the rules. It may also be added that the Direct Tax Laws (Amendment) Act has inserted a proviso to clause (a) of sub-section (1) of section 44AC of the Income-tax Act which provides that clause (a) relating to determination of profits in the trading of goods, in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor) at 40 per cent of the purchase price, shall not apply where the goods are not obtained by way of auction and where the sale price of such goods as sold by the buyer is fixed by or under any State Act. In such cases, tax will not be required to be collected under section 206C.

3. Subject to the amendments/modifications mentioned in para 2 above, the instructions contained in the Departments Circular No. 525, dated 24-11-1988 will be applicable during the current financial year also i.e., 1989-90. It may be noted that as per the provisions of the Finance Act, 1989 in cases in which tax has to be collected under section 206C, the collection shall be made at the rates specified in that section, i.e., at the rate of 15 per cent of the amount payable by the buyer (at the rate of 5 per cent in the case of timber obtained by any mode other than forest lease), and it shall be further increased by surcharge for the purpose of the Union calculated at the rate of 8 per cent of such collection.

4. It may also be mentioned that the tax so collected is to be paid within seven days to the credit of the Central Government, as provided in sub-section (3) of section 206C. Failure to do so attracts prosecution under section 276BB of the Income-tax Act. Failure to collect the tax from the buyers of the goods mentioned in sections 44AC and 206C makes the seller of the goods responsible for paying the tax to the Central Government in terms of sub-section (6) of section 206C.

Clarification III

1. Attention is invited to this Departments Circular No. 525, dated 24-11-1988 and No. 535, dated 26-6-1989, wherein the provisions relating to collection of income-tax at source under section 206C of the Income-tax Act in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc. were communicated.

2. According to sub-section (5A) of section 206C, every person collecting tax in accordance with the provisions of the said section shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year and deliver or cause to be delivered to the prescribed income-tax authority, the said returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. A new rule 37E prescribing the half-yearly returns regarding tax collected at source u/s 206C(5A) and another rule 37F prescribing the income-tax authorities to whom these half-yearly returns are to be furnished, have been inserted by the Income-tax Rules, 1962, vide Notification No. S.O. 149(E), dated 19-2-1990. These half-yearly returns are to be filed within one month from the end of the period to which the returns relate.

Circular : No. 565, dated 11-7-1990.

Clarification IV

1. Reference is invited to Boards Circular No. 565, dated 11-7-1990 regarding collection of income-tax at source under section 206C of the Income-tax Act in respect of profits and gains from the business of trading in alcoholic liquor, forest produce etc., as also to earlier Circulars referred to in paragraph 1 of Circular No. 565.

2. As a result of different systems prevailing in different States, the term purchase price, used in section 44AC of the Income-tax Act was being understood in different ways. In order to clarify this point, the Finance Act, 1990 has amended the said section to provide that the purchase price would mean any amount (by whatever name called) paid or payable by the buyer to obtain the goods referred to in that section, except the bid amount in an auction. Accordingly, the excise duty paid or payable by the buyer will also form part of the purchase price for the purposes of section 44AC. On the same analogy, the Nirgam Mulya or Issue Price which is paid by a buyer in the State of Uttar Pradesh will also form part of the purchase price. Thus, income-tax will have to be collected at source under the provisions of section 206C by all persons referred to in section 44AC of the Income-tax Act, 1961 (e.g. Central Government, State Government, local authority, corporations, etc.) at the specified rates, with reference to the purchase price including the excise duty, etc.

3. The above amendment has come into force with effect from the assessment year 1991-92 and, therefore, will be applicable to the collections under section 206C made during the financial year 1990-91.

4. The Finance Act, 1990 has further amended section 44AC so as to include a co-operative society also within the meaning of the term seller as defined therein. The said amendment has also come into effect from assessment year 1991-92 and will, accordingly, apply to collections made under section 206C during the financial year 1990-91.

Circular : No. 585, dated 27-11-1990.

Judicial analysis

Explained in - The above circular was explained in Badhar Khan Pukhraj v. Deputy Commissioner (Asstt.) [1993] 112 Taxation 74 (Trib.), in the following words :

17. The above circular clearly shows that since the provisions of section 44AC were being understood in different ways, a necessity of clarifying the position was felt. In view of this state of affairs regarding the scope and application of section 44AC it would not be unreasonable to hold that a substantial point of dispute was there, involved in the assessment in this case, and that the nature of such dispute went beyond the scope of adjustment contemplated under section 143(1) and which could have been made by rectifying an arithmetical error in the return. In that sense of the matter there existed mistake apparent from record in the intimation sent by the DC (Asstt.) under section 143(1) after making adjustments. In fact, the existence of such a mistake or error apparent from record was appreciated in his second order dated 2-1-1992 by the Assessing Officer himself when he corrected or rectified the mistake regarding inclusion of cost price of Rum in the computation of purchase price. We are thus satisfied that the order under appeal which has the effect of upholding the legality and validity of intimation sent under section 143(1) is not correct in law and is required to be vacated. We hold accordingly and direct that the addition of Rs. 1,05,39,059 made by the DC (Asstt.) by way of making adjustments be cancelled. (pp. 80-81)

Clarification V

1. Attention is invited to the Boards Circular No. 565, dated 11-7-1990 regarding collection of income-tax at source under section 206C of the Income-tax Act, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc. and filing of half-yearly returns in this regard.

2. The Finance (No. 2) Act, 1991 does not make any change in the rates of tax applicable for the collection of tax at source under section 206C for the financial year 1991-92. These rates and other relevant provisions are enumerated below.

3. Sub-section (1) of section 206C lays down that every person, being a seller referred to in section 44AC shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at time of receipt of such amount from the said buyer in cash or by issue of cheque or draft or by any other mode, whichever is earlier, collect from the buyer of the goods of the nature specified below, a sum equal to the percentage, as mentioned against each, of such amount as income-tax on the income comprised therein :

(i)	Alcoholic liquor for human consumption (other than Indian-made foreign liquor)	15%
(ii)	Timber obtained under a forest lease	15%
(iii)	Timber obtained by any mode other than under a forest lease	5%
(iv)	Any other forest produce not being timber	15%

Further, according to the provisions of the Finance (No.2) Act, 1991, the amount of tax collectible at source at the aforesaid rates shall be increased by a surcharge at the rate of 15 per cent where the buyer is a domestic company and 12 per cent in respect of other buyers.

4. It may be clarified that seller for the aforesaid purpose means the Central Government or a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society. It is also clarified that the provisions of section 44AC, and, consequently, those of section 206C will apply only to an assessee being a person (as defined in the Act) other than a public sector company, referred to as buyer of any goods, in the preceding paragraph, at the point of first sale and not in the case of second or subsequent sale of such goods.

5. It is further clarified that in the case of goods of the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor), the aforesaid provisions shall not apply to a buyer where such goods are not obtained by him by way of auction and where the sale price of such goods to be sold (further) by the buyer is fixed by or under any State Act.

6. It is also clarified that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief, any of the goods referred to above are to be utilised for the purpose of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of sub-section (1) of section 206C shall not apply so long as the certificate remains in force. Reference in this regard may be made to rule 37C of the Income-tax Rules, 1962 and Form No. 27C prescribed thereunder.

7. The responsibilities, obligations, etc., under the Income-tax Act of the person collecting tax at source under section 206C, are as follows :

(a) According to the provisions of sub-section (3) of section 206C, any person collecting any amount, as aforesaid, shall pay within seven days the amount so collect to the credit of the Central Government or as the Board directs.

(b) According to the provisions of sub-section (5) of section 206C, every person collecting tax as aforesaid shall within ten days from the date of debit, or receipt of the amount, furnish to the buyer to whose account such amount is debited, or, from whom such payment is received, a certificate to the effect that tax has been collected, specifying the sum so collected and the rate at which the tax has been collected and such other particulars as may be prescribed. On production of this certificate by the buyer, credit shall be given to him for the amount so collected in the assessment made under the Act for the assessment year for which such income is assessable. Reference in this regard may be made to rule 37D of the Income-tax Rules, 1962 and Form No. 27D prescribed thereunder.

If a person fails to issue the certificate of tax collected at source by him, as aforesaid, he shall be liable to pay by way of penalty under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

(c) If any person responsible for collecting tax under the provisions of section 206C fails to collect the tax, he shall still be liable in terms of sub-section (6) of section 206C to pay the tax to the credit of the Central Government within the period of seven days referred to in sub-para (a) above.

(d) If the seller fails to collect the tax, or, after collecting the tax, fails to pay it to the credit of the Central Government he shall be liable in terms of sub-section (7) of section 206C to pay simple interest @ 2% per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which such tax was actually paid. Further, section 276BB lays down that if a person fails to pay to the credit of the Central Government the tax collected by him as required under the provisions of section 206C, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.

8. Sub-section (5A) of section 206C lays down that every person collecting tax in accordance with the provisions of the said section shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year, and, deliver or cause to be delivered to the designated/concerned Assessing Officer the said returns. Under rule 37E of the Income-tax Rules, 1962, these returns are to be furnished in Form No. 27EA, 27EB, 27EC or 27ED relating respectively to alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, or, any other forest produce not being timber, as the case may be, within a period of 1 month from the end of the half-yearly period to which the return relates.

If a person fails to furnish the aforesaid returns in time, he shall be liable to pay by way of penalty, under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the default continues. However, the penalty shall not exceed the amount of tax which was collectible at source.

9.These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making collection of tax at source under section 206C. Wherever, there is any doubt, a reference may be made to the relevant provisions of the Income-tax Act, 1961, and the Finance (No. 2 ) Act, 1991. In case any assistance is required, the Assessing Officer concerned or local Public Relations Officer of the Income-tax Department may be approached.

Circular : No. 620, dated 6-12-1991.

Clarification vi

1. Attention is invited to the Boards Circular No. 620, dated 6-12-1991 regarding collection of income-tax at source under section 206C of the Income-tax Act, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc., during the financial year 1991-92.

2. The Finance Act, 1992 does not make any change in the rates of tax applicable for the collection of tax at source under section 206C for the financial year 1992-93. However, section 44AC, which was hitherto interlinked with section 206C, has been deleted by the Finance Act, 1992. Simultaneously, certain amendments consequential to the deletion of section 44AC have been made in section 206C.

3.1 Sub-section (1) of the amended section 206C enjoins that every person, being a seller shall, at the time of debiting of the amount payable by the buyer, to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode,whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax :

Table

Sl. No.	Nature of goods	Percentage
(1)	(2)	(3)
(i)	Alcoholic liquor for human consumption	Fifteen per cent
	(other than Indian-made foreign liquor)
(ii)	Timber obtained under a forest lease	Fifteen per cent
(iii)	Timber obtained by any mode other than	Five per cent
	under a forest lease
(iv)	Any other forest produce not being timber	Fifteen per cent

3.2 The term buyer in section 206C is defined to mean a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table referred above or the right to receive any such goods but does not include :

(i) a public sector company,

(ii) a buyer in the further sale of such goods obtained in pursuance of such sale, or

(iii) a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act.

3.3 The term seller means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society.

4. The amount of tax collectible at source at the rates referred to in paragraph 3.1 shall be increased by a surcharge at the rate of 15 per cent where the buyer is a domestic company and at the rate of 12 per cent in respect of other buyers.

5. It is clarified that the provisions of sub-section (1) of section 206C in relation to a buyer will not apply to a public sector company, and, to any other buyer who obtains the said goods at a second or subsequent sale of such goods. Thus, these provisions will aply only at the point of the first sale of such goods.

6. It is also clarified that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that, to the best of his belief, any of the goods referred to in the Table in paragraph 3.1 are to be utilised for the purpose of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of sub-section (1) of section 206C shall not apply so long as the certificate remains in force. Reference in this regard may be made to rule 37C of the Income-tax Rules, 1962, and Form No. 27C prescribed thereunder.

7. The responsibilities, obligations, etc., under the Income-tax Act of the person collecting tax at source under section 206C, are as follows :

(a) Any person collecting any amount under section 206C (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs.

(b) Every person collecting tax shall from the date of debit or within ten days of receipt of the amount, furnish to the buyer to whose account such amount is debited, or, from whom such payment is received, a certificate to the effect that tax has been collected, specifying the sum so collected and the rate at which the tax has been collected and such other particulars as may be prescribed. On production of this certificate by the buyer, credit shall be given to him for the amount so collected in the assessment made under the Act for the assessment year for which such income is assessable. Reference in this regard may be made to rule 37D of the Income-tax Rules, 1962 and Form No. 27D prescribed thereunder. If a person fails to issue the certificate of tax collected at source by him he shall be liable to pay by way of penalty, under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

(c) If any person responsible for collecting tax fails to collect the tax, he shall still be liable to pay in terms of sub-section (6) of section 206C, the tax to the credit of the Central Government within the period of seven days referred to in sub-para (a) above.

(d) If the seller fails to collect the tax, or, after collecting the tax, fails to pay it to the credit of the Central Government, he shall be liable in terms of sub-section (7) of section 206C to pay simple interest @ 2 per cent per month or part thereof, on the amount of such tax from the date on which such tax was collectible to the date on which such tax was actually paid. Further, section 276BB lays down that if a person fails to pay to the credit of the Central Government the tax collected by him as required under the provisions of section 206C, he shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months and which may extend up to 7 years and with fine.

(e) Every person collecting tax shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year, and, deliver or cause to be delivered to the designated/concerned Assessing Officer the said returns. Under rule 37E of the Income-tax Rules, 1962, these returns are to be furnished in Form No. 27EA, 27EB, 27EC or 27ED relating respectively to alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, or, any other forest produce not being timber, as the case may be, within a period of one month from the end of the half-yearly period to which the return relates.

(f) If a person fails to furnish the half-yearly returns in time, he shall be liable to pay by way of penalty, under section 272A, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for each day during which the default continues. However, the penalty shall not exceed the amount of tax which was collectible at source.

8. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for collecting tax at source under section 206C. Wherever, there is any doubt, a reference may be made to the relevant provisions of the Income-tax Act, 1961, and the Finance Act, 1992. In case any assistance is required, the Assessing Officer concerned or local Public Relations Officer of the Income-tax Department may be approached.

Circular : No. 634, dated 20-8-1992.

Clarification VII

1. Attention is invited to the Boards Circular No. 634, dated 20-8-1992 regarding collection of income-tax at source under section 206C of the Income-tax Act, in respect of profits and gains from the business of trading in alcoholic liquor, forest produce, etc., during the financial year 1992-93.

2. The Finance Act, 1993 does not make any change in the rates of tax applicable for the collection of tax at source under section 206C for the financial year 1993-94.

3.1 Sub-section (1) of section 206C enjoins that every person, being a seller shall at the time of debiting of the amount payable by the buyer, to the account of the buyer, or, at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the Table, of such amount as income-tax :

Table

Sl. No.	Nature of goods	Percentage
(1)	(2)	(3)
(i)	Alcoholic liquor for human consumption	Fifteen per cent
	(other than Indian-made foreign liquor)
(ii)	Timber obtained under a forest lease	Fifteen per cent
(iii)	Timber obtained by any mode other than	Five per cent
	under a forest lease
(iv)	Any other forest produce not being timber	Fifteen per cent

(i) a public sector company,

(ii) a buyer in the future sale of such goods obtained in pursuance of such sale, or

(iii) a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act.

4.The amount of tax collectible at source at the rates referred to in paragraph 3.1 shall be increased by a surcharge at the rate of 15 per cent where the buyer is a domestic company and at the rate of 12 per cent in respect of other buyers.

5. It may be noted that the provisions of sub-section (1) of section 206C in relation to a buyer will not apply to a public sector company, and, to any other buyer who obtains the said goods at a second or subsequent sale of such goods. Thus, these provisions will apply only at the point of the first sale of such goods.

7. The responsibilities, obligations, etc., under the Income-tax Act, of the person collecting tax at source under section 206C, are as follows :

(a) Any person collecting any amount under section 206C (1) shall pay within seven days the amount so collected to the credit of the Central Government, or, as the Board directs.

(b) Every person collecting tax shall, within ten days from the date of debit, or, receipt of the amount, furnish to the buyer to whose account such amount is debited, or, from whom such payment is received, a certificate to the effect that the tax has been collected, specifying the amount of tax and the rate at which it has been collected, and, such other particulars as may be prescribed. This certificate has to be issued in Form No. 27D prescribed under rule 37D of the Income-tax Rules, 1962. On production of this certificate by the buyer, credit shall be given to him for the amount so collected, in the assessment made under the Act for the assessment year for which such income is assessable. If a person fails to issue the certificate of tax collected at source by him, he shall be liable to pay, by way of penalty, under section 272A(2), a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

(c) If any person responsible for collecting tax fails to collect the tax, he shall himself be liable to pay, in terms of sub-section (6) of section 206C, the tax to the credit of the Central Government within the period of seven days referred to in sub-para (a) above.

(d) If the seller fails to collect the tax, or, after collecting the tax, fails to pay it to the credit of the Central Government, he shall be liable in terms of sub-section (7) of section 206C to pay simple interest @ 2 per cent per month or part thereof, on the amount of such tax from the date on which such tax was collectible to the date on which such tax is actually paid. Further, section 276BB lays down that if a person fails to pay to the credit of the Central Government the tax collected by him as required under the provisions of section 206C, he shall be punishable with rigorous imprisonment for a term which shall be not less than three months but which may extend up to 7 years, and with fine.

(e) Every person collecting tax shall prepare half-yearly returns for the period ending on 30th September and 31st March in each financial year, and, deliver or cause to be delivered to the designated/concerned Assessing Officer, the said returns. Under Rule 37E of the Income-tax Rules, 1962, these returns are to be furnished in Form No. 27EA, 27EB, 27EC or 27ED relating respectively to alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, or, any other forest produce not being timber, as the case may be, within a period of one month from the end of the half-yearly period to which the return relates.

(f) If a person fails to furnish the half-yearly returns in time, he shall be liable to pay by way of penalty, under section 272A (2) a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for each day during which the default continues. However, the penalty shall not exceed the amount of tax which was collectible at source.

8. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for collecting tax at source under section 206C. Whenever there is any doubt, reference may be made to the relevant provisions of the Income-tax Act, 1961, and Income-tax Rules, 1962. In case any assistance is required, the Assessing Officer concerned or the local Public Relations Officer of the Income-tax Department may be contacted.

Circular :No. 660, dated 15-9-1993.

Judicial analysis

Explained in - In Satya Pal Amrik Singh & Co. v. Union of India [1997] 228 ITR 653 (Punj. & Har.), the Court referred to paragraph 5 of the above circular, and observed :

. . . Vide circular dated September 15, 1993, the Central Board of Direct Taxes has clarified that section 206C(1) of the Act in relation to the buyer will not apply to public sector undertakings/companies and to any other buyer who obtains goods at a subsequent sale of such goods and the provisions of section 206C will apply only at the time of first sale. Admittedly, CITCO is a public sector undertaking and, therefore, the provisions of section 206C are not attracted in its case. If this position of CITCO is taken into consideration in the light of our finding that the sale of liquor by CITCO to L-14 licensees falls within the expression subsequent sale as used in paragraph 5 of the circular issued by the Central Board of Direct Taxes, there can be no escape from the conclusion that the deduction of tax at source from the petitioners is illegal and without jurisdiction. As a logical corollary, it has to be held that the provisions of section 206C as amended by the Finance Act, 1992, are not available to the Income-tax Department to compel CITCO to deduct income-tax at source from the petitioners. (p. 663)

Circular : No. 536, dated 6-7-1989.

Financial year 1990-91

1738. Instructions for deduction of tax at source from winnings from lottery, crossword puzzles or horse races - Rates of tax applicable during the financial year 1990-91

1. Reference is invited to this departments Circular No. 536, dated 6-7-1989 on the above subject wherein the rates at which deduction of tax under sections 194B and 194BB to be made during the financial year 1989-90, from winnings from lotteries or crossword puzzles or horse races were communicated.

2. The Finance Act, 1990 does not propose any change in the rates of tax and surcharge applicable in the matter of deduction of tax at source under sections 194B and 194BB of the Income-tax Act, 1961.

3. The aforesaid Circular explains the rate of tax and surcharge applicable in the matter of deduction of tax at source under sections 194B and 194BB in the case of winnings from lotteries, crossword puzzles and horse races. It also explains the duties devolving upon the persons responsible for paying any income of the nature of winnings from lotteries, crossword puzzles and horse races to deduct tax on the amount and also the liability to which such persons will be exposed in the case of failure to pay tax so deducted to the credit of the Central Government within the stipulated time, failure to furnish the annual return, etc. The instructions contained in the aforesaid Circular will be applicable during the current financial year also.

Circular : No. 569, dated 27-7-1990.

Circular : No. 537, dated 12-7-1989.

Financial year 1989-90

1678. Instructions for deduction of tax at source from salaries - Rate of tax for the financial year 1989-90

1. Reference is invited to this Ministrys Circular No. 517, dated 16-6-1988 and Circular No. 527, dated 9-12-1988 wherein the rates of income-tax deduction during the year 1988-89 from payment of income chargeable under the head Salaries under section 192 of the Income-tax Act,1961, etc., were intimated.

2. Sub-section (1) of section 192 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) of the said section are intended for making adjustment for excess or short falls of inadvertent nature and/or due to unforeseen circumstances. The aggregate tax thus calculated on the estimated income divided by 12 and rounded off to the nearest rupee is required to be deducted from the monthly salary.

3. The Financial Act, 1989 has reduced the rate of tax for individuals in the entry slab of Rs. 18,00025,000 from 25 per cent to 20 per cent. There is no change in the rates of tax for the other slabs of income. An extract of Sub-Paragraph (1) of Paragraph A of Part III of the First Schedule to the Finance Act,1989, is at Annexure I. Some of the other important changes brought about by the Financial Act, 1989 are :

(a) Increase in the rate of surcharge from 5 per cent to 8 per cent in the case of every person having a total income exceeding Rs. 50,000.

(b) Amendment of section 16 so as to remove the restriction on standard deduction to persons provided with conveyance by the employer. Further with view to providing relief to the salaried employees provision of a separate deduction on account of professional tax paid by them.

(c) For purposes of deduction under section 80C, the deposits made in the Home Loan Account Scheme of the National Housing Bank as well as the repayment of housing loan taken from the bank will qualify.

(d) Liberalisation of the provisions of section 192(2A) so as to give powers also to employers other than Government or Public Sector undertaking to deduct tax at source after taking into consideration the relief allowable u/s 89(1) in respect of salary paid in arrears or in advance.

A very important change brought about by the Direct Tax Laws (Amendment) Act, 1989 is the extension of the scope of the term income to include

(a) any special allowance or benefit specifically granted to the assessee to meet expenses wholly, necessarily and exclusively in the performance of duties; and

(b) any allowance granted to the assessee either to meet his personal expenses at the place where he performs his duties or compensate him for the increased cost of living.

This amendment shall be effective and shall be deemed to have been effective from 1st April, 1962 and will, accordingly, apply in relation to the assessment year 1962-63 and subsequent years.

Thus, to illustrate, allowances like uniform/attire allowance, books/periodical allowance, entertainment allowance, furnishing allowance, etc., will be covered under (a) above. Similarly, allowances like dearness allowance, city compensatory allowance, etc., will be covered under clause (b).

Another change introduced by the Direct Tax Laws (Amendment) Act, 1989 is in section 80C, wherein the case of contributions to a Recognised Provident Fund, the limit of Rs. 10,000 has been removed, but the contributions (for the purpose of section 80C) will continue to be restricted to one-fifth of the employees salary.

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 1989-90 is given hereunder and in the succeeding paragraphs.

(i) No tax will be deducted at source in any case unless the estimated salary income for the financial year exceeds Rs. 18,000. Some typical examples or calculations are at Annexure II.

(ii) The value of perquisites by way of free or concessional residential accommodation or motor car 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 III at Annexure II illustrates computation of some such perquisites).

Further, 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 person who has substantial interest in the company) is not regarded as perquisites received by the employee unless the employees income under the head Salary exclusive of the value of any benefit or amenity 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.

5. Exemptions/Deductions in computing total income :

(i) (a) Clause (10) of section 10 provides exemption of death-cum-retirement gratuity from inclusion in computing total income. The Government have by Notification No. SO 260, dated 18-9-1987 raised the limit of Rs. 36,000 mentioned in sub-clause (iii) of clause (10) of section 10 of the Income-tax Act to Rs. 1,00,000 for all the three purposes for which the said limit has been mentioned in the provisions of the said clause, in relation to the employees who retire or become incapacitated or die on or after 1st January, 1986 or whose employment is terminated on or after the said date.

Vide Notification No. GSR 405, dated 28-4-1988, the enhanced limit of Rs. 1,00,000 will be applicable for all the three purposes mentioned in the said clause in relation to the employees mentioned therein who retire or becomes incapacitated prior to such retirement or die on or after the 1st day of April, 1988, or whose employment is terminated on or after the said date.

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

(c) In the case of other employees, the exemption under section 10(10AA) will be determined with reference to the leave, to his credit at the time of retirement or superannuation or otherwise subject to a maximum of eight months leave. This exemption will be limited to the amount payable for such unutilised leave on the basis of the average salary of the employee for eight months, subject to the limit to be prescribed by the Central Government. Where the case equivalent of unutilised earned leave in received by employee from two or more employers in the same year, the maximum amount exempt from tax shall not exceed the limit so specified. The limit has now been specified in the Government of India Notification No. SO 553(E), dated 8-6-1988. According to the said notification, the maximum limit in respect or employees whose retirement takes place from 1st January, 1988 onwards is Rs. 79,920.

(ii) Under section 10(10B), the retrenchment compensation received by a workman is exempt from income-tax subject to certain limits. The maximum amount of retrenchment compensation exempt is the sum calculated on the basis provided in section 25F(b) of the Industrial Disputes Act, 1947 or any amount not less than Rs. 50,000 as the Central Government may by notification specify in the Official Gazette, whichever is less. These limits shall not apply in the case where the compensation is paid under any Scheme which is approved in this behalf by Central Government, having regard to the need for extending special protection to the workman in the undertaking to which the scheme applies and other relevant circumstances.

It may be added that a number of public sector undertaking have formulated voluntary retirement schemes for their employees. Any payment received by an employee, whether a workman or executive, of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may approve having regard to the economic viability of the public sector undertaking/company and other relevant circumstances will be exempt under section 10(10C) of the Income-tax Act.

(iii) Under section 10(13A) of the Income-tax Act, 1961 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 as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to rule 2A of the Income-tax Rules, 1962, the quantum of exemption allowance on account of grant of special allowance to meet expenditure on payment of rent shall be

(a) the actual amount of such allowance received by an employee in respect of the relevant period; or

(b) the actual expenditure incurred in payment of rent in excess of 1/10th of the salary due for the relevant period; or

(c) where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50 per cent of the salary due to the employee for the relevant period; or

(d) where such accommodation is situated in any other place, 40 per cent of the salary due to the employee for the relevant period,

whichever is the least.

For this purpose salary includes dearness allowance, i.e., if the terms of employment so provide, but excludes all other allowances and perquisites.

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 the house rent allowance or any portion thereof from the total income of the employee.

(iv) The Direct Tax Laws (Amendment) Act, 1987 has substituted clause (14) of section 10 by a new clause, and accordingly all specific allowance exempt from tax in computing income from salary will be notified by the Central Government in the Gazette of India.

By Notification Nos. SO 143(E), dated 21-2-1989, SO 144(E) dated 21-2-1989, and GSR 606(E), dated 9-6-1989 the Central Government have specified the following allowances as exempt from tax to the extent and subject to the conditions indicated therein :

(a) Any allowance granted to meet cost of travel on tour or on transfer, including any allowance granted to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;

(b) Composite hill compensatory allowance;

(c) Any special compensatory allowance in the nature of border area allowance or remote area allowance or difficult area allowance or disturbed area allowance;

(d) Tribal area allowance;

(e) Any allowance granted to an employee working in a transport system to meet his personal expenses during his duty performed in the course of running of such transport from one place to another;

(f) Children education allowance;

(g) Any allowance granted to an employee to meet the hostel expenditure of his child; and

(h) Any allowance granted to meet the expenditure incurred on conveyance in the performance of duties of an office or employment of profit.

It may be noted that the dearness allowance, city compensatory allowance and house rent allowance granted to an employee are not covered by the aforesaid notifications; these allowances will clearly be part of income and will have to be taken into account in the computation of income for the purpose of deduction of tax at source.

(v) The Finance Act, 1989 has inserted a new item (i) in sub-clause (iv) of clause (15) of section 10 of the Income-tax Act with effect from 1-4-1990. The newly inserted item provides for exemption of interest payable by the Government on deposits made by an employee of the Central Government or State Government, from out of his retirement benefits, in accordance with such scheme framed in this behalf by the Central Government and notified in the Official Gazette.

(vi) (a) Under section 16 of the Income-tax Act, the taxable salary is to be computed after making standard deduction of a sum equal to 33¹/₃ per cent of the salary or Rs. 12,000 whichever is less. For this purpose the term salary will include fees, commissions, 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), (10C), (11), (12) and (13A) of section 10 of the Act. 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.

This deduction will be available also to persons drawing pension during the current financial year at the same rate and subject to the same ceiling as to the employees in actual service.

To provide uniformity in the allowance of standard deduction, the Finance Act, 1989 has deleted the proviso to clause (1) of section 16, thereby allowing the standard deduction in full even to those employees who are entitled to conveyance facilities. This amendment will apply in relation to the assessment year 1990-91 and subsequent years.

(b) The Finance Act, 1989 has amended the provisions of section 16 of the Income-tax Act, so as to provide that the tax on employment, within the meanings of clause (2) of Article 276 of the Constitution leviable by or under any law shall be allowed as a deduction in computing the income of the salaried taxpayers under the head salary.

(c) A limited deduction is also allowed under clause (ii) of section 16 in respect of entertainment allowance. In the case of Government employees, this deduction is limited to one-fifth of the employees salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less. In the case of other employees deduction will be allowable only if the conditions laid down in the aforesaid clause are fulfilled.

(vii) (a) Under section 80C of the Act, while computing the taxable income, the disbursing officer 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 made by the employee, out of his income chargeable to tax, towards Life Insurance Premium, contributions to Provident Fund set up by the Central Government or to which the Provident Fund Act, 1925 applies (including contribution to Public Provident Fund constituted under the Public Provident Fund Act, 1968), contributions for participation in the Unit Linked Insurance Plan, 1971 made under section 19(1)(cc) of the Unit Trust 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 (VIII Issue). The interest on National Savings Certificates (VI Issue) is deemed to be reinvested, and therefore, the holder thereof is entitled to the benefits of section 80C.

(b) In respect of contributions to Recognised Provident Fund there is another monetary ceiling limit laid down in clause (d) of sub-section (2) of section 80C of the Income-tax Act, 1961, in that the employees own contribution to the individual account in the fund will not exceed 1/5th of his salary during the financial year. Salary for this purpose would include dearness allowance if the terms of the employment so provide, but will exclude all other allowances and perquisites. The expression Recognised Provident Fund has been defined in section 2(38) of the Act to mean 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 Fund Act, 1952.

(c) The monetary ceiling of 1/5th of salary will not be applicable to the contribution to the Provident Funds referred to in sub-clauses (iii) and (iv) of clause (a) of sub-section (2) of section 80C. Such Provident Funds are :

A. Government Provident Fund and Railway Provident Fund;

B. Provident Funds established by such Local Authorities and Institutions as are mentioned in the Schedule to the Provident Fund Act, 1925 and those notified by the Government from time to time under section 8(3) of that Act; and

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

It is clarified that for purposes of (a), (b) and (c) of this sub-paragraph, contribution to any fund shall not include any sums in repayment of loan taken from that fund.

(d) According to clause (h) of sub-section (2) of section 80C deduction under section 80C (1) include any sums paid by the assessee out of his or its income chargeable to tax :

I. as subscription to such security of the Central Government as the Government may, by notification in the Official Gazette, specify in this behalf; or

II. for the purposes of purchase or construction of a residential house property, construction of which is completed after 31st day of March, 1987 and the income from which is chargeable to tax under the head Income from house property (or which would,if it had not been used for the assessees own residence have been chargeable to tax under that head) where such payments are made towards or by way of any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, Housing Board, etc., the deduction will also be allowable in respect of repayment of loans borrowed by the taxpayer from the Government or any bank or Life Insurance Corporation, or National Housing Bank, or certain other categories or Institutions engaged in the business of providing long-term finance for construction or purchase of house in India. Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company, public sector company or a university established by law or a college affiliated to such university. The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share of initial deposit or the cost of the land (except where the consideration for the purchase of house property is a composite amount and the cost of land cannot be separately ascertained) or the cost of any addition or alteration. Payments toward any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Income-tax Act will also not be included in payments towards the cost of purchase or construction of a house property. Where the house property in respect of which deduction has been allowed under the new provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, no deduction under these provision shall be allowable in respect of previous year in which the transfer is made and the aggregate amount of deduction allowed in the earlier years shall be chargeable to tax under the head Income from other sources of the previous year in which such transfer takes place. The aggregate of the deductions admissible hereunder will not exceed Rs. 10,000.

In respect of repayment of loans taken for the purchase of construction of a new residential house property,the construction of which is still continuing, it is clarified for the guidance of Drawing and Disbursing Officers and other persons responsible for the payment of any income chargeable under the head Salaries that where the construction of the property does not get completed by the end of the financial year 1989-90, no deduction under this head shall be admissible to the employees in the assessment of the income for the assessment year 1990-91.

It may also be noted that repayment of loans made in respect of houses/flats the construction of which had been completed before 31-3-1987 will not qualify for deduction under this section.

The DDOs should satisfy themselves about the fact of completion of construction of houses before allowing this deduction.

III. As subscription to any such deposit scheme of the National Housing Bank as the Central Government may, by notification in the Official Gazette, specify in this behalf. The deposits made in the Home Loan Account Scheme of the National Housing Bank will qualify for deduction from the gross total income of taxpayers subject to the existing ceiling rates.

(e) Subject to the limits specified in (b), (c) and (d)(II) above, the aggregate of the sums which qualify for the purpose of computing the deduction under section 80C shall not exceed :

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

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

(f) It may be noted that the deduction provided under section 80C will be available to the taxpayer in respect of such sums paid up to 31st March of the financial year towards the purchase of National Savings Certificates, etc.

(viii) Under section 80CCA of the Income-tax Act, as amended by the Finance Act, 1988 100 per cent deduction will be allowed to an individual, a Hindu undivided family, and certain categories of persons or bodies of individuals, subject to a ceiling of Rs. 30,000 p.a. in respect of :

(1) any amount deposited under the National Savings Scheme; and

(2) any amount paid to effect or keep in force a contract for such annuity plan of the LIC as the Central Government may specify by notification. By Notification No. GSR 903(E), dated 6-9-1988, the Central Government have specified Jeevan Dhara and Jeevan Akshay plans of the Life Insurance Corporation of India for the purpose of section 80CCA.

It may be noted that the aforesaid deduction will be allowed only in respect of deposits/payments made out or the employees income chargeable to tax. Also, such deposits/payments made up to 31st March of financial year will qualify for deduction.

It should also be noted that where any amount standing to the credit of the employee under the National Savings Scheme in respect of which deduction has already been claimed under section 80CCA, together with interest accrued thereon is withdrawn in any previous year, or where any amount is received on account of the surrender of the policy or as annuity or bonus in accordance with the deferred annuity plan of the LIC in any previous year, the whole of such amount shall be deemed to be the income of the employee of that previous year in which such withdrawal is made or such amount is received, and shall be chargeable to tax as the income of the previous year.

The Drawing and Disbursing Officers should satisfy themselves about the actual deposits or payments made by the employees by calling for such particulars/information as they deem necessary before allowing the deduction. Similarly the DDOs should ascertain from the employees about the withdrawals made by them from the NSS or the amount received on account of the deferred annuity plans of the LIC, and the said amount shall be included in the computation of the employees income and charged to tax accordingly. For this purpose, the DDOs should call for such proof/particulars/information as they deem necessary.

(ix) Under section 80D introduced w.e.f. 1-4-1987, in the case of the following categories of persons, a deduction can be allowed for a sum not exceeding Rs. 3,000 per annum to the extent payment is made by cheque out of their income chargeable to tax to keep in force an insurance on the health of the categories of persons mentioned below provided that such insurance is in accordance with the scheme framed by the General Insurance Corporation of India as approved by the Central Government, popularly known as Mediclaim.

The categories of persons are :

(a) where the assessee is an individual, any sum paid to effect or to keep in force an insurance on the health of the assessee or on the health of the wife or husband, dependent parents or dependent children of the assessee;

(b) where the assessee is a Hindu undivided family, any sum paid to effect to keep in force an insurance on the health of any member of the family;

(c) where the assessee is an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu, any sum paid to effect or to keep in force an insurance on the health of any member of such association or body or on the health of the dependent children or the members of such an association or body.

(x) 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 of the Act 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. The donation to the Prime Ministers National Relief Fund and the Prime Ministers Armenia Earthquake Relief Fund will be eligible for hundred per cent deduction. Thus, deduction in this respect may be allowed while computing the total income for the purpose of deduction of income-tax at source for financial year 1989-90. Deduction will not be admissible where the aggregate of all contributions for the year is less than Rs. 250.

(xi) Under section 80GG of the Act, 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, 1962. 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 25 per cent thereof or Rs. 1,000 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 sub-clause (i) of clause (a), or as the case may be, clause (b) of sub-section (2) of section 23.

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

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

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

Explanation : Urban agglomeration in relation to 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.

(xii) 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, an amount equal to the following shall be allowed as deduction in computing the total income of the individual :

(i) fifty per cent of remuneration, or

(ii) seventy-five per cent of such remuneration as is brought into India, by, or on behalf of, the assessee in accordance with the Foreign Exchange Regulation Act, 1973, and any rules made thereunder,

whichever is higher.

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 service 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 :

(a) in the case of individual who is in the employment of the Central Government or any State Government, the fact of his service having been sponsored by the Central Government;

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

(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.)

(xiii) Under section 80U in computing the total income of a resident individual who is totally blind or suffers from any of the permanent physical disability, a deduction of Rs. 15,000 is allowed.

The Board has by Notification No. SO 529(E), dated 17-7-1985 specified the physical disability 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 purpose of clause (ii) of sub-section (1) of section 80U, if it falls in any one of the categories specified below, namely :

(a) permanent physical disability or more than 50 per cent in one limb; or

(b) permanent physical disability or more than 60 per cent in two or more limbs;

(d) permanent and total loss of voice.

The deduction of Rs. 15,000 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 26-5-1980 - [printed at [1980] 124 ITR (St.) 3]. The certificate once issued will continue to be in force till it is withdrawal by the Income-tax Officer.

The Finance Act, 1989 has amended the provisions of section 80U so as to extend the concession presently available under this section to mentally retarded persons also in specified cases.

6. The scope of deduction of tax at source from salaries was modified by the Finance Act, 1987 by the insertion of sub-sections (2), (2A) and (2B) in section 192 of the Income-tax Act. The salient features of these provisions as modified by the Finance Act, 1989 are given below :

(a) Sub-section (2) of section 192 deals with situation where an individual is working under more than one employer or has changed from one employer to another. It provides for deduction of tax at source by such employer (as the taxpayer may choose) from the aggregate salary of the employee. Who is or has been in receipt of salary from more than one employer. The employee is now required to furnish to the present/chosen employer details of the income under the head Salaries due or received from the former/other employer and also tax deducted at source therefrom, in writing and duly verified by him and the former/other employer. The present employer will be required to deduct tax at source on the aggregate amount of salary (including salary received from the former or other employer).

(b) Sub-section (2A) of section 192 provides that in respect of salary payment of employees of Government, company, co-operative society, local authority, University, institution, association or body, deduction of tax at source may be made after allowing relief under section 89(1). Retired Government servants can also avail of this facility of section 89(1) relief their DDOs/disbursing banks.

(c) Sub-section (2B) enables a taxpayer to finish particular of income other than salaries to his employer who shall deduct out of the salary payment, the tax due on the total income subject to the condition that the total amount of tax deducted shall not be less than the amount deductible from income from salaries only.

To meet the requirements of these provisions the Central Government have notified necessary amendments in the Income-tax Rules, 1962, vide Notification No. SO 963(E), dated 29-10-1987. Detailed instructions in this regard were issued by the Department vide Circular No. 504 [F. No. 275/138/87-IT(B)], dated 8-2-1988.

7. The total income computed in accordance with the provisions of the Act should be rounded off to the nearest multiples 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 similarly be rounded off to the nearest rupee.

The amount of income-tax computed in accordance with the preceding provisions of this sub-paragraph shall, in the case of every person having a total income exceeding fifty thousand rupees, be increased by a surcharge for purposes of the Union calculated at the rate of eight per cent of such income-tax :

Provided that no such surcharge shall be payable by a non-resident.

8. (a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. By Notification No. SO 937(E), dated 20-10-1988, old rule 31 of the Income-tax Rules, 1962 has been substituted by a new rule which provides for a unified form of certificate to be issued in Form No. 16. Detailed instructions regarding the issue of certificates for tax deducted at source have been issued in Boards Circular No. 529 [F. No. 275/3/389-IT(B)], dated 13-2-1989.

If a person fails to furnish a certificate as required by section 203, he shall, on an order passed by any Income-tax authority under section 272A of the Income-tax Act, pay, by way of penalty, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for every day during which the failure continues.

(b) According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to quote the Tax-deduction Account Number (TAN) in the challans, TDS Certificates, periodical returns, etc. Detailed instructions in this regard are available in this Departments Circular No. 497 [F. No. 275/118/87-IT(B)], dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he shall on an order passed by the Assessing Officer under section 272BB pay, by way of penalty, a sum which may extend to Rs. 5,000.

(c) According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the provisions of Chapter XVII of the Income-tax Act, shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered by the 30th April following the financial year to the designated Income-tax Officer the annual return of deduction of tax under section 192 from salaries in Form No. 24 prescribed under rule 37 of the Income-tax Rules. It may be noted that the third copy of the TDS certificate issued to the employees should be enclosed with the annual return.

If a person fails to furnish in due time the annual return, he shall, on an order passed by the Income-tax authority, pay, by way of penalty a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees during which the failure continues.

(d) According to the provision of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 192 shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection attention is also invited to the provisions of section 276B of the Income-tax Act, according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.

9. 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 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.

10. 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.

11. These instructions may please be brought to the notice of all disbursing officers and State undertakings under the control of the State Government, etc.

12. In case any assistance is required the Assessing Officer/the Local Public Relations Officer may be approached for the same, who will, if necessary, obtain the orders of higher authorities in the matter.

ANNEXURE I

EXTRACT FROM THE FINANCE ACT, 1989 (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	20 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. 1,400 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 R. 50,000;s	Rs. 8,900 plus 40 per cent of the amount by which the total income exceeds Rs. 1,00,000
(5)	Where the total income exceeds Rs. 1,00,000	Rs. 28,900 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.

Surcharge on Income-tax

The amount of income-tax computed in accordance with the preceding provisions of this Sub-Paragraph shall, in the case of every person having a total income exceeding fifty thousand rupees, be increased by a surcharge for purposes of the Union calculated at the rate of eight per cent of such income-tax :

Provided that no such surcharge shall be payable by a non-resident.

ANNEXURE II

typical examples of income-tax calculations

Example I

		Rs.	Rs.
1.	Total salary income (including allowances)		57,600
2.	Contribution to Government Provident Fund	7,200
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	10,480
5.	Deposits in a 10-year account or 15-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959	500
6.	C.G.E.I.S.	480
7.	Subscription to National Savings Certificates	1,000
8.	Deposits under National Savings Scheme	19,400	19,400
9.	Total salary income		57,600
10.	Deduct : Amount of standard deduction under section 16(i) of the Income-tax Act, 1961, 331/3% of amount subject to maximum of Rs. 12,000		12,000
11.	Gross total income (9 minus 10)		45,600
12.	Deduct :
	(a) Under section 80C amount on account towards G.P.F., Life Insurance Premia, Unit-linked Insurance Plan and Deposit in 10-year account or 15-year account under Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, National Savings Certificates, out of the total amount paid Rs. 10,480, etc. (First Rs. 6,000-100%, Next Rs. 6,000-50%)	8,240
	(b Under section 80CCA Deposit under NSS	19,400	27,640
13.	Total income (11 minus 12)		17,960
14.	Tax payable		Nil

Example II

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

		Rs.	Rs.
1.	Salary (excluding allowances)		45,000
2.	Dearness allowance		5,460
3.	House rent allowance received		9,600
4.	City compensatory allowance received		1,200
5.	Actual rent paid		14,400
6.	Contribution to General Provident Fund, etc.		6,000
7.	L.I.P.		3,000
8.	Deposits in a 10-year account under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959		1,000
9.	Deposits under the National Savings Scheme		10,000

COMPUTATION OF TOTAL INCOME

1.	Salary (including Dearness Allowances)			50,460
2.	House rent allowance received			9,600
3.	City compensatory allowance received			1,200
				61,260
4.	Less : Allowance u/s 10(13A)
	Actual rent paid		14,400
	Less : 10% of salary		5,046
	(Actual amount of House rent allowance received or expenditure on rent in excess of 1/10th of the salary or 50% of salary, whichever is the least)		9,354	9,354
				51,906
5.	Standard deduction u/s 16(i) @ 331/3% subject to a maximum of Rs. 12,000			12,000
6.	Gross total income			39,906
7.	Less : Deduction (a) u/s 80C
	Total PF, LIP, CTD	Rs. 10,000
	First Rs. 6,000 (100%)		6,000
	Next Rs. 4,000 (50%)		2,000
			8,000
	(b) u/s 80CCA (Deposits under NSS)		10,000
8.	Total income		18,000	18,000
				21,906
				or
				21,910
9.	Tax payable on (Rs. 21,910 Rs. 18,000) @ 20%			782

(Rate at which monthly deduction is required to be made works out to Rs. 65 for 11 months and Rs. 67 for the last month).

Example III

(Illustrating calculations of limits under section 80C and valuation of some perquisites in case of an employee of a private company posted at Bombay)

		Rs.	Rs.
1.	Salary including dearness allowance		60,000
2.	Bonus		9,600
3.	Contribution to Recognised Provident Fund		11,000
4.	L.I.P.		10,000
5.	Subscription to National Savings Certificates (VIII Issue)		5,000
6.	Interest accrued for the first year on NSC (VI Issue @ 12.40% for every Rs. 100 on, say Rs. 5,000)		620
7.	Deposits under the National Savings Scheme		12,200
8.	Free gas, electricity, water, etc. (actual bills paid by the company)		3,000
9.	Furniture at cost (including television set, radio set, refrigerator, other household appliances and air-conditioner) belonging to the company		40,000
10.	(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)		45,000
	(ii Rent recovered from the employee		12,000

COMPUTATION OF TOTAL INCOME

1.	Salary		60,000
2.	Bonus		9,600	69,600
3.	Valuation of perquisites :
	(a) Furnished Flat at concessional rent u/s 17(2) read with clauses (a) and (b) of rule 3 of the IT Rules, 1962. Fair Rental Value (FRV) (assumed to be equal to actual rent Rs. 45,000) 10% of salary including bonus		6,960
	Add : Excess of FRV over 60% of salary including bonus of Rs. 69,600 (i.e., Rs. 45,000 Rs. 41,760)		3,240
	Add : Perquisite of the furniture (10% of cost, i.e., Rs. 40,000)		4,000
			14,200
	Less : Rent paid by the employee		12,000	2,200
				71,800
4.	Free gas, electricity, etc.			3,000
				74,800
5.	Less : Standard deduction u/s 16(i) @ 331/3% subject to maximum of Rs. 12,000			12,000
6.	Gross total income			62,800
7.	Less : Deductions
	(a) u/s 80C
	PF paid Rs. 11,000		11,000
	LIP		10,000
	National Savings Certificates (VIII Issue) and interest accrued on Rs. 5,000 for the first year of NSC (VI Issue) - (Rs. 5,000 + Rs. 620)		5,620
	Total of PF, LIP, NSC of Rs. 26,620		26,620
	(Maximum allowable up to Rs. 40,000)
	First Rs. 6,000 (100%)	6,000
	Next Rs. 6,000 (50%)	3,000
	On balance of Rs. 14,620 (40%)	5,848	14,848
	(b) u/s 80CCA (NSS)		12,200
	Total deduction			27,048
8.	Total income (67) (Rs. 62,800Rs. 27,048)			35,752
				or
				35,750
9.	Tax payable thereon (Rs. 1,400 + 30% of excess over Rs. 25,000, i.e., on Rs. 10,750, i.e.,		1,400
	Rs. 3,225 (Rate at which monthly deduction from salary is required to be made works out to about Rs. 385)		3,225	4,625

Notes :

(i) In the cases of Government servants, the value of perquisites of unfurnished accommodation provided fee is determined in accordance with 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 annum of the original cost of the furniture, or if it is hired from a third party, the actual hire charges payable.

(ii) Where furnished accommodation is provided to its employees 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% of the salary due to the employee and where the accommodation is furnished as in other cases, an additional 10% of the original cost of furniture, or if it is hired from a third party, the actual hire charges payable therefor.

(iii) 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.

(iv) In case the accommodation is situated in Bombay, Calcutta, Delhi and Madras, the excess over 60% of salary over fair rental value, as against 50% in other cases, is required to be added in determining the value of perquisites in view of Boards Circular No. 374, dated 14-12-1982.

Example IV

(Example of income-tax and surcharge calculation in the case of an employee posted in Delhi including House Building Loan)

		Rs.	Rs.
1.	Total salary (including D.A.)		1,10,400
2.	House rent allowance		12,000
3.	City compensatory allowance		1,200
4.	Contribution to GPF, Payment of LIC Premium, etc.		15,000
5.	Actual rent paid		24,000
6.	Refund of loan taken for the construction of house which has been completed after 31-3-1987 but before 31-3-1990		12,000
7.	Deposits under the National Savings Scheme		30,000
	COMPUTATION OF TOTAL INCOME
1.	Salary (including Dearness Allowance and City Compensatory Allowance)		1,11,600
2.	House Rent Allowance received		12,000
3.	Less : Allowance u/s 10(13A)
	Actual rent paid	24,000
	Less : 10% of salary	11,040
		12,960
	(Actual amount of HRA received or expenditure on rent in excess of 1/10th of the salary or 50% of salary, whichever is the least)		12,000
4.	Less : Standard deduction u/s 16(i) @ 331/3% subject to a maximum of Rs. 12,000		12,000
5.	Gross total income		99,600
6.	Less : Deduction u/s 80C
	GPF, LIC, etc.	15,000
	Refund of H.B. loan
	(Limited to Rs. 10,000)	10,000
		25,000
	First Rs. 6,000 (100%)	6,000
	Next Rs. 6,000 (50%)	3,000
	Balance Rs. 13,000 (40%)	5,200	14,200
7.	Less : Deduction u/s 80CC		30,000
	(Deposit under NSS)
8.	Total income		55,400
9.	Tax payable on Rs. 55,400		11,060
10.	Surcharge payable @ 8% on the amount of income-tax Rs. 884.80 or Rs. 885		885
11.	Total (Income-tax and Surcharge)	11,060
	(Average monthly deduction comes to about Rs. 995)	885	11,945

Circular : No. 538, dated 13-7-1989.

430. Whether capital gain arising from transfer of a self-occupied residential house would be entitled to exemption

1. Section 54 of the Income-tax Act provides for exemption in respect of capital gain arising from the transfer of a long-term capital asset, being a residential house, the income of which is chargeable under the head Income from house property if the conditions laid down in the said provision are fulfilled.

2. Under section 23(2) of the Income-tax Act, as amended by the Finance Act, 1986, the annual value of one house in the occupation of the owner for purposes of his own residence is taken as nil. A question has been raised whether capital gain arising from the transfer of such a house property would be entitled to exemption under section 54 of the Act.

3. The question appears to have been raised because of the words italicised in para 1 above. As the annual value of a self-occupied house would be taken to be nil by virtue of section 23(2) of the Act, an Assessing Officer may take the plea that the income of such a house is not chargeable under the head Income from house property.

4. The Board is of the view that such a construction of the aforesaid provision in section 54 of the Act is not correct. Income from a self-occupied residential house is chargeable under the head Income from house property even though in certain circumstances such income may be computed at nil or at a negative figure by virtue of section 23(2) read with section 24 of the Act.

5. Thus, a person shall be entitled to claim exemption under section 54 of the Act even in respect of a self-occupied residential house.

Circular : No. 539, dated 13-7-1989.

1115. Payments to contractors and sub-contractors - Levy of surcharge

1. According to the provisions of section 194C any person responsible for paying any sum to any resident contractor for carrying out any work in pursuance of a contract between the contractor and the agencies specified therein shall, at the time of credit of such sum to the account of the contractor or payment thereof in cash, etc., deduct an amount equal to 2 per cent of such sum as income-tax on income comprised therein. The agencies are :

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

(b) any local authority; or

(d) any company ; or

(e) any co-operative society.

Similarly when a contractor makes payment to a resident sub-contractor in pursuance of a contract for carrying out the whole or any part of the work undertaken by him he is required to deduct an amount equal to 1 per cent of such sum as income-tax on income comprised therein. However, no such deduction is required to be made for any sum credited or paid in pursuance of a contract the consideration of which does not exceed Rs. 10,000.

2. In this connection attention is invited to Boards Circular No. 505, dated 19-2-1988. Wherein the levy of surcharge at the rate of 5 per cent as introduced by the Finance (Amendment) Act, 1987 was communicated to you. According to the provisions of the Finance Act, 1989, in cases in which tax has to be deducted under section 194C of the Income-tax Act, the deduction shall be made at the rates specified in that section and shall be increased by a surcharge for purposes of the Union calculated at the rate of eight per cent of such deduction.

Circular: No. 540, dated 24-7-1989.

Financial year 1989-90

1771. Instructions for deduction of tax at source from insurance commission, etc. - Rate of tax applicable during the financial year 1989-90

1. Reference is invited to this Departments Circular No. 514, dated 31-5-1988 wherein the rates at which the deduction of income-tax was to be made during the financial year 1988-89 from payment of income by way of insurance commission under section 194D of the Income-tax Act, 1961 were intimated to you. There is no change in the rates of tax for the financial year 1989-90. For the sake of convenience, the rates for deduction of tax at source under section 194D, during the financial year 1989-90 are indicated below:

Income-tax

1. In the case of a person (other than a company) who is a resident in India	10%
2. In the case of a domestic company	21.5%

2. The provisions of section 194D apply only in relation to income by way of insurance commission paid to a resident. However, under the provisions of section 195 of the Income-tax Act, income-tax is required to be deducted from payments (including payment by way of insurance commission) made to a non-corporate non-resident or to a foreign company. 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 items 1(b)(i)(E) and 1(b)(ii)(D) of Part II of the First Schedule to the Finance Act, 1989] is 30 per cent of the income by way of insurance commission or the rate prescribed in Sub-Paragraph I of Paragraph A of Part III of the said Schedule (extracts given in Annexure I), 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 65 per cent.

3. It may be noted that the amount of tax deducted as per the rates given above shall be increased by a surcharge at the rate of 8 per cent of such income-tax in the case of

(i) a resident Indian, and

(ii) a domestic company.

4. Further, according to the provisions of section 194D, any person making payment to a resident any income by way of remuneration or reward, whether by way of commission or otherwise for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of insurance policies) shall, at the time of actual payment or at the time of credit of such income, whichever is earlier, deduct income-tax at the rates in force. However, no such deduction shall be made under this section in a case where the amount of such income or the aggregate amount of such income during the financial year does not exceed Rs. 5,000.

5. It may be noted that the exemption of Rs. 5,000 mentioned in para 4 above will not be applicable to such payments made to non-residents. In the case of payments to non-residents where any such sum is credited to any account, whether called suspense account or by any other name, in the books of account of the person liable to pay such income to a non-resident, shall be deemed to be credit of such income to the account of the payee and tax shall be deducted therefrom. In a case where the person responsible for paying any such income to a non-resident considers that the whole of such income would not be income chargeable to tax in the case of the recipient, he may make an application to the concerned Assessing Officer to determine the income chargeable to tax, and upon such determination, the tax shall be deducted accordingly. A non-resident who is entitled to receive any such sum on which income-tax has to be deducted under section 195 may also make an application in the prescribed form to the concerned Assessing Officer for the grant of a certificate authorising him to receive such sum without deduction of tax, and where any such certificate is granted, the persons responsible for paying such sum shall make payment to the non-resident without deduction of tax so long as the certificate is in force.

6. (a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. By Notification No. SO 937(E), dated 20-10-1988, old rule 31 of the Income-tax Rules, 1962 has been substituted by a new rule which provides for a unified form of certificate to be issued in Form No. 16. Detailed instructions regarding the issue of certificates for tax deducted at source have been issued in Boards Circular No. 529, dated 13-2-1989 if a person fails to furnish a certificate as required by section 203, he shall, on an order passed by the income-tax authority, under section 272A of the Income-tax Act, pay, by way of penalty, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for every day during which the failure continues.

(b) According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to quote the Tax-deduction Account Number (TAN) in the challans, TDS certificates, periodical returns, etc. Detailed instructions in this regard are available in this Departments Circular No. 497, dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he shall, on an order passed by the Assessing Officer under section 272BB pay, by way of penalty, a sum which may extend to Rs. 5,000.

(c) According to the provisions of section 206 of the Income-tax Act, read with rules, 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the provisions of Chapter XVII of the Income-tax Act shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered by the 30th June following the financial year to the designated income-tax authority the Annual Return of deduction of tax under section 194D from Insurance commission in Form No. 26D prescribed under rule 37 of the Income-tax Rules. It may be noted that the third copy of the TDS certificate issued to the assessees should be enclosed with the annual return. The person making the deduction of tax from such payments to a non-resident is required to send a statement in Form No. 27 to the designated Assessing Officer within 14 days of the date of deduction.

If a person fails to furnish in due time the annual return, he shall, on an order passed by the income-tax authority, pay, by way of penalty a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees for every day during which the failure continues.

(d) According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 194D or section 195 shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection, attention is also invited to the provisions of section 276B of the Income-tax Act, according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.

7. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making deduction of tax at source under these sections. Wherever there is difference of opinion, a reference should always be made to the provisions of the Income-tax Act, 1961, and the relevant Finance Act through which the changes in law are made. In case any assistance is required, the Assessing Officer concerned or the Local Public Relations Officer of the Income-tax Department may be approached for the same, who will, if necessary, obtain orders of the higher authority in the matter.

ANNEXURE I

EXTRACT FROM THE FINANCE ACT, 1989 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	20 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. 1,400 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. 8,900 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. 28,900 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.

Surcharge on income-tax

Provided that no such surcharge shall be payable by a non-resident.

Circular No. 541, dated 25-7-1989.

327. Rule 9A of the Income-tax Rules, 1962 - Whether subsidy received by producers of regional feature films, which has not been charged to tax, shall not be reduced from cost of production of the film

1. The Board has received representations against the taxation of the subsidy granted by the State Governments to producers of feature films in regional languages.

2. The income-tax authorities have been treating the subsidy as revenue receipt incidental to the carrying on of the business of film production and have been charging it to tax. Different Benches of the Income-tax Appellate Tribunal are divided on this issue. The Andhra Pradesh High Court, in the case of CIT v. Chitra Kalpa [1989] 177 ITR 540 held that the subsidy has the character of a capital receipt.

3. With a view to avoiding controversy and litigation in the matter, the Board has decided that such subsidy received by producers of regional feature films should not be charged to tax as revenue receipt.

4. In this connection, it may, however, be pointed out that the Explanation to sub-rule (1) of rule 9A of the Income-tax Rules, 1962, as amended by the Income-tax (Seventh Amendment) Rules, 1989 with effect from 7th July, 1989, provides, inter alia, that the cost of production of a feature film shall be reduced by the subsidy received by the film producer under any scheme framed by Government, where such amount of subsidy has not been included in computing the total income of the assessee for any assessment year. Conversely the amount received by producers of regional feature films, which has not been charged to tax, shall be reduced from the cost of production of the film for the purpose of rule 9A of the Income-tax Rules, 1962.

5. The aforesaid amendment which has come into force with effect from 7th July, 1989 will apply in relation to the assessment year 1990-91 and subse-
quent assessment years. Similarly, the concession provided under paragraph 3 of this Circular, which is intimately linked with the amendment of the aforesaid rule 9A, will also apply in relation to the assessment year 1990-91 and subsequent years.

Source : Circular No. 541, dated 25-7-1989, as amended by, Circular No. 544, dated 15-9-1989.

JUDICIAL ANALYSIS

approved in - The above circular was cited with approval in Sadichha Chitra v. CIT [1991] 189 ITR 774 (Bom.), with the following observations:

. . . The view expressed by the High Court of Andhra Pradesh in Chitra Kalpas case [1989] 177 ITR 540 was accepted by the Central Board of Direct Taxes in its Circular No. 541, dated July 25,1989. We are somewhat surprised to find that the controversy is still being pursued by the Department notwithstanding the above-referred circular. . . . (p. 781)

Circular : No. 542, dated 30-8-1989.

803. Where firms accounts are to be audited, returns are to be filed by 31-10-1989 for assessment year 1989-90

1. Under the existing provisions of section 139(1) of the Income-tax Act, as amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989, a partnership firm, whose accounts are required to be audited under the Income-tax Act, or under any other law, can file its return by 31st October of the relevant assessment year. However, this time limit is not available to the partners of such a firm, if their own accounts are not required to be so audited.

2. Some representations have been received to the effect that such partners would not be able to file their returns by 31st August, as they would not know their correct share income in the firm by this date. Considering this difficulty, it has been decided that such partners may also be allowed to file their returns by 31st October. The Direct Tax Laws (Second Amendment) Bill, 1989, introduced in the Parliament on 18-8-1989 during the last Monsoon Session, contains a provision to this effect proposing to amend section 139(1) retrospectively, with effect from 1-4-1989. The Bill will come up for consideration in the next session of Parliament. However, as an interim measure, it has been decided that partners of such firms may also be allowed to file their returns by 31-10-1989. A Press Note to this effect was issued on 24-8-1989 for the general information of the taxpayers that such partners can also file their returns for the assessment year 1989-90 by 31st October, 1989.

A Press Note is given as Annexure to this circular. The Assessing Officers are advised not to insist upon such partners to file their returns for the assessment year 1989-90 by 31-8-1989.

ANNEXURE - PRESS NOTE

1. Under the present provisions of section 139(1) of the Income-tax Act, the due date for filing the return of income in the case of an assessee, whose accounts are required to be audited under the Income-tax Act or under any other law, is 31st October of the relevant assessment year. Therefore, a partnership firm, whose accounts are required to be so audited, can file its return by 31st October. However, under the existing law, the partners of such a firm, if their own accounts are not required to be so audited, have to file their returns by 31st August.

2. Representations were received pointing out that this would cause hardship in the case of partners of such a firm as they would not know their correct share income in the firm unless the accounts of the firm have been finalised, which work may be over, in many cases, towards the end of October. Hence, it would be difficult for the partners of the firm to file their returns of income by 31st August.

3. To avoid difficulties to partners in such situations, the Government has taken a decision that the persons who are partners in the firms, whose accounts are required to be audited, can also file their returns by 31st October. The Direct Tax Laws (Second Amendment) Bill, 1989, introduced in the Parliament on 18-8-1989, during the last Monsoon Session, contains a provision by which section 139(1) is proposed to be amended retrospectively with effect from 1-4-1989. The proposed amendment provides that the partners of such firms can also file their returns by 31st October. Instructions are being issued to the Assessing Officers not to insist upon such partners to file their returns for the assessment year 1989-90 by 31-8-1989.

Circular : No. 543, dated 31-8-1989.

Financial Year 1989-90

1714. Instructions for deduction of tax at source from interest on securities-Rates of tax applicable during the financial year 1989-90

1. Reference is invited to this departments Circular No. 519, dated 10-8-1988 on the above subject wherein a request was made for issuing necessary instructions to all the Treasury Officers etc., for making deduction of income-tax at source from the payment of interest on Government securities for the financial year 1988-89.

2. There is no change in the basic rates of tax for the financial year 1989-90 insofar as they relate to deduction of tax at source from payments of interest on Government securities. However, the Finance Act, 1989 has brought about some important changes in the provisions of section 193 of the Income-tax Act relating to deduction of tax at source from income by way of interest on securities. The changes are :

(a) In order to prevent the postponement of liability to deduct tax and payment to the credit of the Central Government, the Finance Act, 1989 has amended section 193 whereby tax will be deducted at source either at the time of credit to the account of the payee or at the time of payment thereof, whichever is earlier.

(b) By an Explanation inserted in section 193, it has been clarified that for the purpose of the said section where any income by way of interest on securities is credited to any account whether called Interest Payable Account or Suspense Account or by any other name, in the books of account of the person liable to pay such income, such credit shall be deemed to the credit of such income to the account of the payee and the provisions of this section shall accordingly apply.

(c) By amending clause (v)( b) of the proviso to section 193, the monetary ceiling of Rs. 1,000 mentioned therein has been increased to Rs. 2,500. Accordingly, tax will not be deducted at source from any interest payable to a resident individual on debentures issued by a company in which the public are substantially interested, if the interest is paid by the company by an account payee cheque and the amount of such interest or as the case may be, the aggregate of amount of such interest paid or likely to be paid during the financial year by the company to such an individual does not exceed Rs. 2,500.

The aforesaid amendments are effective from 1-6-1989. Besides, the Finance Act, 1989 has increased the levy of surcharge on the total income exceeding Rs. 50,000 from 5 per cent to 8 per cent in the case of resident persons and domestic companies. Therefore, the amount of tax deducted as per the rates given in enclosed draft circular shall be increased :

(i) by a surcharge for purpose of the Union at 8 per cent of such income-tax in the case of a resident person;

(ii) by a surcharge of 8 per cent of such income-tax in the case of domestic company.

3. A copy of the draft circular letter setting out the rates at which income-tax should be deducted from such payments after 31st March, 1989 is enclosed. On the basis of this draft, a circular may be issued to all Treasury Officers and Sub-Treasury Officers, banks, etc., under your control with a view to ensuring that the provisions of the Income-tax Act are strictly adhered to by the tax deductor.

4. In this connection, attention is invited to the provisions of sections 200, 203, 203A, 206 of the Income-tax Act, the sum and substance of which are as under :

(a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. By Notification No. SO 937(E), dated 20-10-1988, old rule 31 of the Income-tax Rules, 1962 has been substituted by a new rule which provides for a unified form of certificate to be issued in Form No. 16. Detailed instructions regarding the issue of certificates for tax deducted at source have been issued in Boards Circular No. 529 dated 13-2-1989.

If a person fails to furnish a certificate as required by section 203, he shall, on an order passed by the income-tax authority, under section 272A of the Income-tax Act, pay, by way of penalty, a sum which shall not be less than Rs.100, but which may extend to Rs. 200 for every day during which the failure continues.

(b) According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to quote the tax deduction account number (TAN) in the Challan, TDS certificates, periodical returns, etc. Detailed instructions in this regard are available in this Departments Circular No. 497, dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he shall on an order passed by the Assessing Officer under section 272BB, pay by way of penalty a sum which may extend to Rs. 5,000.

(c) According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the provisions of Chapter XVII of the Income-tax Act, shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered by the 31st May following the financial year to the prescribed income-tax authority the annual return of deduction of tax under section 193 from Interest on securities in Form No. 25 prescribed under rule 37 of the Income-tax Rules. It may be noted that the third copy of the TDS certificate issued to the assessees should be enclosed with the annual return.

If a person fails to furnish in due time the annual return, he shall, on an order passed by the income-tax authority, under section 272A pay, by way penalty a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees during which the failure continues.

(d) According to the provision of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 193 shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection, attention is also invited to the provisions of section 276B of the Income-tax Act, according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.

Draft Circular to all Treasury Officers, etc.

1. I am to invite your attention to this office letter regarding deduction of income-tax from interest on Government securities during the financial year 1988-89.

2. It may be noted that the Finance Act, 1989 has brought about important changes in the provisions of section 193 of the Income-tax Act relating to deduction of tax at source from income by way of interest on securities. Some of the changes are :

(b) By an Explanation inserted in section 193, it has been clarified that for the purpose of the said section where any income by way of interest on securities is credited to any account whether called Interest Payable Account or Suspense Account or by any other name, in the books of account of the person liable to pay such income, such credit shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall accordingly apply.

These amendments will be effective from 1-6-1989.

3. Income-tax is to be deducted during the financial year 1989-90, from the entire amount of interest on securities at the following rates, namely :

I.	In the case of a person other than a company :	Rates of income-tax
	(i) Where the person is resident in India-on income by way of interest payable on any security (excluding interest payable on a tax-free security)	10 per cent
	(ii) Where the person is not resident in India
	1. In the case of a non-resident Indian
	A. On investment income and long- term capital gains	20 per cent
	B. On income by way of interest payable on a tax-free security	15 per cent
	C. On the whole of the other	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, 1989 (Copy at Annexure I), if such income had been the total income, whichever is higher.
	2. In the case of any other person,
	A. On the income by way of interest on a tax-free security	15 per cent
	B. On the whole of other income (excluding interest payable on a tax-free security)	[As against 1(c) above]
II.	In the case of a company;
	(i) Where the company is a domestic company - on income by way of interest on securities (excluding interest payable on a tax-free security)	21.5 per cent
	(ii) Where the company is not a domestic company
	A. On interest payable on a tax-free security	44 per cent
	B. On interest on other securities	65 per cent.

Surcharge on Income-tax

The amount of tax deducted as per the rates given above shall be increased :

(i) by a surcharge for purposes of the Union @ 8 per cent of such income-tax in the case of resident person; and

(ii) by a surcharge @ 8 per cent of such income-tax in the case of a domestic company.

4. The term domestic company means an Indian company or any other company which, in respect of its income liable to tax under the Income-tax Act, 1961, 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.

5. In making payment or crediting interest on Government securities from the 1st April, 1989, 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/Assessing Officer under sub-section (1) of section 197 of the Income-tax Act, 1961, is produced. In this connection the following points should be kept in view :

(i) exemption or abatement certificates issued before the 1st April, 1989, authorising deduction of tax at a particular rate expressed as percentage of the amount of interest should be accepted and acted upon, if operative for the financial year ending on 31st March, 1990;

(ii) where a certificate is issued by the Income-tax Officer/Assessing Officer on or after 1st April 1989, authorising deduction of tax at a specified rate in respect of any person, income-tax should be deducted at the rates specified therein;

(iii) no tax should be deducted in cases in which, from a certificate issued by the Income-tax Officer/Assessing Officer or otherwise, you are satisfied that the payee is a person exempt from payment of income-tax under sections 10 to 13A of the Income-tax Act,1961;

(iv) no tax should be deducted from interest payable on 7- year National Savings Certificates (IV Issue), National Development Bonds, etc., which have been specifically exempted from the requirement of tax deduction at source under the proviso to section 193 or of the interest payable on such debentures/securities bonds as have been specified by the Central Government by notification in the Official Gazette under the proviso to section 193;

(v) 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 waiting in duplicate in the prescribed form and verified in the prescribed manner as provided in section 197A (1) of the Income-tax Act 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. A copy of declaration form prescribed under the provisions of section 197A of the Income-tax Act is at Annexure 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;

(vi) 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. Payments made to Life Insurance Corporation and Unit Trust of India are exempt from the requirement of TDS by their respective Acts;

(vii) under section 288B of the Income-tax Act, 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.

6. Attention is invited in this connection to the provisions of sections 200, 203, 203A and 206 of the Income-tax Act. The sum and substance of which are as under :

(a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. By Notification No. SO 937(E), dated 20-10-1988, old rule 31 of the Income-tax Rules, 1962, has been substituted by a new rule which provides for a unified form of certificate to be issued in Form No. 16. Detailed instructions regarding the issue of certificates for tax deducted at source have been issued in Boards Circular No. 529 [F.No. 275/3/89-IT(B)], dated 13-2-1989.

If a person fails to furnish certificate as required by section 203, he shall, on an order passed by the income-tax authority, under section 272A of the Income-tax Act, pay by way of penalty, a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for every day during which the failure continues.

(b) According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to quote the Tax-deduction Account Number (TAN) in the challans. TDS certificates, periodical returns, etc. Detailed instructions in this regard are available in this Departments Circular No. 497 [F.No.275/118/87-IT(B)], dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he shall on an order passed by the Assessing Officer, under section 272BB, pay, by way of penalty, a sum which may extend to Rs. 5,000.

(c) According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules the prescribed person in the case of every office or Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the provisions of Chapter XVII of the Income-tax Act, shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered by the 31st May following the financial year to the designated Income-tax Officer the annual return of deduction of tax under section 193 from Interest on securities in Form No. 25 prescribed under rule 37 of the Income-tax Rules. It may be noted that the third copy of the TDS certificate issued to the assessees should be enclosed with the annual return.

If a person fails to furnish in due time the annual return, he shall, on an order passed by the income-tax authority under section 272A pay, by way of penalty a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees for every day during which the failure continues.

(d) According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of section 193 shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection, attention is also invited to the provisions of section 276B of the Income-tax Act, according to which if a person fails to pay to the credit of the Central Government the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.

7. In case of any doubt, the Assessing Officer or the Local Public Relations Officer of the Department should be consulted before making deduction from interest on Government securities.

Annexure I

Extract from the finance act, 1989, 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	Nil;
	exceed Rs. 18,000
(2)	where the total income exceeds	20 per cent of the amount by which the total
	Rs. 18,000 but does not exceed	income exceeds Rs.18,000;
	Rs. 25,000
(3)	where the total income exceeds	Rs. 1,400 plus 30 per cent of the amount by
	Rs. 25,000 but does not exceed	which the total income exceeds Rs. 25,000;
	Rs. 50,000
(4)	where the total income exceeds	Rs. 8,800 plus 40 per cent of the amount by
	Rs. 50,000 but does not exceed	which the total income exceeds Rs. 50,000; Rs.
	1,00,000
(5)	where the total income exceeds	Rs. 28,900 plus 50 per cent of the amount
	Rs. 1,00,000	by which the total income exceeds Rs. 1,00,000.

Surcharge on income-tax

The amount of income-tax computed in accordance with the preceding provisions of this Sub-Paragraph shall, in the case of every person having a total income exceeding fifty thousand rupees, be increased by surcharge for purposes of the Union calculated at the rate of eight per cent of such income-tax :

Provided that no such surcharge shall be payable by a non-resident.

Annexure II

Form No. 15F

[See rule 29C(1)]

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

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

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

Description of

securities

Number of

securities

Dates of

securities

Amount of

securities

Date(s) on which the

Securities were acquired
by the declarant

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

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 Chief Commissioner or Commissioner of Income-tax...............

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

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

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

Signature of 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,.................................. day of......................................... 19..........

	...............................
Place.........................	Signature of Declarant

Notes :

1. @Give complete postal address.

2. The declaration should be furnished in duplicate.

3. *Delete whichever is not applicable.

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

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

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

For use by the person to whom the declaration is furnished

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

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

3. Period for which interest is paid.

4. Amount of interest.

5. Date on which interest is paid.

Forwarded to the Chief Commissioner or Commissioner of Income tax............

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

Circular No. 544, dated 15-9-1989.

1. The Board has received representations against the taxation of the subsidy granted by the State Governments to producers of feature films in regional languages.

Source : Circular No. 541, dated 25-7-1989, as amended by, Circular No. 544, dated 15-9-1989.

JUDICIAL ANALYSIS

approved in - The above circular was cited with approval in Sadichha Chitra v. CIT [1991] 189 ITR 774 (Bom.), with the following observations:

DIRECT TAX (AMENDMENT) ACT, 1987 [AS AMENDED BY DIRECT TAX LAWS (AMENDMENT) ACT, 1989] - CIRCULAR NO. 516, DATED 15-6-1988; CIRCULAR NO. 545, DATED 24-9-1989 ; CIRCULAR NO. 549, DATED 31-10-1989 AND CIRCULAR NO. 551, DATED 23-1-1990

PART I

PART II

PART III

PART IV

Circular : No. 546, dated 4-10-1989.

1224. Simplification of procedure regarding tax clearance certificate in case of a foreign employee not domiciled in India

1. Under the provisions of section 230 of the Income-tax Act, 1961 it has been prescribed, inter alia, that a person who is not domiciled in India cannot leave the territory of India by land, sea or air unless he obtains a certificate from the Competent Authority that he has no liability under various Acts mentioned therein, or that satisfactory arrangement have been made for the payment of all or any of such taxes which are or may become payable by that person.

2. One of the methods of ensuring that satisfactory arrangements have been made for the payment of such taxes is by way of obtaining guarantee from the employer of the person leaving the country that any tax found due will be paid by the employer (guarantor). Under the existing procedure the guarantee tendered by the guarantor ceases to be operative three months after the return of the employee to India if the employee remains in India during the said period of three months and the guarantor gives prompt notice to the Assessing Officer concerned of the employees return to India.

3. A number of representations have been received by the Board that the procedure of obtaining the tax clearance certificate in the cases of foreign employees not domiciled in India, each and every time such employee wants to go abroad, is cumbersome and time consuming. In order to alleviate this difficulty, it has been decided to provide the facility of one-time clearance certificate to the foreign employee not domiciled in India who has a fixed tenure of service in India up to five years, to travel abroad any number of times during the period of the contract of his service.

4. This one-time clearance certificate will be given in the case of those foreign employees whose employer gives a guarantee in the prescribed form that if any tax is found due against the employee during the entire period of the contract of service plus two years, the some shall be paid by the employer. The guarantee may also cover the tax liabilities of the spouse and dependents of the foreign employee; in such a case the spouse and dependents of the employee would also be entitled to the benefit of one-time clearance certificate. The revised form of guarantee which is to be used for the above purpose is enclosed. The above procedure will apply only in such cases where the employer of the foreign employee is an Indian concern, or a foreign concern which is assessed to tax in India and has a fixed place of business in India. Where the foreign employee is not interested in obtaining such a guarantee from the employer or the employer is not willing to furnish such a guarantee, the hitherto existing procedure will continue to be followed.

5. In cases where the guarantee in the revised form is furnished, the tax clearance certificate to be issued by the Assessing Officer, Foreign Section will be made valid for journeys to be performed by the foreign employee up to the last date of the contract of service as mentioned in the guarantee form. The concerned Chief Commissioner/Director General of Income-tax will have the right to withdraw the facility in suitable cases in the interest of revenue.

Form of Guarantee

(On a non-judicial stamp paper of the appropriate amount)

To
The President of India
through
The Commissioner of Income-tax	(Designation)
and
The Income-tax Officer/Assistant
Commissioner of Income-tax/
Deputy Commissioner of Income-tax	(Designation)

Sir,

In consideration of a certificate being issued by the Income-tax Officer/Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax (Ward/District/Circle/Range) under the provisions of section 230 of the Income-tax Act, 1961, in favour of (NAME OF FOREIGN EMPLOYEE, SPOUSE AND DEPENDENTS) [hereinafter referred to as the assessee(s)] notwithstanding that the assessee(s) has/have not made satisfactory arrangements for the payment of all or any of the tax/ taxes (which terms wherever they occur in these presents include penalty and interest) which are at present due by [NAME OF ASSESSEE(S)] and payable by him/her/them during the entire period of contract of service of (NAME OF FOREIGN EMPLOYEE) with the undersigned, ending on............... ....................and during a further period of two years ending on*...................................; We, the undersigned (NAME OF UNDERSIGNED), do hereby unconditionally and irrevocably guarantee due payment on demand and without demur to the Central Government of all the taxes which are or may become due and payable by the assessee(s) under the Indian Income-tax Act, 1922, the Income-tax Act, 1961, the Excess Profits Tax Act, 1940, the Business Profits Tax Act, 1947, the Wealth-tax Act, 1957, the Expenditure Tax Act, 1957 and the Gift-tax Act, 1958, or any one or more of the said Acts or other tax or taxes imposed under the authority of the Government of India.

2. My/our liability under this guarantee shall be co-extensive with that of the assessee(s).

3. I/We further agree that any amount certified by the Income-tax Officer/Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax having jurisdiction in the case of the assessee(s) as due and payable by the assessee(s) under all or any of the aforesaid enactments or other enactment(s) shall be accepted by me/us as conclusive evidence of the said amount being due and payable as aforesaid, and no such amount shall, in any case and under any circumstances, be disputed.

4. This guarantee shall apply to and secure the ultimate amount of tax which may be due or become due from the assessee(s) to the Central Government under all or any of the aforesaid enactments and it shall not be determined by me/us except on the terms of my/our making full provision for the payment of all such taxes to the satisfaction of the Income-tax Officer/Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax having jurisdiction in the matter.

5. Further, I/we expressly agree that my/our liability to pay such taxes to Central Government under the terms of this guarantee shall not in any way be affected or discharged by reason of any time and/or other indulgence (including the payment of tax by instalments being granted to the assessee(s) or by reason of any other arrangement or arrangements for the payment of taxes under all or any of the aforesaid enactments being entered into with the assessee(s) or his/her heirs or representatives in exercise of all or any of the powers vested in the taxing authority under the said enactments and, in particular, that I/we, the guarantor(s) shall not be released from any of our liabilities under this guarantee by reasons of exercise of the above-mentioned powers by the Taxing Authority or by any deviations of these presents, or by releasing to the assessee(s) any or all of his/her/their properties or assets, and it is also agreed that vis-a-vis the Central Government, I/we the guarantor(s) hereby waive any of my/our rights as surety or otherwise which may at any time be inconsistent with any of the provisions of this guarantee.

6. Further, I/we hereby agree and declare that this guarantee shall not be determined or otherwise affected by any death/** dissolution or liquidation, but shall remain in full force and effect against me/us and my/our estate/assets until such amount of tax as is or may become due and payable hereunder is paid in full.

7. It is further declared and agreed that without prejudice to any other remedies open to the Central Government for recovering any tax which is or may become due and payable under this guarantee, the Central Government will be entitled to recover the said tax from me/us the guarantor(s) on demand, in accordance with the rules contained in the Second Schedule to the Income-tax Act, 1961, or any modification thereof from time to time , and it shall not be necessary for the Central Government to initiate and/or exhaust any legal proceedings against the assessee(s) for the recovery of any tax as is aforementioned before suing me/us for the recovery of the same.

8. It is further agreed that this guarantee will cease to be operative on.............(indicate the date as at, above) if , and only if , I/we give notice before the date of expiry of the contract of service to the Income-tax Officer/Assistant Commissioner of Income-tax/Deputy Commissioner of Income-tax having jurisdiction in the case, regarding revoking the terms hereof and permitted by the Central Government.

(** please strike out whichever is not applicable)

Place :	Yours faithfully,
Date :

Signed in the presence of :

1. ................................................................

2. ................................................................

(Witnesses)

And certified as correct.

Accepted for and on behalf of the President of India.

Circular : No. 547, dated 18-10-1989.

1343. Wealth-tax assessment in respect of property left in erstwhile East Pakistan after Indo-Pak conflict of 1965

1. Attention is invited to the Boards Circular No. 385C dated 3-7-1984 laying down the procedure regarding taxation under the W.T. Act of assessees in respect of their properties left in erstwhile East Pakistan after Indo-Pak conflict of 1965 and the relief granted to them in respect of such properties.

2. Audit has pointed out that according to item (ii) of the circular the ex gratia grant received by the assessees before the valuation date need not be brought to tax in the assessment relevant to the valuation date. This instruction runs counter to section 2(e) of the Wealth-tax Act which provides that asset includes property of every description. Cash received before the valuation date would necessarily form part of regular wealth and will be liable to tax in any case.

3. The matter was considered in tripartite meeting in the Ministry of Law. The Ministry of Law has opined that the mere fact that a person has no right to claim a sum does not alter its nature after it has been received. No doubt, ex gratia payment is a payment made voluntarily by the Government. Nevertheless, once it is received by an assessee, it becomes asset in his hands and is, therefore, liable to wealth-tax.

4. The above circular is, therefore, modified to the extent that item (ii) stands deleted.

Circular: No. 548, dated 27-10-1989.

THIRD SCHEDULE l VALUATION OF ASSETS

1433. Explanation to rule 11 of Third Schedule to the Wealth-tax Act, 1957 - Valuation of assets - Instructions regarding balance-sheet drawn up as on the relevant valuation date but not available to the shareholders on the due date of filing wealth-tax returns

1. Rules 11 and 12 of the Third Schedule to the Wealth-tax Act lay down the manner of computing the value of unquoted equity shares on the basis of the balance-sheet of a company. The Explanation to rule 11 provides that for purposes of this rule, balance-sheet in relation to any company will be the balance-sheet of such company as drawn up on the relevant valuation date and where there is no such balance-sheet, the balance-sheet drawn up as on a date immediately preceding the relevant valuation date, and, in the absence of both, the balance-sheet drawn up as on the date immediately after the relevant valuation date. Sub-rule (4) of rule 12 of the said Schedule provides that for purposes of this rule, balance-sheet has the same meaning as in rule 11.

2. Representations have been received that, in a number of cases, balance-sheet drawn up as on the relevant valuation date is not published before the due date of filing wealth-tax return by shareholders and hence not available to them on such date. A view may be taken that since in such cases, it cannot be said that the balance-sheet is not drawn up on the relevant valuation date, it will not be permissible to work out the value under rules 11 and 12 on the basis of the balance-sheet drawn up as on a date immediately preceding the relevant valuation date. This may result in hardship to the taxpayers.

3. The Board have decided that where the balance-sheet of a company drawn up as on the relevant valuation date is not published before the due date of filing wealth-tax return by the shareholders and hence not available to them on the said date, they may work out the value of unquoted equity shares under aforesaid rules 11 and 12 on the basis of the balance-sheet drawn up as on a date immediately preceding the relevant valuation date.

4. In cases where the returns have been filed adopting the value of unquoted equity shares in accordance with para 3 above, the Wealth-tax Officers while making assessment will work out the value on the basis of the balance-sheet drawn up as on a date immediately preceding the relevant valuation date notwithstanding the fact that the balance-sheet drawn up as on the relevant valuation date is available at the time of making assessment.

Nature of returns

Month

Nature of returns

Month

Nature of goods

Percentage

Percentage

Percentage

Percentage

Paragraph A, Sub-Paragraph-I

Example I

Rates of income-tax

Description of

Number of

Dates of

Amount of

Date(s) on which the

Signature of Declarant