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INDIAN BARE ACTS

INCOME-TAX ACT 1995

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INCOME-TAX ACT 1995

THE INCOME-TAX ACT, 1995

ACT NO. 43 OF 1961

[date 13-9-1961]

(Received the assent of the President on 13-9-1961) An Act to consolidate and amend the law relating to income-tax 1[andsuper-tax] BE it enacted by Parliament in the Twelfth Year of the Republic of India as follows:- CHAP PRELIMINARY. CHAPTER I PRELIMINARY

Short title, extent and commencement. 1. Short title, extent and commencement

(1) This Act may be called the Income-tax Act, 1961.

(2) It extends to the whole of India.2

(3) Save as otherwise provided in this Act, it shall come into force on the 1st day of April, 1962.

Definitions. 2. Definitions In this Act, unless the context otherwise requires,-

3[(1) “advance tax” means the advance tax payable in accordance with the provisions of Chapter XVII-C;] 4[(1A)] “agricultural income” means- (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes; (b) any income derived from such land by- (i) agriculture; or (ii)the performance by a cultivator or receiver of rent- in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or ———————————————————————- 1.32 (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub- clause (b) is carried on: 1[Provided that- (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated- (A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (B) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (A), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification2 in the Official Gazette.] 3[Explanation.-For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause

(14) of this section;] ———————————————————————- 1 Substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962. 2 Inserted by the Finance Act, 1989 w.r.e.f. 1-4-1970. ———————————————————————– 1.33 1[2[(1B)] “amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than nine-tenths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first- mentioned company;]

(2) “annual value”, in relation to any property, means its annual value as determined under section 23;

3[(3) Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1 April, 1988.]

(4) “Appellate Tribunal” means the Appellate Tribunal constituted under section 252; ———————————————————————– 1 Inserted by the Finance (No. 2) Act, 1967 w.e.f. 1-4-1967. 2 Renumbered for “(1A)” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

3 Prior to the omission, clause (3), as originally enacted, read as under:

“(3) “Appellate Assistant Commissioner” means a person appointed to be an Appellate Assistant Commissioner of Income-tax under sub-

section (1) of section 117;” ———————————————————————- 1.34

(5) “approved gratuity fund” means a gratuity fund which has been and continues to be approved by the 1[Chief Commissioner or Commissioner] in accordance with the rules contained in Part C of the Fourth Schedule;

(6) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the 2[Chief Commissioner or Commissioner] in accordance with the rules contained in Part B of the Fourth Schedule;

(7) “assessee” means a person by whom 3[any tax] or any other sum of money is payable under this Act, and includes- (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; (c) every person who is deemed to be an assessee in default under any provision of this Act; 4[(7A) “Assessing Officer” means the Assistant Commissioner or the Income-tax Officer who is vested with the relevant jurisdiction by

virtue of directions or orders issued under sub-section (1) or sub-

section (2) of section 120 or any other provision of this Act, and the Deputy Commissioner who is directed under clause (b) of sub-section

(4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act;]

(8) “assessment” includes reassessment;

(9) “assessment year” means the period of twelve months commencing on the 1st day of April every year; 5[(9A) “Assistant Commissioner” means a person appointed to be an

Assistant Commissioner of Income-tax under sub-section (1) of section 117;]

(10) “average rate of income-tax” means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income;

6[(11) “block of assets” means a group of assets falling within a class of assets, being buildings, machinery, plant or furniture, in respect of which the same percentage of depreciation is prescribed;] ———————————————————————- 1 Substituted for ‘Commissioner’ by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Ibid. 3 Substituted for “income-tax or super-tax” by the Finance Act, 1965, w.e.f. 1-4-1965. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

5 Ibid. 6 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Earlier, the original clause was omitted by the Finance Act, 1965, w.e.f. 1-4-1965. ———————————————————————– 1.35

(12) “Board” means the 1[Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 19632 (54 of 1963)];

(13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;

(14) “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; 3[(ii) 4 personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him. Explanation.-For the purposes of this sub-clause, “jewellery” includes- (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semiprecious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;] 5[(iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or 6(b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;] ———————————————————————- 1 Substituted for “Central Board of Revenue constituted under the Central Board of Revenue Act, 1924 (4 of 1924)” by the Central Boards of Revenue Act, 1963, w.e.f. 1-1-1964. 2 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973. 3 Substituted for “(iii) agricultural land in India” by the Finance Act, 1970, w.e.f. 1-4-1970. ———————————————————————- 1.36 1[(iv) 6 1/2 per cent Gold Bonds, 1977, 2[or 7 per cent Gold Bonds, 1980,] 1[or National Defence Gold Bonds, 1980,] issued by the Central Government;] 4[(V) Special Bearer Bonds, 1991, issued by the Central Government;]

(15) 5 “charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility 6[* * *]; ———————————————————————- 1 Inserted by the Taxation Laws (Amendment) Act, 1962, w.e.f. 13-12-

2 Inserted by the Finance (No. 2) Act, 1965, w.e.f. 1-4-1965. 3 Inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965. 4 Inserted by the Special Bearer Bonds (Immunities and Exemptions) Act, 1981, w.e.f. 12-1-1981. 5 The words ‘not involving the carrying on of any activity for profit’ omitted by the Finance Act, 1983, w.e.f. 1-4-1984. ———————————————————————- 1.37 1[(15A) “Chief Commissioner” means a person appointed to be a

Chief Commissioner of Income-tax under sub-section (1) of section 117;] 2[3[(15B)] “child”, in relation to an individual, includes a step-child and an adopted child of that individual;]

4[(16) “Commissioner” means a person appointed to be a

Commissioner of Income-tax under sub-section (1) of section 117 5[* * *];] 6[(16A) “Commissioner (Appeals)” means a person appointed to be a

Commissioner of Income-tax (Appeals) under sub-section (1) of section 117;]

7[(17) “company” means- (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India; or (iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company: Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration;] ———————————————————————– 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-

2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 Renumbered for “(15A)” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Substituted by the Finance Act, 1970, w.e.f. 1-4-1970. 5 The words ” and includes a person appointed to be an Additional Commissioner of Income-tax under that sub-section” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 10-7-1978. 7 Substituted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. ———————————————————————- 1.38

(18) “company in which the public are substantially interested” — a company is said to be a company in which the public are substantially interested– 2[(a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per cent of the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that bank; or] 3[(aa) if it is a company which is registered under section 25 of the Companies Act, 19564 (1 of 1956); or (ab) if it is a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, it is declared by order of the Board to be a company in which the public are substantially interested: Provided that such company shall be deemed to be a company in which the public are substantially interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration; or] 5[(ac) if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 19566 (1 of 1956), to be a Nidhi or Mutual Benefit Society; or] 7[(ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative societies;] 8[(b) if it is a company which is not a private company as defined in the Companies Act, 19569 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely:- (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in ——————————————————————— 2 Substituted by the Finance Act, 1964, w.e.f. 1-4-1964. 3 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. 4 Inserted by the Finance Act, 1985, w.r.e.f. 1-4- 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 6 Substituted by the Finance Act, 1969, w.e.f. 1-4-1970. Earlier, it was amended by the Finance Act, 1965, w.e.f. 1-4-1965 and the Finance Act, 1966, w.e.f. 1-4-1966. ——————————————————————— 1.39 accordance with the Securities Contracts (Regulation) Act, 1956 1 (42 of 1956), and any rules made thereunder; 2[(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by- (a) the Government, or (b) a corporation established by a Central, State or Provincial Act, or (c) any company to which this clause applies or any subsidiary company of such company 1[if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.] Explanation.-In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words “not less than fifty per cent”, the words “not less than forty per cent” had been substituted;]]

(19) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 4 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies; 5[(19A) “Deputy Commissioner” means a person appointed to be a Deputy Commissioner of Income-tax 6[or an Additional Commissioner of

Income-tax] under sub-section (1) of section 117; (19B) “Deputy Commissioner (Appeals)” means a person appointed to be a Deputy Commissioner of Income-tax (Appeals) 7 [or an Additional

Commissioner of Income-tax (Appeals)] under sub-section (1) of section 117;] 8[(19c) “Deputy Director” means a person appointed to be a Deputy Director of Income-tax or an Additional Director of Income-tax under

sub-section (1) of section 117;]

(20) “director”, “manager” and “managing agent”, in relation to a ——————————————————————— 2 Substituted by the Finance Act, 1983, w.e.f. 2-4-1983. 3 Substituted for ‘where such subsidiary company fulfils the conditions laid down in clause (b) of section 108’ by the Finance Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 6 Ibid. ——————————————————————— 1.40 company, have the meanings respectively assigned to them in theCompanies Act, 1956 1 (1 of 1956);

2[(21) “Director General or Director” means a person appointed to be a Director General of Income-tax or, as the case may be, a Director

of Income-tax, under sub-section (1) of section 117, and includes a person appointed under that sub-section to be 3[an Additional Director of Income-tax or] a Deputy Director of Income-tax or an Assistant Director of Income-tax;]

(22) 4″dividend” includes- (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not; (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) 5[made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as ——————————————————————— 1 Substituted by the Direct Tax Laws (Amendment) Act, 1987,

w.e.f. 1-4-1988. Prior to the substitution, clause (21) read as under:

(21) ‘Director of Inspection’ means a person appointed to be a

Director of Inspection under sub-section (1) of section 117, and includes a person appointed to be an Additional Director of Inspection, a Deputy Director of Inspection or an Assistant Director of Inspection;’ 3 Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 5 Substituted for ‘by way of advance or loan to a shareholder, being a person who has a substantial interest in the company,’ by the Finance Act, 1987, w.e.f. 1-4-1988. ——————————————————————— 1.41 the said concern)] or any payment by any such company on behalf, or for- the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but “dividend” does not include– (i) a distribution made in accordance with sub-clause (c) or sub-clause (d)in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; 1[(ia)a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, 2[and before the 1st day of April, 1965];] (ii) any advance or loan made to a shareholder 3[or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off. Explanation 1.-The expression “accumulated profits”, wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.–The expression “accumulated profits” in sub- clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in subclause (c) shall include all profits of the company up to the. date of liquidation, 4[but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. Explanation 3.-For the purposes of this clause,- (a) “concern” means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern;] ——————————————————————— 1 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. 2 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. 3 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Direct Taxes (Amendment) Act, 1964, w.r.e.f. 1-4-

5 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. ——————————————————————— 1.4

(23) “firm”, “partner” and “partnership” have the meanings respectively assigned to them in the Indian Partnership Act, 1932 4 (9 of 1932); but the expression “partner” shall also include any person who, being a minor has been admitted to the benefits of partnership; 5[(23A) “foreign company” means a company which is not a domestic company;]

(24) 6″income” includes- (i) profits and gains; (ii) dividend; 7[(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes 8[or by an association or institution referred to in

clause (21) or clause (23), or by a fund or trust or institution referred to in subclause (iv) or sub-clause (v) of clause (23C) of section 10]. Explanation.-For the purposes of this sub-clause, “trust” includes any other legal obligation;] ——————————————————————— 1 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. quit 2 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 3 Renumbered for “(22A)” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 5 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 7 Inserted by the- Finance Act, 1972, w.e.f. 1-4-1973. 8 Substituted for ‘or by a trust or institution of national

importance refer-red to in clause (d) of sub-section (1) of section 80F” by the Direct Tax Laws (Amendment), Act, 1989, w.e.f. 1-4-1989. Earlier, the said expression was substituted for ” not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution’ by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. ——————————————————————— 1.43 (iii) the value of any perquisite or profit in lieu of

salary taxable under clauses (2) and (3) of section 17; 1[(iiia) any special allowance 2 or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; (iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living;] (iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid; 3[(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-

section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the “beneficiary”) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary;] (v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59; 4[(va) any sum chargeable to income-tax under clause (iiia) of section 28;] 5[(vb)] any sum chargeable to income-tax under clause (iiib) of section 28; 6[(VC ) any sum chargeable to income-tax under clause (iiic) of section 28;] 7[(vd)] the value of any benefit or perquisite taxable under clause (iv) of section 28; 8[(ve) any sum chargeable to income-tax under clause (v) of section 28;] ——————————————————————— 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1962 2 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1980. 3 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962. 4 Inserted, ibid, w.r.e.f. 1-4-1967. 5 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972. 6 Renumbered for “(va)” by the Finance Act, 1990, w.e.f. 1-4- 1990. The original clause (va) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 8 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. ——————————————————————— 1.44 (vi) any capital gains chargeable under section 45; (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule; 1[(viii) Omitted by the Finance Act, 1988, with effect from April, 1988. It was inserted by the Finance Act, 1964, w.e.f 1-4-1964.] 2[(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever;] 3[(x)any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees;] ——————————————————————— 1 Prior to omission, sub-clause (viii) read as under: “(viii) any annuity due, or commuted value of any annuity paid, under the provisions of section 280D;” 2 Inserted by the Finance Act, 1972 w.e.f. 1-4-1972. 3 Inserted by the Finance Act, 1987 w.e.f. 1-4-1988. ——————————————————————— 1.45 interest in the company or a relative of the director or the other person. 4. The word ‘income’ is of the widest amplitude and it must be given its natural and grammatical meaning. The definition of income

in section 2(24) is inclusive. The purpose of the definition is not to limit the meaning of ‘income’ but to widen its net and the several clauses therein are not exhaustive of the meaning of income; even if a receipt did not fall within the ambit of any of those clauses, it might still be income if it partook the nature of income. The words “other games of any sort’ were of wide amplitude and their meaning was not confined to mere gambling or betting activities. Assuming that the expression “winnings” had acquired a particular meaning viz. receipts from activities of a gambling or betting nature only, it did not follow that monies received from non-gambling or non-betting activities were not included within the ambit of income. The assessee participated in a car rally and won a prize. The car rally was a contest, if not a race and the assessee entered the contest to win it. What he got was a return for his skill and endurance. It was “income” construed in its widest sense. Though it was casual in nature, it was nevertheless income.

(25) “Income-tax-Officer” means a person appointed to be an Income-tax Officer under 1[* * *] section 117; 2[(25A) “India” shall be deemed to include the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu and Pondicherry,- (a) as respects any period, for the purposes of section 6; and (b) as respects any period included in the previous year, for the purposes of making any assessment for the assessment year commencing on the 1st day of April, 1963, or for any subsequent year;]

(26) “Indian Company” means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes- (i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir 3[and the Union territories specified in sub-clause (iii) of this clause]); 4[(ia) a corporation established by or under a Central, State or Provincial Act; (ib) any institution, association or body which is declared

by the Board to be a company under clause (17);] (ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State; 5[(iii) in the case of any of the Union territories of Dadra and Nagar ———————————————————————

1 The words ‘sub-section (1) of’ omitted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. Earlier, they were inserted by the Direct Tax Laws (Amendment.) Act, 1987, with effect from the same date. 2 Inserted by the Taxation Laws (Extension ‘to Union Territories) Regulation, 1963, w.e.f. 1-4-1963. 3 Ibid. 4 Inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. 5 Inserted by the Taxation Laws (Extension to Union Territories) Regulation, 1963, w.e.f. 1-4-1963. ——————————————————————— 1.46 Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory:] Provided that the 1[registered or, as the case may be, principal office of the company, corporation, institution, association or body] in all cases is in India; 4[ (28A) “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;] 6[(28B) “interest on securities” means,- (i) interest on any security of the Central Government or a State Government; (ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act;]

(29) “legal representative” has the meaning assigned to it in

clause (11) of section 2 of the Code of Civil Procedure, 1908 7 (5 of 1908); 8[(29A) “long-term capital asset” means a capital asset which is not a short-.term capital asset; (29B) “long-term capital gain” means capital gain arising from the transfer of a long-term capital asset;] 9[(29C) “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual 10[association of ——————————————————————— 1 Substituted for “registered office of the company” by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971.

2 Prior to omission, clause (27) read as under:

“(27) ‘Inspecting Assistant Commissioner’ means a person appointed to be an Inspecting Assistant Commissioner of Income-tax

under sub-section (1) of section 117;

3 Substituted for “(2)” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 4 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976. 5 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 6 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 8 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. ——————————————————————— 1.47 persons or, as the case may be, body of individuals] as specified in the Finance Act of the relevant year;]

(30)”non-resident” means a person who is not a ‘resident’, and for the purposes of sections 92, 93 1[* * *] and 168, includes a person who is not ordinarily resident within the meaning of sub-

section (6) of section 6;

(31) “person” includes- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses;

(32) “person who has a substantial interest in the company”, in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power;

(33) “prescribed” means prescribed by rules made under this Act;

(34) “previous year” means the previous year as defined in section 3;

(35) “principal officer”, used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means- (a) the secretary, treasurer, manager or agent of the authority, company, association or body, or (b) any person connected with the management or administration of the local authority, company, association or body upon whom the 2[Assessing] Officer has served a notice of his intention of treating him as the principal officer thereof;

(36) “Profession” includes vocation; 3[(36A) “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 19564 (1 of 1956);]

(37) “public servant” has the same meaning as in section 21 of the Indian Penal Code, 18605 (45 of 1860); 6[(37A) “rate or rates in force” or “rates in force”, in relation to an assessment year or financial year, mean- ——————————————————————— 1 The figure 113 omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 2 Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 5 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. ——————————————————————— 1.48 (i) for the purposes of calculating income-tax under the

first proviso to sub-section (5) of section 132, or computing

the income-tax chargeable under sub-section (4) of section

172 or sub-section (2) of section 174 or section 175 or sub-

section (2) of section 176 or deducting income-tax under section 192 from income chargeable under the head “Salaries” 1[* * *] or 2 [computation of the “advance tax” payable under Chapter XVII-C, in a case not falling under 3[section 115A or section 115B 4[or section 115BB or section 115E] or] section 164 5[or section 164A 6[* * *]] 7[or section 167B], the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of computation of the “advance Tax” payable under Chapter XVII-C 8[in a case falling under section 115A or section 115B 9[or section 115BB or section 115E] or section 164 10[or section 164A 11[* * *]] 12[or section 167B], the rate or rates specified in section 115A or 13[section 115B or section 115BB or section 115E or section 164 or section 164A 14[* * *1 15[or section 167B], as the case may be,] or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable;] (ii) for the purposes of deduction of tax under sections 193, 194, 194A 16[194B] 17[, 194BB] 18[and 194D], the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year;] ———————————————————————

1 The words or sub-section (9) of section 80E from any payment referred to therein’ omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. These words were inserted by the Finance Act, 1968, w.e.f. 1-4-1968. 2 Substituted for ‘computation of the “advance tax” payable under Chapter XVII-C, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year’ by the Finance Act, 1970, w.e.f. 1-4-1971. 3 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976. 4 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 5 Ibid. 6 The words or section 167A” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 8 Substituted for “in a case falling under section 164, the rate specified in that section’ by the Finance Act, 1976, w.e.f. 1-6-1976. 9 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 10 ibid. 11 The words “or section 167A” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 12 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 13 Substituted for “section 115B or, as the case may be, section 164” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 14 The words “or section 167A” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. These words were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 15 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 16 Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. 17 Inserted by the Finance Act, 1978, w.e.f. 1-4-1978. 18 Substituted for “, 194D and 195 by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. ——————————————————————— 1.49 1[(iii)for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, whichever is applicable by virtue of the provisions of section 90;]

(38) 2″recognised provident fund” means a provident fund which has been and continues to be recognised by the 3[Chief Commissioner or Commissioner] in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 4 (19 of 1952);

5[(39) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993]

(40)”regular assessment” means the assessment made under 6[sub-

section (3) of] section 143 or section 144; ——————————————————————— 1 Substituted by the Finance Act, 1992, w.e.f. 1-6-1992. Prior to the substitution, subclause (iii), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991, read as under: “(iii) for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in section 115A or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year, whichever is applicable;” 3 Substituted for “Commissioner” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

5 Prior to the omission, clause (39), as inserted by the Direct Tax Laws (Amendment) Act, 1989, read as under:

“(39) “registered firm” means a firm registered under the

provisions of clause (a) of sub-section (1) of section 185 or deemed

to be registered under the provisions of subsection (6) of that

section or under those provisions read with sub-section (7) of section 184;” Earlier, the following original clause was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989:

“(39) ‘registered firm’ means a firm registered under the

provisions of clause (a) of sub-section (1) of section 185 or under

that provision read with sub-section (7) of section 184;” 6 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989. ——————————————————————— 1.50

(41)”relative”, in relation to an individual, means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual;

(42)”resident” means a person who is resident in India within the meaning of section 6; 1[(42A) 2[“short-term capital asset”3 means a capital asset held by an assessee for not more than 4[thirty-six] months immediately preceding the date of its transfer”:] 6[Provided that in the case of a share held in a company 7[or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of section 10], the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted.] Explanation 8[1].–In determining the period for which any capital asset is held by the assessee– (a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation; (b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in

9[sub-section (1)] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section; 10[(c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee;] 11[(d) in the case of a capital asset, being a share or any other security (hereafter in this clause referred to as the financial asset) subscribed to by the assessee on the basis of’ his right to subscribe to such financial asset or subscribed to by the person in whose favour the assessee has renounced his right to subscribe to such financial asset, the period shall be reckoned from the date of allotment of such financial asset; ——————————————————————— 1 Inserted by the Finance (No. 2) Act, 1962, w.e.f. 1-4-1962. 2 Substituted by the Finance Act, 1973, w.e.f. 1-4-1974. It was also amended by the Finance Act, 1966, w.e.f. 1-4-1966; Finance (No. 2) Act, 1967, w.e.f. 1-4-1967 and Finance Act, 1968, w.e.f. 1-4-1969. 4 Substituted for “sixty” by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 6 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 7 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 8 Ibid. 9 Substituted for “clauses (i) to (iii)” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 10 Inserted by the Finance (No. 2) Act, 1967 w.e.f. 1-4-1967. 11 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ———————————————————————- 1.51 (e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of the offer of such right by the company or institution, as the case may be, making such offer;] 1[(f)in the case of a capital asset, being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset;] (ii) in respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the assessee shall be determined subject to any rules which the Board may make in this behalf,] 2[Explanation 2.-For the purposes of this clause, the expression “security” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 3 (42 of 1956) 4[(42B) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset;] 5[(42C) Omitted by the Finance Act, 1990, with effect from 1 April, 1990. Earlier, it was inserted by the Direct Tax Laws (Second Amendment) Act, 1989, with effect from the same date.]

6[(43) “tax” in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date;] ——————————————————————— 1 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 2 Inserted by the Finance Act, 1994, w.e.f 1-4-1995. 3 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 4 Prior to the omission, it read as under: 5 “(42C) ‘security’ means a Government security as defined in

clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944);” 6 Substituted by the Finance Act, 1965, w.e.f. 1-4-1965. ——————————————————————— 1.52 1[(43A) “tax credit certificate” means a tax credit certificate granted to any person in accordance with the provisions of Chapter XXII-B and any scheme made thereunder;] 2[(43B) Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1 April, 1989.]

3[(44) “Tax Recovery Officer” means any Income-tax Officer who may be authorised by the Chief Commissioner or Commissioner, by general or special order in writing, to exercise the powers of a Tax Recovery Officer;]

(45)”total income” means the total amount of income referred to in section 5, computed in the manner laid down in this Act;

4[(46) * * *]

(47) 5[“transfer”, in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;] 6[or] 7[(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of ——————————————————————— 1 Inserted by the Finance Act, 1965, w.e.f. 1-4-1965. This clause needs to be omitted consequent upon the omission of Chapter XXII-B by the Finance Act, 1990, w.e.f. 1-4-1990. 2 Prior to the omission, clause (43B), as inserted by the Finance (No. 2) Act, 1971, w.e.f. 1-1-1972, read as under: “(43B) “Tax Recovery Commissioner” means a Commissioner or an Assistant Commissioner of Income-tax who may be authorised by the Central Government, by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Commissioner;” 3 Substituted by the Direct Tax Laws (Amendment). Act, 1987, w.r.e.f. 1-4-1988 [as amended by the Direct Tax Laws (Amendment) Act,

1989]. Prior to the substitution, clause (44), as substituted by the Finance Act, 1963, w.r.e.f. 1-4-1962, read as under:

“(44) “Tax Recovery Officer” means- (i) a Collector or an Additional Collector; (ii) any such officer empowered to effect recovery of arrears of land revenue or other public demand under any law relating to land revenue or other public demand for the time being in force in the State as may be authorised by the State Government, by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Officer; (iii)any Gazetted Officer of the Central or a State Government who may be authorised by the Central Government, by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Officer;” 4 Omitted by the Finance Act, 1965, w.e.f. 1-4-1965. 5 Substituted for “transfer” in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law;” by the Taxation Laws (Amendment), Act 1984, w.e.f. 1-4-1985. 6 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 7 Ibid. ——————————————————————— 1.53 a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 1 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation.-For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA;]

2[(48) Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

“Previous year” defined 4. 3[3. “Previous year” defined 4

(1) Save as otherwise provided in this section, “previous year” for the purposes of this Act, means the financial year immediately preceding the assessment year: ———————————————————————

2 Prior to the omission, clause (48) read as under;

“(48) “unregistered firm” means a firm which is not a registered firm.” Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. the same date. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989. Prior to the substitution, section 3, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under:

“Previous year” defined.-(1) For the purposes of this Act, “previous year” means- (a) the financial year immediately preceding the assessment year; or (b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date; or (c) in the case of any person or business or class of persons or business not falling within clause (a) or clause (b), such period as may be determined by the Board or by any authority authorised by the Board in this behalf; or (d) in the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and- (i) ending with the said financial year, or (ii) if the accounts of the assessee have been made up to a date within the said financial year, then,, at the option of the assessee, ending on that date, or (iii)ending with the period, if any, determined under clause (c), as the case may be; or (e) in the case of a business or profession newly set up in the twelve months immediately preceding the said financial year- (i)if the accounts of the assessee have been made up to a date within the said financial year and the period from the date of the setting up of the business or profession to such date does not exceed twelve months, then, at the option of the assessee, such period, or (ii)if any period has been determined under clause (c), then the period beginning with the date of the setting up of the business or profession and ending with that period, as the case may be; or (f) where the assessee is a partner in a firm and the firm has been assessed as such, then, in respect of the assessee’s share in the income of the -> -> ——————————————————————— 1.54 Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.

(2) “Previous year”, in relation to the assessment year commencing on the 1st day of April, 1989, means the period which begins with the date immediately following the last day of the previous year relevant to the assessment year commencing on the 1st day of April, 1988, and ends on the 31st day of March, 1989: 1 Provided that where the assessee has adopted more than one period as the “previous year” in relation to the assessment year commencing on the 1st day of April, 1988, for different sources of his income, the previous year in relation to the assessment year commencing on the 1st day of April, 1989, shall be reckoned separately in the manner aforesaid in respect of each such source of income, and the longer or the longest of the periods so reckoned shall be the previous year for the said assessment year: 2[Provided further that in the case of a business or profession newly set up, or a source of income newly coming into existence on or after the, 1st day of April, 1987, but before the 1st day of April, 1988 and where the ——————————————————————— -> -> firm, the period determined as the previous year for the assessment of the income of the firm; or (g) in respect of profits and gains from life insurance business, the year immediately preceding the assessment year for which annual accounts are required to be prepared under the Insurance Act, 1938 (4 of 1938), or under that Act read with section 43 of the Life Insurance Corporation Act, 1956 (31 of 1956).

(2) Where an assessee has newly set up a business or profession in the said financial year and his accounts are made up to a date in the assessment year in respect of a period not exceeding twelve months from the date of such setting up, then, notwithstanding anything

contained in sub-clause (iii) of clause (d) of sub-section (1), the assessee shall, in respect of that business or profession, at his option, be deemed to have no previous year for the said assessment year under that clause and such option shall, in relation to the immediately succeeding assessment year, have effect as an option

exercised under sub-clause (i) of clause (e) of sub-section (1).

(3) Subject to the other provisions of this section, an assessee may have different previous years in respect of separate sources of his income.

(4) Where in respect of a particular source of income or in respect of a business or profession newly set up, an assessee has once exercised the option under clause (b) or sub-clause (ii) of clause (d)

or sub-clause (i) of clause (e) of sub-section (1) or has once been assessed, then, he shall not, In respect of that source, or, as the case may be, business or profession, be entitled to vary the meaning of the expression “previous year” as then applicable to him, except with the consent of the Assessing Officer and upon such conditions as the Assessing Officer may think fit to impose.” 1 See rule 125. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ——————————————————————— 1.55 accounts in relation to such business or profession or source of income have not been made up to the 31st day of March, 1988, the “previous year” in relation to the assessment year commencing on the 1st day of April, 1989, shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending on the 31st day of March, 1989: 1 Provided also that where the assessee has adopted one or more periods as the “previous year” in relation to the assessment year commencing on the 1st day of April, 1988, for any source or sources of his income, in addition to the business or profession or source of income referred to in the second proviso, the previous year in relation to the assessment year commencing on the 1st day of April, 1989, shall be reckoned separately in the manner aforesaid in respect of each such source of income, and the longer or the longest of the periods so reckoned shall be the previous year in relation to the said assessment year.]

(3)Where the previous year in relation to the assessment year commencing on the 1st day of April, 1989, referred to in sub-section

(2) exceeds a period of twelve months, the provisions of this Act shall apply subject to the modifications specified in the rules in the Tenth Schedule.] ——————————————————————— ——————————————————————— CHAP BASIS OF CHARGE. CHAPTER II BASIS OF CHARGE

Charge of income-tax 1. 4. Charge of income-tax 1

(1)Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and 2[subject to the provisions (including provisions for the levy of additional income-tax) of, this Act] in respect of the total income of the previous year * *] of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.

(2)In respect of income chargeable under sub-section (1), income- tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. ——————————————————————– 1 Substituted for ‘subject to the provisions of, this Act” by the Direct Tax Laws (Amendment)’ Act, 1987, w.e.f. 1-4-1989. This amendment was consequent to the insertion of Chapter XIV-B (comprising of section 158B), but after the withdrawal of the chapter, without even coming into effect, this amendment too needs to be undone. 3 The words “or previous years, as the case may be,” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ——————————————————————— 1.57 liability arising from contracts as well as torts. it would be incorrect to assume that the share of an assessee in a form consists only of income yielding assets. It equally comprises of risk and liability of paying debts on behalf of the firm. An assessee cannot, under the Hindu law make a declaration whereby the joint family would have to bear the risk and liability of the business and such a declaration should be ignored altogether. 6.Where payment is made to compensate for the loss of the use of any goods in which the assessee does not carry on any business or the payment is a just equivalent of the cost incurred by the assessee, but excess accrues due to fortuitous circumstances or is a windfall, then ccrual may be a receipt, but it would not be income arising from business, and, therefore, not taxable under the Act. 7.In the hands of an assessee, who maintains his accounts on the mercantile system, sales tax collected but not paid to the Sales Tax Department pending adjudication of dispute over his liability to pay sales tax, is a revenue receipt of the year in which it is collected. 8.Where a company goes into liquidation and the liquidator distributes the assets of the company among the shareholders, what each shareholder gets is in lieu of his shareholding. That is the worth, the value and the price of his shareholding. A shareholder participates in the distribution of the assets of a company on its liquidation by virtue of and because of his shareholding. It is true that a liquidator does not sell the shares. It is equally true that there is no transfer of shares by the shareholder to the liquidator or to any other person. That is not really necessary. So long as money is received in lieu of shares, there is a receipt and where an assessee is a dealer in shares, any surplus amount received by him constitutes his income. The money received by the assessee in lieu of its shareholding partakes of the same character in which he held the shares. If he held the shares as stock-in-trade, the money received by it represents his income i.e. a revenue receipt in its hands. If it held them by way of investment, the money it receives represents a capital receipt by it.

Scope of total income 1. 5. Scope of total income 1.

(1)Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in

India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derivedfrom a business controlled in or a profession set up in India.

(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which – (a) is received or is deemed to be received in India in such year by or on behalf of such person; or ——————————————————————— 1.58 (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. 1[5A. Apportionment of income between spouses governed by Portuguese Civil Code

(1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 1860 as “COMMUNIAO DOS BENS”) in force in the State of Goa and in the Union territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head “Salaries”) shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly.

(2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head ——————————————————————— 1 Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963. ——————————————————————— 1.59 “Salaries”, such income shall be included in the total income of the spouse who has actually earned it.]

Residence in India 1. 6. Residence in India 1. For the purposes of this Act,-

(1) An individual is said to be resident in India in any previous year, if he- (a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or 2[(b) * * *] (c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year. 3[Explanation.-In the case of an individual,- (a) being a citizen of India, who leaves India in any previous year 4 [as a member of the crew of an Indian ship as

defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employment outside India, the provisions of subclause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty two days” had been substituted; (b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words 5[“one hundred and eighty-two days”] had been substituted.]

(2) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India. ——————————————————————– 2 Omitted by the Finance Act, 1982, w.e.f. 1-4-1983. 3 Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. Prior to the substitution, the Explanation, as substituted by the Finance Act, 1982, w.e.f. 1-4-1983, read as under: 3[Explanation : In the case of an individual, being a citizen of India,- (a) who leaves India in any previous year for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days’ had been substituted; (b) who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words ‘sixty days”, occurring therein, the words “ninety days” had been substituted.” It was originally inserted by the Finance Act, 1978, w.e.f. 1-4-

4 Inserted by the Finance Act, 1990, w.e.f. 1-4-1990. 5 Substituted for “one hundred and fifty days” by the Finance Act, 1994, w.e.f. 1-4-1995. ——————————————————————— 1.60

(3) A company is said to be resident in India in any previous year, if- (i) it is an Indian company; or (ii) during that year, the control and management of its affairs is situated wholly in India.

(4) Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.

(5) If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.

(6) A person is said to be “not ordinarily resident” in India in any previous year if such person is- (a) an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or (b) a Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more.

Income deemed to be received. 7. Income deemed to be received The following incomes shall be deemed to be received in the previous year:- (i) the annual accretion in the previous year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6 of Part A of the Fourth Schedule; (ii) the transferred balance in a recognised provident fund,

to the extent provided in sub-rule (4) of rule 11 of Part A of the Fourth Schedule.

Dividend income. 8. Dividend income 1[For the purposes of inclusion in the total income of an assessee,- (a) any dividend] declared by a company or distributed or paid by it within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e)

of clause (22) of section 2 ——————————————————————— 1 Substituted for ‘For the purposes of inclusion in the total income of an assessee, any dividend’ by the Finance Act, 1965, w.e.f. 1-4-1965. ——————————————————————— 1.61 shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be; 1[(b) any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.]

Income deemed to accrue or arise in India 2. 9. Income deemed to accrue or arise in India 2.

(1) The following incomes shall be deemed to accrue or arise in India- 3(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India 4[* or through the transfer of a capital asset situate in India. Explanation.-For the purposes of this clause- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operation,., which are confined to the purchase of goods in India for the purpose of export; 5[* * *] 6[(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India;] 7[ (d) in the case of a non-resident, being-

(1) an individual who is not a citizen of India; or

(2) a firm which does not have any partner who is a citizen of India or who is resident in India; or

(3) a company which does not have any shareholder who is a citizen of India or who is resident in India, ——————————————————————— 1 Inserted by the Finance Act, 1965, w.e.f. 1-4-196 4 The words “or through or from any money lent at interest and brought into India in cash or in kind” omitted by the Finance Act, 1976, w.e.f. 1-6-1976. 5 Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964. 6 Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1962. 7 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1982. ——————————————————————— 1.62 no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematography film in India;] (ii) income which falls under the head “Salaries” if it is earned in India. 1[Explanation.-For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India;] (iii)income chargeable under the head “Salaries” payable by the Government to a citizen of India for service outside India; (iv) a dividend paid by an Indian company outside India; 2[(v) income by way of interest payable by- (a) the Government; or (b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India; (vi) income by way of royalty payable by- (a) the Government; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, de sign, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government: ——————————————————————— 1 Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979. 2 Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w.e.f. 1-6-1976. ——————————————————————— 1.63 1[Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a nonresident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.] Explanation 1.-For the purposes of the 2[first] proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time

allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the 3[Assessing] Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976. Explanation 2.-For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in ——————————————————————— 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 2 Substituted for “foregoing”, ibid. 3 Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ——————————————————————— 1.64 connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (v); 1[Explanation 3.-For the purposes of this clause, the expression “computer software” shall have the meaning assigned to it in clause (b) of the Explanation to section 80HHE;] (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: 2[Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.] 3[Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] Explanation 4 [2].-For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.]

(2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in Article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. ——————————————————————— 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 2 Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977. 3 Ibid. 4 Ibid. ——————————————————————— 1.65 Where a foreign agent of Indian exporter operates in his own country and no part of his income arises in India and his commission is usually remitted directly to him and is not received by him or on his behalf in India, the agent is not liable to income-tax in India on the commission. A non-resident will not be liable to tax in India, on any income attributable to operations confined to purchase of goods in India for export even though the nonresident has an office or agency in India for this purpose. Where a non-resident allows an Indian customer facilities of extended credit for payment there would be no assessment merely for this reason provided that the contracts to sell were made outside India and the sales were made on a principal to principal basis. Section 9 does not seek to bring into the tax net the profits of a non-resident which cannot reasonably be attributed to operations carried out in India. Even if there be a business connection in India the whole of the profit accruing or arising from the business connection is not deemed to accrue or arise in India. It is only that portion of the profit which can reasonably be attributed to the operations of the business carried out in India which is liable to income-tax. 1.66 5. The mere existence of an agency, established by a non- resident in India, will not be sufficient to make the non-resident liable to tax, if the sole function of the agency is to purchase goods for export. 6. Where shares in Indian companies are allotted in consideration for the machinery and plant, the income embedded in the payments would be received in India as the shares in the Indian companies are located in India and would accordingly attract liability to income-tax as income received in India. 1.67 CHAP INCOMES WHICH DO NOT FORM PART OF TOAL INCOME. CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Incomes not included in total income. 10. Incomes not included in total income In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-

(1) agricultural income;

(2) 1[subject to the provisions of sub-section (2) of section 64,] any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family; 2[(2A) in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation.-For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits;]

3[(3) any receipts which are of a casual and non-recurring nature, 4[to the extent such receipts do not exceed five thousand rupees in the aggregate:] 5[Provided that where such receipts relate to winnings from races including horse races, the provisions of this clause shall have effect as if for the words “five thousand rupees”, the words “two thousand five hundred rupees” had been substituted: Provided further that) this clause shall not apply to- (i) capital gains chargeable under the provisions of section 45; or ——————————————————————— 1 Inserted by the Taxation Laws (Amendment) Act, 1970 w.e.f. 1-4-

2 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, clause (2A) was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 but was omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 3 Substituted by the Finance Act, 1972, w.e.f. 14-1972. Section 59 of the said Finance Act has made the following special provision in this regard: “59. Certain casual and non-recurring receipts not to be included in the total income for the assessment year 1972-73.- Notwithstanding the amendments made by this Act to the Income-tax Act, in computing, in the case of any person, the total income of a previous year relevant to the assessment year commencing on the 1st

day of April, 1972, any income falling within clause (3) of section 10 of the Income-tax Act as it stood immediately before the 1st day of April, 1972, shall not be included.” 4 Substituted for ‘not being winnings from lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate’ by the Finance Act, 1986, w.e.f. 1-4-1987. 5 Substituted for ‘Provided that’ by the Finance Act, 1992, w.e.f. 1-4-1992. ——————————————————————— 1.68 (ii) receipts arising from business or the exercise of a profession or occupation; or (iii) receipts by way of addition to the remuneration of an employee;] I[* * *] 2[(iv)* * * *]

3[(4)(i) in the case of a non-resident, any income by way of interest on ———————————————————————- 1 The word ‘or’ omitted by the Finance Act, 1992, w.e.f. 1-4-1992. Earlier, it was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. 2 Omitted by the Finance Act, 1992, w.e.f. 1-4-1992. Prior to the omission, clause (iv), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991, read as under: “(iv) winnings from races including horse races;”

3 Substituted for clauses (4) and (4A) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution,

clause (4), as amended by the Finance Act, 1964, w.e.f. 1-4-1964, and clause (4A), as inserted by the Finance Act, 1964, w.e.f. 1-4-1965; amended by the Finance Act, 1968, w.e.f. 1-4-1969 and substituted by the Finance Act, 1982, w.e.f. 1-4-1982, read as under: -> -> 1.69 such securities or bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf, including income by way of premium on the redemption of such bonds; 1[(ii) 2 in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the rules made thereunder: Provided that such individual is a person resident outside India as defined in clause (q) of section 23 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain the aforesaid Account;] ———————————————————————

-> -> “(4) in the case of a non-resident, any income from interest on such securities as the Central Government may, by notification in the Official Gazette, specify in this behalf, or any income from interest on, or from premium on the redemption of, any bonds issued by the Central Government under a loan agreement between the Central Government and the International Bank for Reconstruction and Development or under a loan agreement between the Central Government and the Development Loan Fund of the United States of America or by any industrial undertaking or financial corporation in India under a loan agreement with the said Bank or Fund, as the case may be, which is guaranteed by the Central Government; (4A) in the case of a per-son resident outside India, any income from interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder. Explanation.-In this clause, ‘person resident outside India” shall have the meaning assigned to it in clause (q) of section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973);” 1 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. Prior to the substitution, sub-clause (ii) read as under: “(ii) in the case of an individual, who is a person resident outside India as defined in clause (q) of section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973), any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the said Act and the rules made thereunder;” ———————————————————————- 1.70

August, 1990 would be eligible for exemption under section 10(4)(ii) in respect of NRE/FCNR accounts maintained upto 30th June, 1991.

[(4A) Substituted by clause 10(4)(ii), supra, by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April, 1989.] 1[(4B) in the case of an individual.. being a citizen of India or a person of Indian origin, who is a non-resident, any income from interest on such savings certificates issued by the-Central Government as that Government may, by notification in the Official Gazette, specify in this behalf: Provided that the individual has subscribed to such certificates in convertible foreign exchange remitted from a country outside India in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder. Explanation.-For the purposes of this clause,- (a) a per-son shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India; (b) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;]

2[(5) ‘in the case of an individual, the value of any travel concession or ——————————————————————— 1 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 2 Substituted by the Direct Tax Laws (Second Amendment) Act, 1989,

w.r.e.f. 1-4-1989. Prior to the substitution, clause (5), as substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 14- 1962 and amended by the Finance Act, 1975, w.e.f. 14-1975, read as under:

“(5) subject to such conditions as the Central Government may prescribe, in the case of an individual being a citizen of India,- (i) in relation to any assessment year not being an assessment year commencing after the 1st day of April, 1970, the value of any travel concession or assistance received by or due to such individual,- (a)from his employer for himself, his spouse and children, in connection with his proceeding on leave to his home-district in India; (b)from his employer or former employer for himself, his spouse and children, in connection with his proceeding to his home-district in India after retirement from service or after the termination of his service; (ii) in relation to any other assessment year, the value of any travel concession or assistance received by or due to such individual,- (a)from his employer for himself and his family, in connection with his proceeding on leave to any place in India; (b)from his employer or former employer for himself, and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service: Provided that the amount exempt under item (a) or item (b) of this sub-clause shall not, except in such cases and under such circumstances, as may be prescribed, having regard to the travel concession or assistance granted to the employees of the Central Government, exceed the value of the travel concession or assistance which would have been received by or due to the individual in connection with his proceeding to his home district in India on leave or, as the case may be, after retirement from service -> -> 1.71 assistance received by, or due to, him,- (a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India; (b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service, subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government: Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel. Explanation.-For the purposes of this clause, “family”, in relation to an individual, means- (i) the spouse and children of the individual; and (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual;] 2. Home district: Meaning.-The following criteria have been laid down for determining home district for the purposes of section

10(5): ——————————————————————— -> -> or after the termination of his service. Explanation.-For the purposes of this sub-clause, “family”, in relation to an individual, means- (i) the spouse and children of the individual; and (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.”

The new clause (5) substituted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989 was again substituted by the Direct Tax Laws (Second Amendment) Act, 1989 with effect from the same date making the earlier amendment of academic interest only. ——————————————————————— 1.72 (a) the place declared by the assessee is one which requires his physical presence at intervals, for discharging various domestic or social obligations and if so, after his entry into service he had been visiting that place frequently; or (b) the assessee owns residential property in the place or is a member of the joint family having such property there; or (c) his near relations are resident in that place; or (d) prior to his entry into service he had been living there for some years. If any of these conditions is satisfied, the assessee may be allowed to claim a particular place as his home district. 1[(5A) in the case of an individual who is not a citizen of India and is a non-resident, who comes to India solely in connection with the shooting of a cinematograph film in India by the individual, firm or company referred to in clause (d) of the Explanation to clause (i)

of sub-section (1) of section 9, any remuneration received by him for rendering any service in connection with such shooting;] 2[(5B) in the case of an individual who renders services as a technician in the employment (commencing from a date after the 31st day of March, 1993) of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this clause or sub-clause

(viia) of clause (6) by the prescribed authority or in any business carried on in India and the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India and the tax on his income for such services chargeable under the head “Salaries” is paid to the Central Government by the employer (which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 19563) (1 of 1956), the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India: Provided that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the condition relating to non-residence in India as specified in this clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning. Explanation.-For the purposes of this clause, “technician” means a person having specialised knowledge and experience in- (i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or (ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, or (iii) such other field as the Central Government may, having regard to availability of Indians having specialised knowledge and ——————————————————————— 1 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-

2 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. ———————————————————————- 1.73 experience therein, the needs of the country and other relevant circumstances, by notification’ in the Official Gazette, specify, who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised;]

(6) in the case of an individual who is not a citizen of India,- 2[(i) 3 subject to such conditions as the Central Government may prescribe, passage moneys or the value of any free or concessional passage received by or due to such individual- (a) from his employer, for himself, his spouse and children, in connection with his proceeding on home leave out of India; 4 [(aa) from his employer, for his children having full time education in any educational institution outside India, in connection with their proceeding to India during vacation;] (b) from his employer or former employer for himself, his spouse and children, in connection with his proceeding to his home country out of India after retirement from service in India or after the termination of such service;] 5[(ii) the remuneration received by him as an official, by whatever name ——————————————————————— 1 The fields of (i) grading and evaluation of diamonds for diamond export or import trade; (ii) cookery; and (iii) information technology including computer architecture systems platforms and associated technology, software development process and tools have been specified: 2 Substituted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f 1-4-1962. 4 Inserted by the Finance (No. 2) Act, 1977, w.r.e.f. 1-4-1972. 5 Substituted for sub-clauses (ii) to (v) by the Finance Act, 1988, w.e.f. 1-4-1989. Prior to the substitution, sub-clauses (ii) to (v) read as under: “(ii) the remuneration received by him as ambassador, high commissioner, envoy, minister, charged affaires, commissioner, counsellor or the secretary, adviser or attache of an embassy, high commission, legation or commission of a foreign State, for service in such capacity; (iii) the remuneration received by him as a consul de carrier, whether called a consul general, consul, vice- consul, consular agent, pro-consul or by any other name, of a foreign State for service in such capacity; (iv) the remuneration received by him as a trade commissioner or other official representative in India of the Government of a foreign State (not holding office as such in an honorary capacity), if the remuneration of the corresponding officials, if any, of the Government resident for similar purposes in the country concerned enjoys a similar exemption in that country; (v) the remuneration received by him as a member of the staff of any of the officials referred to in clause (ii), clause (iii) or clause (iv), if the member- (a) is a subject of the country represented-, (b) is not engaged in any business or profession or employment in India otherwise than as a member of such staff; and further, where the individual is a member of the staff of any official referred to in clause (iv) if the country represented has made corresponding provisions for similar exemptions in the case of members of the staff of the corresponding officials of the Government;”. 1.74 called, of an embassy, high commission, legation, commission, consulate or the trade representation of a foreign State, or as a member of the staff of any of these officials, for service in such capacity: Provided that the remuneration received by him as trade commissioner or other official representative in India of the Government of a foreign State (not holding office as such in an honorary capacity), or as a member of the staff of any of those officials, shall be exempt only if the remuneration of the corresponding officials or, as the case may be, members of the staff, if any, of the Government resident for similar purposes in the country concerned enjoys a similar exemption in that country: Provided further that such members of the staff are subjects of the country represented and are not engaged in any business or profession or employment in India otherwise than as members of such staff;] (vi) the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the following conditions are fulfilled- (a) the foreign enterprise is not engaged in any trade or business in India; (b) his stay in India does not exceed in the aggregate a period of ninety days in such previous year; and (c) such remuneration is not liable to be deducted from the income of the employer chargeable under this Act; 1[(via) the remuneration received by him as an employee of, or a consultant to, an institution or association or a body established or formed outside India solely for philanthropic purposes, for services rendered by him in India in connection with such purposes, provided that such institution or association or body and the purposes for which his services are rendered in India are approved by the Central Government;] 2[(Vii) Omitted by the Finance Act, 1993, w.e.f 1-4-1993.] ——————————————————————— 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-10-

2 Prior to the omission, sub-clause (vii), as originally enacted and amended by the Finance Act, 1964, w.e.f. 1-4-1964; Finance Act, 1965, w.e.f. 1-4-1965 and the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under: “(vii) *the remuneration due to or received by him chargeable under the head ‘Salaries’ for services rendered as a technician in the employment (commencing from a date before the 1st day of April, 1971) of the Government or of a local authority or of any corporation set up under any special law or in any business carried on in India, if he was not resident in any of the four financial years immediately preceding the financial year in which he arrived in India to the extent mentioned below- (a) where his contract of service is approved by the Central Government before the commencement of his service or within one year of such commencement- (i) in the case of a technician who has special knowledge and experience in industrial or business management techniques, such remuneration due to or received by him during the period of six -> -> ———————————————————————- 1.75 1[(viia)’where such individual renders services as a technician in the employment 3[* * *] of the Government or of a local authority or of any corporation set up under any special law or of any such institution or body established in India for carrying on scientific research as is approved for the purposes of this sub-clause by the prescribed authority or in any business carried on in India and 4[the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India,] the remuneration for such services due to or received by him, which is chargeable under the head “Salaries”, to the extent mentioned below, namely:- ——————————————————————— -> -> months commencing from the date of his arrival in India; (ii)in the case of any other technician, such remuneration due to or received by him during the thirty-six months commencing from the date of his arrival in India, and where any such person continues with the approval of the Central Government obtained before the 1st day of October of the relevant assessment year to remain in employment in India after the expiry of the thirty-six months aforesaid and the tax on his income chargeable under the head ‘Salaries’ is paid by the employer to the Central Government which tax in the case of an employer being a company may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956), the tax so paid by the employer for a period not exceeding sixty months following the expiry of the thirty-six months aforesaid; (b) in any other case, not being the case of a technician who has special knowledge and experience in industrial or business management techniques, such remuneration due to or received by him for the period of three hundred and sixty-five days in all commencing from the date of his arrival in India. Explanation.-For the purposes of this sub-clause, ‘Technician’ means a person having specialised knowledge and experience in- (i)constructional or manufacturing operations, or in mining or in the generation or distribution of electricity or any other form of power, or (ii)industrial or business management techniques, who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised;”. 1 Inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-

3 The words ‘(commencing from a date after the 31st day of March, 1971)” omitted by the Finance Act, 1988, w.e.f. 1-4-1988. 4 Substituted for “the following conditions are fulfilled, namely, that-

(1) the individual was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India, and

(2) the contract of his service in India is approved by the Central Government, the application for such approval having been made to that Government before the commencement of such service or within six months of such commencement,” by the Finance Act, 1992, w.e.f. 1-6-1992. ——————————————————————— 1.76

1[(1) where such services commence from a date after the 31st day of March, 1971 but before the 1st day of April, 1988,- (A) such remuneration due to or received by him] during the period of twenty-four months commencing from the date of his arrival in India, in so far as such remuneration does not exceed an amount calculated at the rate of four thousand rupees per month, and where the tax on the excess, if any, of such remuneration for the period aforesaid over the amount so calculated is paid to the Central Government, by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 2 (1 of 1956)], also the tax so paid by the employer; and (B) where he continues, with the approval of the Central Government obtained before the 1st day of October of the relevant assessment year, to remain in employment in India after the expiry of the period of twenty-four months aforesaid and the tax on his income chargeable under the head “Salaries” is paid to the Central Government by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 1956 3 (1 of 1956)], the tax so paid by the employer for a period not exceeding twenty-four months next following the expiry of the first mentioned twenty-four months;

4[(11)where such services commence from a date after the 31st day of March, 1988 5 [but before the 1st day of April, 1993], and tax on his income chargeable under the head “Salaries” is paid to the Central Government by the employer [which tax, in the case of an employer, being a company, may be paid notwithstanding anything contained in section 200 of the Companies Act, 19566 (1 of 1956)], the tax so paid by the employer for a period not exceeding forty-eight months commencing from the date of his arrival in India: 7[Omitted by the Finance Act, 1992, w.e.f 1-6-1992.]] ——————————————————————— 1 Substituted for ‘(A) such remuneration due to or received by him’ by the Finance Act, 1988, w.e.f. 1-4-1988. 3 Ibid. 4 Substituted for ‘Provided that’ by the Finance Act, 1988, w.e.f 1-4-1988. 5 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. 7 Prior to the omission, the proviso, as inserted by the Finance Act, 1988, w.e.f. 1-4-1988, read as under: “Provided that nothing in this item shall relate to a period exceeding twenty-four months commencing from the date of his arrival in India if the approval of the Central Government for his employment in India for such period is not obtained before the 1st day of October of the relevant assessment year:” ——————————————————————— 1.77 1[Provided [* * *] that the Central Government may, if it considers it necessary or expedient in the public interest so to do, waive the 3[condition relating to non-residence in India as specified in] this sub-clause in the case of any individual who is employed in India for designing, erection or commissioning of machinery or plant or supervising activities connected with such designing, erection or commissioning.] Explanation.-For the purposes of this sub-clause, “technician” means a person having specialised knowledge and experience in- (i) constructional or manufacturing operations, or in mining or in the generation of electricity or any other form of power, or (ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building, 4[or] 5[(iii)such other field6 as the Central Government may, having regard to the availability of Indians having specialised knowledge and experience therein, the needs of the country and other relevant circumstances, by notification in the Official Gazette, specify,] who is employed in India in a capacity in which such specialised knowledge and experience are actually utilised;] (viii) any income chargeable under the head “Salaries” received by or due to any such individual being a non- resident as remuneration for services rendered in connection with his employment on a foreign ship where his total stay in India does not exceed in the aggregate a period of ninety days in the previous year; 7[(ix) “any income chargeable under the head “Salaries” received by or due to him during the thirty-six months commencing from the date of his arrival in India for service rendered as a professor or other teacher in a University or other educational institution, and where any such individual continues to remain in employment in India after the expiry of the thirty-six months aforesaid and the tax on his income chargeable under the head “Salaries” is paid by the University or other educational institution concerned to the ———————————————————————- 1 Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-

2 The word ‘further’ omitted by the Finance Act, 1992, w.e.f. 1-6- 1992. Earlier, it was Inserted by the Finance Act, 1988, w.e.f. 1-4-

 

3 Substituted for ‘condition specified in item (1) of by the Finance Act, 1992, w.e.f. 1-6-1992. 4 Inserted by the Finance Act, 1979, w.e.f. 1-6-1979. 5 Ibid. 6 The fields of ‘grading and evaluation of diamonds for diamond export or import trade’; ‘cookery’ ‘information technology including computer architecture systems platforms and associated technology, software development process and tools’ have been notified: 7 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. ———————————————————————- 1.78 Central Government, the tax so paid for a period not exceeding twenty-four months following the expiry of the thirty-six months aforesaid, provided in either case the following conditions are fulfilled, namely:- (i) such individual was not resident in any of the four financial years immediately preceding the financial year in which he arrived in India; and (ii) his contract of service is approved by the Central Government- (a) on or before the 1st day of October, 1964, in the case of a professor or other teacher whose service commenced before the 1st day of April, 1964; (b) before the commencement of his service or within one year of such commencement, in any other case;] 1[(x) ‘any sum due to or received by him, during the twenty- four months commencing from the date of his arrival in India, for undertaking any research work in India, provided the following conditions are fulfilled, namely:- (a) the research work is undertaken in connection with a research scheme approved in this behalf by the Central Government on or before the 1st day of October of the relevant assessment year; and (b) such sum is payable or paid directly or indirectly by the Government of a foreign State or any institution or association or other body established outside India;] 3[(xi) the remuneration received by him as an employee of the Government of a foreign State during his stay in India in connection with his training in any establishment or office of, or in any undertaking owned by,- (i) the Government; or (ii) any company in which the entire paid-up share capital is held by the Central Government, or any State Government or Governments, or partly by the Central Government and partly by one or more State Governments; or (iii) any company which is a subsidiary of a company refer-red to in item (ii); or (iv) any corporation established by or under a Central, State or Provincial Act; or (v) any society registered under the Societies Registration Act, 1860 (14 of 1860), or under any other corresponding law for the time being in force and wholly financed by the Central Government, or any State Government or State Governments, or partly by the Central Government and partly by one or more State Governments;] ———————————————————————– 1 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 3 Inserted by the Finance Act, 1976, w.e.f. 1-4-1976. ———————————————————————– 1.79 1[(6A) 2 where in the case of a foreign company deriving income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976 3[and,- ———————————————————————- 1 Inserted by the Finance Act, 1983, 3 Substituted for the following by the Finance Act, 1992, w.e.f. 1- 6-1992: “and approved by the Central Government, the tax on such income is payable, under the terms of such agreement, by Government or the Indian concern to the Central Government, the tax so paid;” ———————————————————————– 1.81 (a) where the agreement relates to a matter included in the industrial policy, for the time being in force,. of the Government of India, such agreement is in accordance with that policy; and (b) in any other case, the agreement is approved by the Central Government, the tax on such income is payable, under the terms of the agreement, by Government or the Indian concern to the Central Government, the tax so paid.) Explanation.-For the purposes of this clause 1[and clause (6B)],- (a) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section

(1) of section 9; (b) “foreign company” shall have the same meaning as in section 80B; (c) “royalty” shall have the same meaning as in Explanation

2 to clause (vi) of sub-section (1) of section 9;] 2[(6B) where in the case of a non-resident (not being a company) or of a foreign company deriving income (not being salary, royalty or fees for technical services) from Government or an Indian concern in pursuance of an agreement entered into by the Central Government with the Government of a foreign State or an international Organisation, the tax on such income is payable by Government or the Indian concern to the Central Government under the terms of that agreement or any other related agreement approved by the Central Government, the tax so paid;] 3[(6C ) 4 any income arising to such foreign company, as the Central Government may, by notification in the Official Gazette, specify in this behalf, by way of fees for technical services received in pursuance of an agreement entered into with that Government for providing services in or outside India in projects connected with security of India;]

(7) any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India;

(8) in the case of an individual who is assigned to, duties in India in connection with any co-operative technical assistance programmes and projects in accordance with an agreement entered into by the Central Government and the Government of a foreign State (the terms whereof provide for the exemption given by this clause)- (a) the remuneration received by him directly or indirectly from the Government of that foreign State for such duties, and (b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the Government of that foreign State; ———————————————————————- 1 Inserted by the Finance Act, 1988, w.e.f. 1-4-1988. 2 Ibid. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ———————————————————————– 1.82 1[(8A) in the case of a consultant- (a) any remuneration or fee received by him or it, directly or indirectly, out of the funds made available to an international Organisation [hereafter referred to in this clause and clause (8B) as the agency] under a technical assistance grant agreement between the agency and the Government of a foreign State; and (b) any other income which accrues or arises to him or it outside India, and is not deemed to accrue or arise in India, in respect of which such consultant is required to pay any income or social security tax to the Government of the country of his or its origin. Explanation.-In this clause, “consultant” means- (i) any individual, who is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India, or (ii) any other person, being a non-resident, engaged by the agency for rendering technical services in India in connection with any technical assistance programme or project, provided the following conditions are fulfilled, namely:-

(1) the technical assistance is in accordance with an agreement entered into by the Central Government and the agency; and

(2) the agreement relating to the engagement of the consultant is approved by the prescribed authority2 for the purposes of this clause; (8B) in the case of an individual who is assigned to duties in India in connection with any technical assistance programme and project in accordance with an agreement entered into by the Central Government and the agency- (a) the remuneration received by him, directly or indirectly, for such duties from any consultant referred to in clause (8A); and (b) any other income of such individual which accrues or arises outside India, and is not deemed to accrue or arise in India, in respect of which such individual is required to pay any income or social security tax to the country of his origin, provided the following conditions are fulfilled namely:- (i) the individual is an employee of the consultant referred to in clause (8A) and is either not a citizen of India or, being a citizen of India, is not ordinarily resident in India; and (ii) the contract of service of such individual is approved by the prescribed authority’ before the commencement of his service;]

(9) the income of any member of the family of any such individual as is referred to in clause (8 ) 4 [or clause (8A) or, as the case may be, clause (8B)] accompanying him to India, which accrues or arises outside India, and is not deemed to accrue or, arise in India, in respect of which such ——————————————————————— 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991. 2 Additional Secretary, Department of Economic Affairs, Ministry of Finance, Government of India, in concurrence with Member (Income-tax) of the Board: 3 Ibid. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991. ——————————————————————– 1.83 member is required to pay any income or social security tax to the Government of that foreign State 1[or, as the case may be, country of origin of such member];

2[(10)(i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services; (ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount

calculated in accordance with the provisions of sub-sections (2) and

(3) of section 43 of that Act; (iii) 4 any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependents on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service, 5[calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government]: Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause 6[shall not exceed the limit so specified]: ———————————————————————- 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991. 2 Substituted by the Finance Act, 1974, w.e.f. 1-4-1975. Earlier, it was amended by the Finance Act, 1972, w.e.f. 1-4-1973 and the Finance Act, 1974 itself w.r.e.f. 1-6-1972/ 1-4-1962. 5 Substituted for ‘calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, subject to a maximum of thirty-six thousand rupees or twenty months’ salary so calculated, whichever is less’ by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. The italicised words were substituted for ‘thirty thousand’ by the Finance Act, 1983, w.r.e.f. 1-4-1982. 6 Substituted for ‘shall not exceed thirty-six thousand rupees” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. The italicised words were substituted for “thirty thousand’ by the Finance Act, 1983, w.r.e.f. 1-4-1982. 1.84 Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this clause 1[shall not exceed the limit so specified] as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years: 2[* * *] Explanation.-3[In this clause and in clause (IOAA)], “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;] ———————————————————————- 1 Substituted for ‘shall not exceed thirty-six thousand rupees’ by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. The italicised words were substituted for ‘thirty thousand” by the Finance Act, 1983, w.r.e.f. 1-4-1982. 2 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989. Prior to the omission, the third and fourth provisos, as amended by the Finance Act, 1983, w.r.e.f. read as under: “Provided also that the Central Government may, having regard to the maximum amount which may for the time being be exempt under sub- clause (i) increase, by notification in the Official Gazette, the limit of thirty-six thousand rupees, for all the three purposes for which it has been mentioned in the foregoing provisions of this clause, up to such maximum amount: Provided also that in relation to cases in which the event (that is to say retirement of the employee or his becoming incapacitated or termination of his employment or his death, as the case may be) on which gratuity is received had taken place before the 31st day of January, 1982, the proviso immediately preceding this proviso shall not apply and the remaining provisions of this clause shall have effect as if for the words “thirty six thousand rupees”, at the three places where they occur, the words “thirty thousand rupees” had been substituted.” 3 Substituted for “In this clause’ by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. ———————————————————————- 1.85 3. All the three limits specified in the section will operate as cumulative conditions and the exempt portion of the gratuity will be restricted to any of these three limits whichever is the least. Retirement gratuity will be exempt to the extent mentioned in the latter half of the section and the remaining amount will be entitled

to relief under section 89(1). In the case of gratuity funds approved for the purposes of Income-tax Act a provision authorising the payment of gratuity to an employee while he continues to remain in service should not be allowed. The latter half of the section should be regarded as covering the case of only a gratuity payment on the employee’s retirement or on his becoming incapacitated or on termination of his employment or on his death. The rules of a fund approved for the purposes of Income tax Act should not permit the payment of gratuity in the form of annuities payable over a specified number of years. In order to claim the exemption under the section it is necessary that the amount of gratuity should be calculated exactly on the basis laid down in the section. [Letter No. 1 (1 79)162, dated 13th December, 1962] 4. The expression ‘termination of employment used in the section as amended by Finance Act, 1972 covers the case of an employee whose services come to an end due to his resignation. 5. Limit of exemption of death-cum-retirement gratuity under

section 10(10)(iii) has been raised to Rs. 1 lakh in relation to employees who retire of become incapacitated or die on or after 1st April, 1988 or whose employment is terminated on or after that date. 1[(10A)(i) any payment in commutation of pension received under the Civil Pensions (Commutation) Rules of the Central Government or under any similar scheme applicable 2[to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India- services or to the members of the defence services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority] or a corporation established by a Central, State or Provincial Act; (ii)any payment in commutation of pension received under any scheme of any other employer, to the extent it does not exceed- (a) in a case where the employee receives any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive, and (b) in any other case, the commuted value of one-half of such pension, such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality; ——————————————————————— 2 Substituted for ‘to the members of the Defence Services or to the employees of a State Government, a local authority’ by the Finance Act, 1974, w.r.e.f. 1-4-1962. ———————————————————————- 1.86 1[* * *] 2[(10AA)(i) any payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement 3[whether] on superannuation or otherwise; (ii) any payment of the nature refer-red to in sub-clause (i) received by .an employee, other than an employee of the Central Government or a State Government, in respect of so much of the period of earned leave at his credit at the time of his retirement 4

[whether] on superannuation or otherwise as does not exceed 5[eight]

months, calculated on the basis of the average salary drawn by the employee during the period of ten months immediately preceding his retirement 6[whether] on superannuation or otherwise, 7[subject to such limit” as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government]: Provided that where any such payments are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this sub-clause 9[shall not exceed the limit so specified]: ———————————————————————- 1 Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989. Prior to the omission, the proviso read as under: “Provided that the maximum limit of payment specified in sub- clause (ii)(a) or subclause (ii)(b) shall not apply in respect of any such payment made before the 19th day of August, 1965;” 2 Inserted by the Finance Act, 1982, w.r.e.f. 1-4-1978. 3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 4 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 5 Substituted for ‘six’ by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. 6 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 7 Substituted for ‘or thirty thousand rupees, whichever is less’ by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. 9 Substituted for shall not exceed thirty thousand rupees’ by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. ———————————————————————– 1.87 Provided further that where any such payment or payments was or were received in any one or more earlier previous years also and the whole or any part of the amount of such payment or payments was or were not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this sub-clause 1[shall not exceed the limit so specified) as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years: 2[* * *] Explanation.-For the purposes of sub-clause (ii),- 3[* * *] the entitlement to earned leave of an employee shall not exceed thirty days for every year of actual service rendered by him as an employee of the employer from whose service he has retired; 4[* * *] 5[(10B) any compensation received by a workman under the Industrial Disputes Act, 1947 (14 of 1947), or under any other Act or Rules, orders or notifications issued thereunder or under any standing orders or under any award, contract of service or otherwise , 6 [at the time of his retrenchment: Provided that the amount exempt under this clause shall not exceed- (i) an amount calculated in accordance with the provisions of clause (b)of section 25F of the Industrial Disputes Act, 19477 (14 of 1947); or ——————————————————————— 1 Substituted for ‘shall not exceed thirty thousand rupees’ by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. 2 Omitted, ibid. Prior to the omission, the third and fourth provisos, as amended by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978, read as under: “Provided also that the Central Government may, having regard to the maximum amount which may for the time being be exempt under sub- clause (i), increase, by notification in the Official Gazette, the limit of thirty thousand rupees, for all the three purposes for which it has been mentioned in the foregoing provisions of this sub-clause, up to such maximum amount: Provided also that in relation to an employee retiring whether on superannuation or otherwise before the 1st day of January, 1982, the proviso immediately preceding this proviso shall not apply and the remaining provisions of this sub-clause shall have effect as if for the words “thirty thousand rupees”, at the three places where they occur, the words “twenty-five thousand five hundred rupees” had been substituted.’ 3 “(i)” omitted by the Direct Tax Laws (Amendment) Act, 1987, w.r.e.f. 1-7-1986. 4 Omitted, ibid. Prior to the omission, clause (ii) read as under: “(ii) ‘salary’ shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;” 5 Inserted by the Finance Act, 1975, w.e.f. 1-4-1976. 6 Substituted for the following by the Finance Act, 1985, w.e.f. 1- 4-1986: “at the time of his retrenchment, to the extent such compensation does not exceed- (i) an amount calculated in accordance with the provisions of clause (b) of section 25F of the Industrial Disputes Act, 1947 (14 of 1947); or (ii) twenty thousand rupees, whichever is less.” ———————————————————————– 1.88 1[(ii) such amount, not being less than fifty thousand rupees, as the Central Government may, by notification in the Official Gazette, specify in this behalf,] whichever is less: Provided further that the preceding proviso shall not apply in respect of any compensation received by a workman in accordance with any scheme which the Central Government may, having regard to the need for extending special protection to the workmen in the undertaking to which such scheme applies and other relevant circumstances, approve in this behalf.) Explanation.-For the purposes of this clause- (a) compensation received by a workman at the time of the closing down of the undertaking in which he is employed shall be deemed to be compensation received at the time of his retrenchment; (b) compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed from the employer in relation to that undertaking to a new employer, shall be deemed to be compensation received at the time of his retrenchment if- (i)the service of the workman has been interrupted by such transfer; or (ii)the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before the transfer; or (iii)the new employer, is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer; (c) the expressions “employer” and “workman” shall have the same meanings as in the Industrial Disputes Act, 1947 2 (14 of 1947);] 3[(10BB) any payments made under the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 (21 of 1985) and any scheme framed thereunder except payment made to any assessee in connection with the Bhopal gas leak disaster to the extent such assessee has been allowed a deduction under this Act on account of any loss or damage caused to him by such disaster;] ———————————————————————- 1. Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1989. Prior to the substitution, clause (ii) read as under. “(ii) fifty thousand rupees,” 3 Inserted by the Finance Act, 1992, w.e.f. 14-1992. ——————————————————————— 1.89 1[(10C) any amount received by an employee of- (i)a public sector company; or (ii)any other company; or (iii)an authority established under a Central, State or Provincial Act; or (iv)a local authority; 2[or] 3[(v) a co-operative society,- or (vi) a University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 4 (3 of 1956); or (vii) an Indian Institute of Technology within the meaning of clause (g) of section 3 of the Institutes of Technology Act, 1961 5 (59 of 1961); or (viii) such institute of management as the Central Government may, by notification in the Official Gazette, specify6 in this behalf,] at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement, to the extent such amount does not exceed five lakh rupees: Provided that the schemes of the said companies or authorities 7 [or societies or Universities or the Institutes referred to in sub- clauses (vii) and (viii)], as the case may be, governing the payment of such amount are framed in accordance with such guidelines (including inter alia criteria of ———————————————————————- 1 Substituted by the Finance Act, 1993, w.e.f. 1-4-1993. Prior to the substitution, clause (10C), as inserted by the Finance Act, 1987, w.e.f. 1-4-1987, read as under: “(10C) any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant circumstances, approve in this behalf;” The following clause (10C) was substituted by the Finance Act, 1992, w.e.f. 1-4-1993 but it has been substituted again, as above, without coming into operation: “(10C) any amount received by an employee of a public sector company or of any other company at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement: Provided that the schemes of the said companies governing the payment of such amount are framed in accordance with such guidelines as may be prescribed for the public sector companies or for other companies and such guidelines may, inter alia, include criteria of economic viability and such schemes in relation to companies (other than public sector companies) are approved by the Chief Commissioner or, as the case may be, Director-General in this behalf;” 2 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 3 Ibid. 6 The Indian Institutes of Management at Ahmedabad, Bangalore, Calcutta and Lucknow have been notified. 7 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. ———————————————————————– 1.90 economic viability) as may be prescribed’ and such schemes in relation to companies, referred to in sub-clause (ii) 2 [or co-operative societies referred to in sub-clause (v)] are approved by the Chief Commissioner or, as the case may be, Director-General in this behalf: Provided further that where exemption has been allowed to an employee under this clause for any assessment year, no exemption thereunder shall be allowed to him in relation to any other assessment year;] 3[(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy 4 [other than any sum

received under sub-section (3) of section 8ODDA];]

(11)any payment from a provident fund to which the Provident Funds Act, 1925 5 (19 of 1925), applies 6[or from any other provident fund set up by the Central Government and notified7 by it in this behalf in the Official Gazette];

(12)the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule;

8[(13) any payment from an approved superannuation fund made- (i) on the death of a beneficiary; or (ii) to any employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement; or (iii) by way of refund of contributions on the death of a beneficiary; or (iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon;] 9[(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by —————————————————————– 2 Inserted by the Finance Act, 1994, w.e.f. 1-4-1995. 3 Inserted by the Finance (No. 2) Act, 1991 w.r.e.f. 1-4-1962. 4 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 6 Inserted by the Finance Act, 1968, w.e.f. 1-4-1969. 7 Public Provident Fund, Scheme, 1968 has been notified under this clause: 8 Substituted by the Finance Act, 1965, w.r.e.f. 1-4-1962. 9 Inserted by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-

———————————————————————- 1.91 whatever name called) in respect of residential accommodation occupied by the assessee, to such extent 1[* * *] as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.] 2[Explanation.-For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where- (a) the residential accommodation occupied by the assessee is owned by him; or (b) the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him;]

3[(14)(i) 4 any such special allowance or benefit, not being in

the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively ———————————————————————- 1 The words ‘(not exceeding four hundred rupees per month)’ omitted by the Finance Act, 1986, w.e.f. 1-4-1987. Earlier, ‘four’ was substituted for ‘three’ by the Finance Act, 1975, w.e.f. 1-4-1975. 2 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1976. 3 Substituted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f.

1-4-1989. Prior to the substitution, clause (14), as amended by the Finance Act, 1975, w.r.e.f. 1-4-1962, read as under:

“(14) any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning

of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose. Explanation.-For the removal of doubts, it is hereby declared that any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides shall not be regarded, for the purposes of this clause, as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties.” ———————————————————————- 1.92 incurred in the performance of the duties of an office or employment of profit, 1[as may be prescribed], to the extent to which such expenses are actually incurred for that purpose; (ii)any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, 3[as may be prescribed and to the extent as may be prescribed:] 4[Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence;] 5[(14A) any income received by a public financial institution as exchange risk premium from any person borrowing foreign currency from such institution, provided the amount of such premium is credited by such institution to a fund specified under clause (23E). Explanation.-For the purposes of this clause,- (i) the expression “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 19566 (1 of 1956); (ii) the expression “exchange risk premium” means a premium paid by a person borrowing foreign currency from a public financial institution to cover the risk which may be borne by such institution on account of fluctuations in exchange rate of foreign currencies borrowed by such institution;]

(15) 7[(i) income by way of interest, premium on redemption or other ——————————————————————— 1 Substituted for ‘as the Central Government may, by notification in the Official Gazette, specify’ by the Finance Act, 1995, w.e.f. 1-7-199.5. 3 Substituted for “as the Central Government may, by notification in the Official Gazette, specify, to the extent specified in the notification” by the Finance Act, 1995, w.e.f. 1-7-1995. 4 Inserted by the Direct Tax Laws (Second Amendment) Act, 1989 w.r.e.f. 1-4-1989. 5 Inserted by the, Finance Act, 1989, w.e.f. 1-4-1989. 7 Substituted for sub-clauses (i), (ia), (ib), (ii) and (iia) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, sub-clause (ia), as inserted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1965, w.e.f. 4-12-1965; sub-clause (ib), as inserted by the Special Bearer Bonds (Immunities & Exemptions) Act, 1981, w.e.f. 12-1-1981; sub-clause (ii), as amended by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965, the Finance Act, 1979, w.e.f. 1-4-1980 and the Finance Act, 1987, w.r.e.f. 1-4-1983; and sub-clause (iia), as inserted by the Finance Act, 1968, w.e.f. 1-4-1969, read as under: “(i) monthly payment on the 15-Year Annuity Certificates issued by or under the authority of the Central Government or such other annuity certificates issued by or under the authority of that Government as that Government may, by notification in the Official Gazette, specify in this behalf, to the extent to which the amounts of the certificates do not exceed in each case the ———————————————————————- 1.93 payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification’ in the Official Gazette, specify in this behalf, subject to such conditions and limits as may be specified in the said notification;] 2 [(iib ) 3 (in the case of an individual or a Hindu undivided family,] interest on such Capital Investment Bonds4 as the Central Government may, by notification in the Official Gazette, specify in this behalf;] 5[(iic) in the case of an individual or a Hindu undivided family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify6 in this behalf;] 7[(iid) interest on such bonds, as the Central Government may, by notifications in the Official Gazette, specify, arising to- (a) a non-resident Indian, being an individual owning the bonds, or (b) any individual owning the bonds by virtue of being a nominee or survivor of the non-resident Indian; or ———————————————————————- -> -> maximum amount which is permitted to be invested therein; (ia) annual payment on National Defence Gold Bonds, 1980; (ib) premium on the redemption of Special Bearer Bonds, 1991; (ii) interest on Treasury Savings- Deposit Certificates, Post Office Cash Certificates, Post Office National Savings Certificates, National Plan Certificates, Twelve-Year National Plan Savings Certificates and such other certificates, issued by the Central. Government as that Government may, by notification in the Official Gazette, specify in this behalf, interest on deposits in Post Office Savings Bank and bonus in respect of deposits under the Post Office Cumulative Time Deposits Rules, 1981, to the extent to which the amounts of such certificates or deposits do not exceed in each case the maximum amount which is permitted to be invested or deposited therein: Provided that where in the case of an assessee the interest on deposits in a Public Account of the nature referred to in

item (6) in the Table below rule 4 of the Post Office Savings Account Rules, 1981, exceeds two thousand two hundred and fifty rupees, the amount of interest on such deposits that shall not be included in the total income of the assessee under this sub-clause shall be two thousand two hundred and fifty rupees; (iia) interest on fixed deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette, to the extent to which the amounts of such deposits do not exceed, in each case, the maximum amount which is permitted to be deposited therein.” 2 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 5 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. 6 The 9 Relief Bonds 1987, notified by notification dated 17-11- 1987, shall be deemed to have been notified for the purposes of this sub-clause: 7 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 8 The NRI Bonds, 1988 and NRI Bonds (Second Series) have been notified. ———————————————————————- 1.94 (c) any individual to whom the bonds have been gifted by the nonresident Indian: Provided that the aforesaid bonds are purchased by a non- resident Indian in foreign exchange and the interest and principal received in respect of such bonds, whether on their maturity or otherwise, is not allowable to be taken out of India: Provided further that where an individual, who is a non- resident Indian in any previous year in which the bonds are acquired, becomes a resident in India in any subsequent year, the provisions of this subclause shall continue to apply in relation to such individual: Provided also that in a case where the bonds are uncashed in a previous year prior to their maturity by an individual who is so entitled, the provisions of this sub-clause shall not apply to such individual in relation to the assessment year relevant to such previous year. Explanation.-For the purposes of this sub-clause, the expression “non-resident Indian” shall have the meaning assigned to it in clause (e) of section 115C;] (iii) interest on securities held by the Issue Department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949; 1[(iiia) interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India, with any scheduled bank. Explanation.-For the purposes of this sub-clause, “scheduled bank” shall have the meaning assigned to it in 2[clause (ii) of the

Explanation to clause (viia) of sub-section (1) of section 36];] (iv) interest payable- (a) by Government or a local authority on moneys borrowed by it from 3[, or debts owed by it to,] sources outside India; (b) by an industrial undertaking in India on moneys borrowed by it under a loan agreement entered into with any such financial institution in a foreign country as may be approved4 in this behalf by the Central Government by general or special order; (c) 5by an industrial undertaking in India on any moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of raw materials 6[or components] or capital plant and machinery, 7[to the extent to which such ———————————————————————- 1 Inserted by the Finance Act, 1985, w.e.f. 1-4-1985. 2 Substituted for the Explanation to clause (iii) of sub-section

(5) of section 11″ by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 6 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 7 Substituted for ‘in any case where the loan or debt is approved by the Central Government, having regard to its terms generally and in particular to the terms of its repayment’ by the Finance Act, 1964, w.e.f. 1-4-1964. ———————————————————————– 1.95 interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or debt and its repayment]. 1[Explanation.-For the purposes of this item, “purchase of capital plant and machinery” includes the purchase of such capital plant and machinery under a hire-purchase agreement or a lease agreement with an option to purchase such plant and machinery;] 2[(d) by the Industrial Finance Corporation of India established by the Industrial Finance Corporation Act, 1948 (15 of 1948), or the industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), 3[or the Export-Import Bank of India established under the Export-Import Bank of India Act, 1981 (28 of 1981),] 4[or the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987),] 5[or the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of India Act, 1989 [(39 of 1989),] or the Industrial Credit and Investment Corporation of India [a company formed and registered under the Indian Companies Act, 1913 (7 of 1913)], on any moneys borrowed by it from sources outside India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;] 6[(e) by any other financial institution established in India or a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act), on any moneys borrowed by it from sources outside India under a loan agreement approved by the Central Government where the moneys are borrowed either for the purpose of advancing loans to industrial undertakings in India for purchase outside India of raw materials or capital plant and machinery or for the purpose of importing any goods which the Central Government may consider necessary to import in the public interest, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment;] 7[(f) by an industrial undertaking in India on any moneys borrowed ———————————————————————- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 2 Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-

3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1992. 6 Inserted by the Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-

7 Inserted by the Finance Act, 1976, w.e.f. 1-6-1976. ———————————————————————- 1.96 by it in foreign currency from sources outside India under a loan agreement approved by the Central Government having regard to the need for industrial development in India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment; 1[(fa) by a scheduled bank 2[to a non-resident or to a person who is not ordinarily resident within the

meaning of sub-section (6) of section 61, on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India. Explanation.-For the purposes of this item, the expression “scheduled bank” shall have the meaning assigned to it in clause (ii) of the Explanation to

clause (viia) of subsection (1) of section 36;] 3[(g) by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, being a company approved by the Central Government for the

purposes of clause (viii) of sub-section (1) of section 36 on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement approved by the Central Government, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment.] Explanation.-For the purposes of 4 [items (f) 5[(fa)] and (g)], the expression “foreign currency” shall have the meaning assigned to it in the Foreign Exchange Regulation Act, 19736 (46 of 1973);] 7[(h) by any public sector company in respect of such bonds or debentures and subject to such conditions, including the condition that the holder of such bonds or debentures registers his name and the holding with that company, as the Central Government may, by notification in the Official Gazette, specify” in this behalf;] 9[(i) by Government on deposits made by an employee of the Central ——————————————————————— 1 Inserted by the Finance (No. 2) Act, 1991, w.e.f 1-4-1991. 2 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Substituted for this item” by the Finance Act, 1983, w.e.f. 1-4-

5 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 7 Inserted by the Finance Act, 1987, w.e.f. 1-4-1987. 9 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. ———————————————————————- 1.97 Government or a State Government, 1 2 [or a public sector company3] in accordance with such scheme as the Central Government may, by notification in the Official Gazette, frame in this behalf, out of the moneys due to him on account of his retirement, whether on superannuation or otherwise.] 4 [Explanation.-For the purposes of this sub-clause, the expression “industrial undertaking” means any undertaking which is engaged in- (a) the manufacture or processing of goods; or (b) the business of generation or distribution of electricity or any other form of power; or (c) mining; or (d) the construction of ships; or (e) the operation of ships or aircrafts;] 5[(v) interest on- (a) securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal, in the Reserve Bank’s SGL Account No. SLIDHO48; (b) deposits for the benefit of the victims of the Bhopal gas leak disaster held in such account, with the Reserve Bank of India or with a public sector bank, as the Central Government may, by notification in the Official Gazette, specify, whether prospectively or retrospectively but in no case earlier than the 1st day of April, 1994 in this behalf Explanation.-For the purposes of this sub-clause, the expression “public sector bank” shall have the meaning assigned to it in the Explanation to clause (23D);] ———————————————————————- 2 Inserted by the Finance Act, 1990 w.e.f. 4 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 5 Substituted by the Finance Act, 1995, w.e.f. 1-4-199.5. Prior to the substitution, subclause (v), as inserted by the Finance Act, 1990, w.r.e.f. 1-4-1989, read as under: “(v) interest on securities held by the Welfare Commissioner, Bhopal Gas Victims, Bhopal, in Reserve Bank’s SGL Account No. SL/DHO48.” Earlier, the italicised words were substituted for “Registrar, Supreme Court” by the Finance Act, 1993, w.r.e.f. 2-11-1992. ———————————————————————- 1.98

3. Under section 10(15)(ii) read with proviso (c) to section 13 of the Post Office Savings Certificates Rules, 1960, in the event of death of a joint holder of the certificates, the surviving joint holder would continue to get exemption from tax on the interest received upto the maximum amount permitted to be held in the case of joint holdings. 1[(15A) any payment made, by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft on lease from the Government of a foreign State or a foreign enterprise under an agreement approved by the Central Government in this behalf. Explanation.-For the purposes of this clause, “foreign enterprise” means a person who is a non-resident.] The following clause (15A) is being substituted for the above clause by the Finance Act, 1995, w.e.f. 1-4-1996: “(15A) any payment made, by an Indian company engaged in the business of operation of aircraft, to acquire an aircraft or an aircraft engine (other than a payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease from the Government of a foreign State or a foreign enterprise under an agreement approved by the Central Government in this behalf. Explanation.-For the purposes of this clause, the expression “foreign enterprise” means a person who is a non-resident;”

2(16) scholarships granted to meet the cost of education;

3[(17) 4any income by way of- (i) daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof; 5[* * *1 6[(ii) any allowance received by any person by reason of his ———————————————————————- 1 Inserted by the Income-tax (Amendment) Act, 1989, w.e.f. 24-1-

3 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1986. Prior to the substitution,

clause (17), as amended by the Finance Act, 1976, w.e.f. 1-4-1976, read as under:

“(17) any daily allowance received by any person by reason of his membership of Parliament or of any State Legislature or of any Committee thereof or any allowance received by a member of either House of Parliament under the Members of Parliament (Additional Facilities) Rules, 1975;” 5 The word “and” omitted by the Finance Act, 1987, w.r.e.f. 1-4-

6 Substituted by the Finance Act, 1987, w.r.e.f. 1-4-1986. Prior to the substitution, subclause (ii), as substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4- 1986, read as under: “(ii) all other allowances not exceeding rupees twelve hundred and fifty per month in the aggregate received by any person by reason of his membership of Parliament or of any Committee thereof, or all other allowances not exceeding rupees six hundred per month in the aggregate received by any person by reason of his membership of any State Legislature or any committee thereof which the Central Government may, by notification in the Official Gazette, specify in this behalf;’ ———————————————————————- 1.99 membership of Parliament under the Members of Parliament (Constituency Allowance) Rules, 1986; (iii) all other allowances not exceeding six hundred rupees per month in the aggregate received by any person by reason of his membership of any State Legislature or of any Committee thereof, which the Central Government may, by notification in the Official Gazette, specify in this behalf;]] 1[(17A) 2any payment made, whether in cash or in kind,- (i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body. and approved by the Central Government in this behalf; or (ii) as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest;] 3[(18A) any ex gratia payments made by the Central Government consequent on the abolition of privy purse;]

4[(19) * * *] 5[(19A) the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States (Taxation Concessions) Order, 1949, or the Part B States (Taxation Concessions) Order, 1950, or, as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958: ———————————————————————-

1 Substituted for clauses (17A), (17B) and (18) by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Prior to the substitution, these clauses [clause (17A), as inserted by Direct Taxes (Amendment) Act, 1974, w.r.e.f. 1-4-1973 and amended by the Finance Act, 1980, w.e.f. 1-4-1980 and clause (17B), as inserted by the Direct Taxes Amendment Act, 1974, w.r.e.f. 1-4-1973] read as under: “(17A) any payment made, whether in cash or in kind, in pursuance of awards for literary, scientific or artistic work or attainment or for service for alleviating the distress of the poor, the weak and the ailing, or for proficiency in sports and games, instituted by the Central Government or by any State Government or approved by the Central Government in this behalf: Provided that the approval granted by the Central Government shall have effect for such assessment year or years (including an assessment year or years commencing before the date on which such approval is granted) as may be specified in the order granting the approval; (17B) any payment made, whether in cash or in kind, as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest;

(18) any payment made, whether in cash or in kind, by the Central Government or any State Government in pursuance of gallantry awards instituted or approved by the Central Government. 3 Inserted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.e.f. 9-9-1972. 4 Omitted, ibid, w.e.f. 2-4-1973. 5 Inserted, ibid, w.r.e.f. 28-12-1971. ——————————————————————– 1.100 Provided that for the assessment year commencing on the 1st day of April, 1972, the annual value of every such palace in the occupation of such Ruler during the relevant previous year shall be

exempt from income-tax;] 1(20) the income of a local authority which is chargeable under the head 2[* * *] “Income from house property”, “Capital gains”, or “Income from other sources” or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service 3[(not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]; 4[(20A) any income of an authority’ constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both;]

6[ (21) 7 any income of a scientific research association for the

time being approved for the purpose of clause (ii) of sub-section (1) of section 35: Provided that the scientific research association- (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is

established, and the provisions of sub-section (2) and sub-

section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely:- ———————————————————————- 2 The words “Interest on securities,” omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 Substituted for “within its own jurisdictional area” by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 4 Inserted by the Finance Act, 1970, w.r.e.f. 1-4-1962. 6 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f.

1-4-1990. Prior to the substitution, clause (21), as amended by the Finance Act, 1983, w.e.f. 1-4-1984 and the Direct Tax Laws (Amendment) Act, 1987 and the Direct Tax Laws (Amendment) Act, 1989, both with effect from 1-4-1989, read as under:

“(21) any income of a scientific research association for the

time being approved for the purpose of clause (ii) of sub-section (1) of section 35 which is applied solely to the purposes of that association: Provided that nothing contained in this clause shall apply if for any period during the previous year- (i) any sums by way of contributions received by the association are invested or deposited after the 28th day of February, 1983, otherwise than in any one or more of the

forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the association invested or deposited before the 1st day of March, 1983, otherwise than in any one

or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii)any shares in a company [not being a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) or a corporation established by or under a Central, State or Provincial Act] are held by the association after the 30th day of November, 1983;” ———————————————————————- 1.101

(i) in sub-section (2),-

(1) the words, brackets, letters and figure “referred

to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section” shall be omitted;

(2) for the words “to charitable or religious purposes”, the words “for the purposes of scientific research” shall be substituted;

(3) the reference to “Assessing Officer” in clause (a) thereof shall be construed as a reference to the “prescribed authority” referred to in clause (ii) of

sub-section (1) of section 35;

(ii) in sub-section (3), in clause (a), for the words “charitable or religious purposes”, the words “the purposes of scientific research” shall be substituted; and 1[(b) does not invest or deposit its funds, other than- (i) any assets held by the scientific research association where such assets form part of the corpus of the fund of the association as on the 1st day of June, 1973; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the scientific research association before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i), by way of bonus shares allotted to the scientific research association; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during-the previous year otherwise than in any one or more of the forms or modes specified in sub-section

(5) of section 11:] 2[Provided further that the exemption under this clause shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the first proviso to this clause, subject to the condition that such voluntary contribution is not held by the scientific research association, otherwise than in any one or more of

the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later: ——————————————————————— 1 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990. Prior

to the substitution, clause (b), substituted as a part of clause (21) by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990, read as under: “(b) does not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify) for any period during the previous year otherwise than in any one

or more of the forms or modes specified in sub-section (5) of section 11:” 2 Substituted for “Provided further” by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. ———————————————————————- 1.102 Provided also] that nothing contained in this clause shall apply in relation to any income of the scientific research association, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of accounts are maintained by it in respect of such business;]

(22)’any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit; 2[(22A) 3any income of a hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit;] 4[ (22B) any income of such news agency set up in India solely for collection and distribution of news as the Central Government may, by notification in the Official Gazette, specify5 in this behalf: Provided that the news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members: Provided further that any notification issued by the Central Government under this clause shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification;]

6[(23) ‘any income of an association or institution established in India ——————————————————————— 2 Inserted by the Finance Act, 1970, w.e.f. 1-14-1970. 4 Inserted by the Finance Act, 1994, w.e.f. 1-4-1994. 5 The Press Trust of India Ltd., New Delhi (Notification No. 9638, dated 10-11-1994) and United News India (Notification No. 9724, dated 21-3-1995) have been specified for the assessment years 1994-95 to 1996-97. 6 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f.

1-4-1990. Prior to the substitution, clause (23), as amended by the Direct Tax Laws (Amendment) Act, 1987 and Direct Tax Laws (Amendment) Act, 1989, both w.e.f. 1-4-1989, read as under:

“(23) any income of an association or institution established in India having as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, specify in this behalf from time to time by notification in the Official Gazette: ——————————————————————— 1.103 which may be notified’ by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports2 as the Central Government may, by notification in the Official Gazette, specify in this behalf: Provided that the association or institution shall make an application in the prescribed form3 and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under this clause: Provided further that the Central Government may, before notifying the association or institution under this clause call for such documents (including audited annual accounts) or information from the association, or institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the association or institution and that Government may also make such inquiries as it may deem necessary in this behalf: Provided also that the association or institution,- (a) applies its income or accumulates it for application, wholly and exclusively to the objects for which it is

established and the provisions of sub-section (2) and sub-

section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely:-

(i) in sub-section (2),-

(1) the words, brackets, letters and figure “referred

to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section” shall be omitted;

(2) for the words “to charitable or religious purposes”, the words “for the purposes of games or sports” shall be substituted;

(3) the reference to “Assessing Officer” in clause (a) thereof shall be construed as a reference to the “prescribed authority” referred to in the first proviso to this clause; ———————————————————————- Provided that- (i) the association or institution applies its income, or accumulates it for application, solely to the objects for which it is established; (ii) no part of the income of the association or institution is distributed in any manner to its members except as grants to any association or institution affiliated to it; and (iii) the association or institution is, for the time being, approved for the purpose of this clause by the Central Government by general or special order;” ———————————————————————– 1.104

(ii) in sub-section (3) in clause (a) for the words “charitable or religious purposes”, the words “the purposes of games or sports” shall be substituted; and 1[(b) does not invest or deposit its funds, other than- (i) any assets held by the association or institution where such assets form part of the corpus of the fund of the association or institution as on the 1st day of June, 1973; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the association or institution before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus of the fund mentioned in sub-clause (i), by way of bonus shares allotted to the association or institution; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section

(5) of section 11; and;] (c) does not distribute any part of its income in any manner to its members except as grants to any association or institution affiliated to it: Provided also that the exemption under this clause shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989 otherwise than in any one or more of the forms or

modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 2[1993]: 3[provided also that the exemption under this clause shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this clause, subject to the condition that such voluntary contribution is not held by the association or institution, otherwise than in any one or more of the

forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:] Provided also that nothing contained in this clause shall apply in relation to any income of the association or institution, being profits and ———————————————————————- 1 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990. Prior

to the substitution, clause (b), substituted as a part of clause (23) by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990, read as under: “(b) does not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify) for any period during the previous year otherwise than in any one

or more of the forms or modes specified in sub-section (5) of section 11; and” 2 Substituted for “1992” by the Finance Act, 1992, w.e.f. 1-4-1992, which was earlier substituted for “1990” by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. 3 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. ——————————————————————— 1.105 gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business: Provided also that any notification issued by the Central Government under this clause in relation to any association or institution shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification;] 1[(23A) 2 any income (other than income chargeable under the head * *] “Income from house property” or any income received for rendering any specific services or income by way of interest or dividends derived from its investments) of an association or institution established in India having as its object the control, supervision, regulation or encouragement of the profession of law, 4 medicine, accountancy, engineering or architecture or such other profession’ as the Central Government may specify in this behalf, from time to time, by notification in the Official Gazette: Provided that- (i) the association or institution applies its income, or accumulates it for application, solely to the objects for which it is established; and (ii) the association or institution is for the time being approved6 for the purpose of this clause by the Central Government by general or special order;] 7[(23AA) any income received by any person on behalf of any Regimental Fund or Non-public Fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependents;] ——————————————————————— 1 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962. 3 The words “Interest on securities” omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 7 Inserted by the Finance (No. 2) Act, 1980, w.r.e.f. 1-4-1962. ———————————————————————– 1.106 1[(23AAA) any income received by any person on behalf of a fund established, for such Purposes as may be notified by the Board in the Official Gazette, for the welfare of employees or their dependants and of which fund such employees are members if such fund fulfills the following conditions, namely:- (a) the fund- (i) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established,- and (ii) invests its funds and contributions and other sums received by it in the forms or modes specified in sub-

section (5) of section 11; (b) the fund is approved by the Commissioner in accordance with the rules made in this behalf- Provided that any such approval shall at any one time have effect for such assessment year or years not exceeding three assessment years as may be specified in the order of approval;] 2[(23B) any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India, and existing solely for the development of khadi or village industries or both, and not for purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries: Provided that- (i) the institution applies its income, or accumulates it for application, solely for the development of khadi or village industries or both; and (ii) the institution is, for the time being, approved for the purpose of this clause by the Khadi and Village Industries Commission: Provided further that the Commission shall not, at any one time, grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted. Explanation.-For the purposes of this clause,- (i) “Khadi and Village Industries Commission” means the Khadi and Village Industries Commission established under the Khadi and Village Industries Commission Act, 1956 (61 of 1956); (ii) “Khadi” and “village industries” have the meanings respectively assigned to them in that Act;] 3[(23BB) any income of an authority (whether known as the Khadi and Village Industries Board or by any other name) established in a State by or under a State or Provincial Act for the development of khadi or village industries in the State. Explanation.-For the purposes of this clause, “khadi” and “village industries” have the meanings respectively assigned to them in the Khadi and Village Industries Commission Act, 1956 (61 of 1956);] ——————————————————————— 1 Being inserted by the Finance Act, 1995, w.e.f 1-4-1996. 2 Inserted by the Finance Act, 1974, w.e.f. 1-6-1974. 3 Inserted by the Finance Act, 1979, w.r.e.f. 1-4-1962. ———————————————————————– 1.107 1[(23BBA) any income of any body or authority (whether or not a body corporate or corporation sole) established, constituted or appointed by or under any Central, State or Provincial Act which provides for the administration of any one or more of the following, that is to say, public, religious or charitable trusts or endowments (including maths, temples, gurdwaras, wakfs, churches, synagogues, agiaries or other places of public religious worship) or societies for religious or charitable purposes registered as such under the Societies Registration Act, 1860 (21 of 1860), or any other law for the time being in force: Provided that nothing in this clause shall be construed to exempt from tax the income of any trust, endowment or society referred to therein;] 2[(23BBB) any income of the European Economic Community derived in India by way of interest, dividends or capital gains from investments made out of its funds under such scheme as the Central Government may, by notification in the Official Gazette, specify3 in this behalf. Explanation.-For the purposes of this clause, “European Economic Community” means the European Economic Community established by the Treaty of Rome of 25th March, 1957;] 4[(23C) 5any income received by any person on behalf of- (i) the Prime Minister’s National Relief Fund; or (ii) the Prime Minister’s Fund (Promotion of Folk Art); or (iii) the Prime Minister’s Aid to Students Fund; 6[or] 7[(iiia) the National Foundation for Communal Harmony; or] 8[(iv) any other fund or institution established for charitable purposes ———————————————————————- 1 Inserted by the Finance Act, 1979, w.r.e.f. 1-4-1962. 2 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. 3 The European Community International Institutional Partners (ECIIP) Scheme, 1993 has been specified vide Notification No. 971 1, dated 23-2-1995. 4 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

6 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier it was omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from the same date. 7 Inserted by the Finance Act, 1993, w.e.f. 1-4-1993. 8 Substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1990. Prior to the substitution, sub-clauses (iv) and (v), as amended by the Direct Tax Laws (Amendment) Act, 1987 and Direct Tax Laws (Amendment) Act, 1989, both w.e.f. 1-4-1989, read as under: “(iv) any other fund or institution established for charitable purposes which may be notified by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution, being a trust or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be notified by the Central Government in the Official Gazette, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the purposes thereof: -> -> . ———————————————————————- 1.108 which may be notified’ by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be notified2 by the Central Government in the Official Gazette, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof: Provided that the fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) shall make an application in the prescribed form3 and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v): Provided further that the Central Government may, Wore notifying the fund or trust or institution under sub-clause (iv) or sub-clause (v), call for such documents (including audited annual accounts) or information from the fund or trust or institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the fund or trust or institution and that Government may also make such inquiries as it may deem necessary in this behalf: Provided also that the fund or trust or institution referred to in sub-clause (iv) or sub-clause (v)- (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established; and 4[ (b) does not invest or deposit its funds, other than- (i) any assets held by the fund, trust or institution where such assets form part of the corpus of the ——————————————————————— Provided that any notification issued by the Central Government under sub-clause (iv) or sub-clause (v) shall have effect for such assessment year or years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification;” 2 For complete list of specified trusts/institutions, refer, ibid. 4 Substituted by the Finance Act, 1992, w.r.e.f. 1-4-1990. Prior to the substitution, clause (b), substituted as a part of sub-clauses (iv) and (v) by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4- 1990, read as under: “(b) does not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify) for any period during the previous year otherwise than in any one

or more of the forms or modes specified in sub-section (5) of section 11:” ———————————————————————- 1.109 fund, trust or institution as on the 1st day of June, 1973; (ii)any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution before the 1st day of March, 1983; (iii)any accretion to the shares, forming part of the corpus mentioned in sub-clause (i), by way of bonus shares allotted to the fund, trust or institution; (iv)voluntary contributions received and maintained in the form of jewellers, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes

specified in sub-section (5) of section 11:] Provided also that the exemption under sub-clause(iv) or sub-clause (v) shall not be denied in relation to anyfunds invested or deposited before the 1st day of April, 1989, otherwise than in any one or more of the forms ormodes

specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30thday of March, 1[1993]: 2[Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the trust or institution, otherwise than in any one or more of

the forms or modes specified in sub-section (5) of section 1 1, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:] Provided also that nothing contained in sub-clause (iv) or sub-clause (v) shall apply in relation to any income of the fund or trust or institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of accounts are maintained by it in respect of such business: Provided also that any notification issued by the Central Government under sub-clause (iv) or sub-clause (v) shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification;] ———————————————————————- 1 Substituted for “1992” by the Finance Act, 1992, w.e.f. 1-4-1992, which was earlier substituted for “1990” by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. 2 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990. ———————————————————————- 1.110 The term ‘deemed to have been utilised’ in column 11 has been used to cover income of the type mentioned in Explanation 2 to sub-

section (1) and sub-section (1A) of section 11 so that such income may be excluded for determining compliance with the condition regarding application/accumulation of income to the objects of the trusts/institutions. In the amended Form 56 columns 16 and 17 seek information in

respect of transactions contemplated in sub-sections (2) and (3) of section 13. This does not imply that the provisions of sections 11 and 1,3 will be applied. It will enable the prescribed authority to know broadly that the institution/trust is working genuinely towards its objects. 3. The Notifications issued under section 10(23C) should specify the assessment year or years and be valid for that period which is specified therein and for no other period. 1[(23D) any income of- ———————————————————————- 1 Substituted by the Finance Act, 1995, w.e.f. 1-7-1995. Prior to the substitution, clause (23D), as inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988 and subsequently amended, read as under: “(23D) any income *[of] such Mutual Fund set up by a public sector bank or a public financial institution [or authorised by the Securities and Exchange Board of India or the Reserve Bank of India] and subject to such conditions [* * *] as the Central Government may, by notification* in the Official Gazette, specify in this behalf.” * Substituted for “from” by the Finance Act, 1988, w.e.f. 1- 4-1988. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. The words ” including the condition that at least ninety per cent of such income shall be distributed to the holders of its units every year,” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.r.e.f. 1-4-1988. Earlier, the words “such income shall be distributed to the holder of its units” were substituted for “the income from the mutual fund shall be distributed to the unit holders’ by the Finance Act, 1988, w.e.f. 1-4-1988. ** The SBI Mutual Fund, LIC Mutual Fund, Indian Magnum Fund, N.V. Mutual Fund of SBI, Indian Bank Mutual Fund, PNB Mutual Fund, BOI Mutual Fund, BOB Mutual Fund, Asian Convertibles and Income Mutual Fund, Mutual Fund of GIC, Canbank (Offshore) Mutual Fund, Canbank Mutual Fund, ICICI Mutual Fund, Indbank Offshore Mutual Fund, Commonwealth Equity Fund Mutual Fund, Kothari Pioneer Mutual Fund, Taurus Mutual Fund, Morgan Stanley Mutual. Fund, Apple Mutual Fund, CRB Mutual Fund, Shriram Mutual Fund, 20th Century Mutual Fund, Birla Mutual Fund, J.M. Mutual Fund and IDBI Mutual Fund have since been notified under this clause, as it stood before the above substitution. 1.111 (i) a Mutual Fund registered under theSecurities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder; (ii) such other Mutual Fund set up by a public sector bank or a public financial institution or authorised by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf.] Explanation.-For the purposes of this clause,- (a) the expression “public sector bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 1 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 2 (40 of 1980); (b) the expression “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 19563 (1 of 1956);] 4[(C) the expression “Securities and Exchange Board of India” shall have the meaning assigned to it in clause (a) of sub-

section (1) of section 2 of the Securities and Exchange Board of India Act, 1992 5 (15 of 1992);.] 6 [(23E) any income of such Exchange Risk Administration Fund set up by public financial institutions, either jointly or separately, as the Central Government may, by notification’ in the Official Gazette, specify in this behalf: Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part, with a public financial institution, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall accordingly be chargeable to income-tax. Explanation.-For the purposes of this clause, the expression “public financial institution” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 8 (1 of 1956);] 9[(23F) any income by way of dividends or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking: ———————————————————————– 2 Ibid. 3 Ibid. 4 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 6 Inserted by the Finance Act, 1989, w.e.f. 1-4-1989. 7 The Exchange Risk Administration Fund set up by IDBI, IFCI and ICICI (vide Notification No. SO 872(E), dated 16-11-1990) and by Power Finance Corpn.Ltd. 9 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ———————————————————————— 1.112 Provided that such venture capital fund or venture capital company is approved for the purposes of this clause by the prescribed authority in accordance with the rules made in this behalf and satisfies the prescribed conditions: Provided further that any approval by the prescribed authority shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years, as may be specified in the order of approval: Provided also that if the aforesaid equity shares are transferred (other than in the event of the said shares being listed in a recognised stock exchange in India) by a venture capital fund or a venture capital company to any person at any time within a period of three years from the date of their acquisition, the aggregate amount of income by way of dividends on such equity shares which has not been included in the total income of the previous year or years preceding the previous year in which such transfer has taken place shall be deemed to be the income of venture capital fund or of the venture capital company of the previous year in which such transfer has taken place: Provided also that the exemption shall not be allowed in respect of the long-term capital gains, if any, arising on such transfer of equity shares as is mentioned in the third proviso. Explanation.-For the purposes of this clause,- (a) “venture capital fund” means such fund, operating under a trust deed registered under the provisions of the registration Act, 1908 (16 of 1908), established to raise monies by the trustees for investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines; (b) “venture capital company” means such company as has made investments by way of acquiring equity shares of venture capital undertakings in accordance with the prescribed guidelines; and (c) “venture capital undertaking” means such domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the manufacture or production of such articles or things (including computer software) as may be notified by the Central Government in this behalf:]

(24) any income chargeable under the heads “Income from house property” and “Income from other sources” of a registered union within the meaning of the Indian Trade Unions Act, 1926 (16 of 1926), formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen;

(25) (i) interest on securities which are held by, or are the property of, any provident fund to which the Provident Funds Act, 1925 2 (19 of 1925), applies, and any capital gains of the fund arising from the sale, exchange or transfer of such securities; (ii) any income received by the trustees on behalf of a recognised provident fund; ———————————————————————- 1 The words “Interest on securities,” omitted by the Finance Act, 1988, w.e.f. 1-4-1989. ———————————————————————- 1.113 (iii)any income received by the trustees on behalf of an approved superannuation fund; 1[(iv) any income received by the trustees on behalf on an approved gratuity fund;] 2[(v) any income received- (a) by the Board of Trustees constituted under the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 3 (46 of 1948), on behalf of the Deposit- linked Insurance Fund established under section 3G of that Act; or (b) by the Board of Trustees constituted under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 4 (19 of 1952), on behalf of the Deposit- linked Insurance Fund established under section 6C of that Act;] 5[(25A) any income of the Employees’ State Insurance Fund set up under the provisions of the Employees’ State Insurance Act, 7948 (34 of 1948);]

6[(26) in the case of a member of a Scheduled Tribe as defined in

clause (25) of article 366 7 of the Constitution, residing in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the 7[States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura] or in the areas covered by Notification No. TAD/R/35/50/109, dated the 23rd February, 1951, issued by the Governor of Assam under the proviso to

sub-paragraph (3) of the said paragraph 20 [as it stood immediately before the commencement of the North-Eastern Areas (Reorganisation) Act, 1971(18 of 1971)], any income which accrues or arises to him,- (a) from any source in the areas 9[or States] aforesaid, or (b) by way of dividend or interest on securities;] 10[(26A) “any income accruing or arising to any person 12[* * *] from any source in the district of Ladakh or outside India in any previous year ———————————————————————- 1 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 2 Inserted by the Labour Provident Fund Laws (Amendment) Act, 1976, w.e.f. 1-8-1976. 4 Ibid. 5 Inserted by the Finance Act, 1995, w.r.e.f. 1-4-1962. 6 Substituted by the North-Eastern Areas (Reorganisation) (Adaptation of Laws on Union Subjects) Order, 1974, w.r.e.f. 21-1- 1972. Earlier, it was amended by the State of Nagaland (Adaptation of Laws on Union Subjects) Order, 1965, w.r.e.f. 1-12-1963 and the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1962.

7 Article 366(25) of the Constitution defines “Scheduled Tribes” as under:

“(25) ‘Scheduled Tribes’ means such tribes or tribal communities or parts of or groups within such tribes or tribal communities as are deemed under article 342 to be Scheduled Tribes for the purposes of this Constitution;” 8 Substituted for “States of Nagaland, Manipur and Tripura or in the Union territories of Arunachal Pradesh and Mizoram” by the Finance Act, 1994, w.e.f. 1-4-1995. 9 Substituted for “, States or Union territories” by the Finance Act, 1994, w.e.f. 1-4-1995. 10 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-

12 The words “(not being an individual who is in the service of Government)” omitted by the Finance (No. 2) Act, 1971, w.r.e.f. 1-4-

———————————————————————- 1.114 relevant to any assessment year commencing before the 1st day of April, 1[1989], where such person is resident in the said district in that previous year: Provided that this clause shall not apply in the case of any such person unless he was resident in that district in the previous year relevant to the assessment year commencing on the 1st day of April,

Explanation.-2[1].-For the purposes of this clause a person shall be deemed to be resident in the district of Ladakh if he fulfils the

requirements of sub-section (1) or sub-section (2) or sub-section (3)

or sub-section (4) of section 6, as the case may be, subject to the modifications that- (i) references in those sub-sections to India shall be construed as references to the said district; and

(ii) in clause (i) of sub-section (3), reference to Indian company shall be construed as reference to a company formed and registered under any law for the time being in force in the State of Jammu and Kashmir and having its registered office in that district in that year.] 3[Explanation 2.-In this clause, references to the district of Ladakh shall be construed as references to the areas comprised in the said district on the 30th day of June, 1979;] 4[(26AA) any income of a person by way of winnings from any lottery, the draw of which is held in pursuance of any agreement entered into on or before the 28th day of February, 1989, between the State Government of Sikkim and the organising agents of such lottery, where such person is resident in the State of Sikkim in any previous year. Explanation.-For the purposes of this clause, a person shall be deemed to be resident in the State of Sikkim if he fulfils the

requirements of clause (1) or clause (2) or clause (3) or clause (4) of section 6, as the case may be, subject to the modifications that- (i) references in those clauses to India shall be construed as references to the State of Sikkim; and

(ii) in sub-clause (i) of clause (3), reference to Indian company shall be construed as reference to a company formed and registered under any law for the time being in force in the State of Sikkim and having its registered office in that State in that year;] 5[(26B) any income of a corporation established by a Central, State or Provincial Act, or of any other body, institution or association (being a ——————————————————————— 1 Substituted for “1986” by the Finance Act, 1985, w.e.f. 1-4-1985. Earlier, “1986” was substituted for “1983” by the Finance Act, 1983, w.e.f. 1-4-1983; “1983” for “1980” by the Finance Act, 1980, w.e.f. 4- 4-1980; “1980” for “1975” by the Finance (No. 2) Act, 1977, w.r.e.f. 1-4-1975 and “1975” for “1970” by the Finance (No. 2) Act, 1971, w.r.e. 1-4-1970. 2 Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1980. 3 ibid. 4 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. 5 Inserted by the Finance Act, 1980, w.r.e.f. 1-4-1972. ——————————————————————– 1.115 body, institution or association wholly financed by Government) where such corporation or other body or institution or association has been established or formed for promoting the interests of the members of 1[the Scheduled Castes or the Scheduled Tribes or backward classes or of any two or all of them]. 2[Explanation.-For the purposes of this clause,- (a) “Scheduled Castes” and “Scheduled Tribes” shall have

the meanings respectively assigned to them in clauses (24)

and (25) of article 366 of the Constitution3 ; (b) “backward classes” means such classes of citizens, other than the Scheduled Castes and the Scheduled Tribes, as may be notified- (i) by the Central Government; or (ii) by any State Government, as the case may be, from time to time;]] 4[(26BB) any income of a corporation established by the Central Government or any State Government for promoting the interests of the members of a minority community. Explanation.-For the purposes of’ this clause, “minority community” means a community notified as such by the Central Government in the Official Gazette in this behalf,]

5[(27) any income of a co-operative society formed for promoting the interests of the members of either the Scheduled Castes or Scheduled Tribes or both referred to in clause (26B): Provided that the membership of the co-operative society consists of only other co-operative societies formed for similar purposes and the finances of the society are provided by the Government and such other societies;]

6[(28) any amount adjusted or paid in respect of a tax credit certificate under the provisions of Chapter XXIIB and any scheme made thereunder;]

7 [(29) in the case of an authority constituted tinder any law for the time being in force for the marketing of commodities, any income derived from the letting of go downs or warehouses for storage, processing or facilitating the marketing of commodities;] ——————————————————————— 1 Substituted for “either the Scheduled Castes or the Scheduled Tribes or of both” by the Finance Act, 1994, w.r.e.f. 1-4-1993. 2 Substituted by the Finance Act, 1994 w.r.e.f. 1-4-1993. Prior to the substitution, the Explanation, as originally enacted, read as under: “Explanation. For the purposes of this clause, “Scheduled Castes” and “Scheduled Tribes” shall have the meanings respectively

assigned to them in clauses (24) and (25) of Article 366 of the Constitution”. 4 Inserted by the Finance Act, 1995, w.e.f. 1-4-1995. 5 Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1989. Earlier,

clause (27) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964; amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967 and omitted by the Finance Act, 1975, w.e.f. 1-4-1976. 6 Substituted by the Finance (No. 2) Act, 1965, w.e.f. 11-9-1965. It was inserted by the Finance Act, 1965, w.e.f. 1-4-1965. Chapter YXII-B has been omitted by the Finance Act, 1990, w.e.f. 1-4-1990. This clause too needs to be omitted. 7 Inserted by the Finance (No. 2) Act, 1967, w.e.f 1-4-1968. ———————————————————————- 1.116 1[(30 ) 2 in the case of an assessee who carries on the business of growing and manufacturing tea in India, the amount of any subsidy received from or through the Tea Board under any such scheme3 for replantation or replacement of tea bushes 4 [or for rejuvenation or consolidation of areas used for cultivation of tea] as the Central Government may, by notification in the Official Gazette, specify: Provided that the assessee furnishes to the 5[Assessing] Officer, along with his return of income for the assessment year concerned or within such further time as the 6[Assessing] Officer may allow, a certificate from the Tea Board as to the amount of such subsidy paid to the assessee during the previous year. Explanation.-In this clause, “Tea Board” means the Tea Board established under section 4 of theTea Act, 1953 (29 of 1953);]

7[ (31) in the case of an assessee who carries on the business of growing and manufacturing rubber, coffee, cardamom or such other commodity in India, as the Central Government may, by notification in the Official Gazette, specify in this behalf, the amount of any subsidy received from or through the concerned Board under any such scheme for replantation or replacement of rubber plants, coffee plants, cardamom plants or plants for the growing of such other commodity or for rejuvenation or consolidation of areas used for cultivation of rubber, coffee, cardamom or such other commodity as the Central Government may, by notification in the Official Gazette, specify: Provided that the assessee furnishes to the Assessing Officer, along with his return of income for the assessment year concerned or within such further time as the Assessing Officer may allow, a certificate from the concerned Board, as to the amount of such subsidy paid to the assessee during the previous year. Explanation.-In this clause, “concerned Board” means,- (i) in relation to rubber, the Rubber Board constituted under section 4 of the Rubber Act, 1947 (24 of 1947), (ii) in relation to coffee, the Coffee Board constituted under section 4 of the Coffee Act, 1942 (7 of 1942), (iii) in relation to cardamom, the Spices Board constituted under section 3 of the Spices Board Act, 1986 (10 of 1986), (iv) in relation to any other commodity specified under this clause, any Board or other authority established under any law for the time being in force which the Central Government may, by notification in the Official Gazette, specify in this behalf.] ———————————————————————- 1 Inserted by the Taxation Laws (Amendment) Act, 1970, w.r.e.f. 1-4-1969. 4 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 5 Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Ibid. 7 Inserted by the Finance Act, 1988, w.e.f. 1-4-1989. ——————————————————————— 1.117

1[(32) in the case of an assessee referred to in sub-section (1A) of section 64, any income includable in his total income under that sub-section, to the extent such income does not exceed one thousand five hundred rupees in respect of each minor child whose income is so includable.] 2[10A. Special provision in respect of newly established industrial undertakings in free trade zones 3

(1)Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee.

(2)This section applies to any industrial undertaking which fulfils all the following conditions, namely:- 4[(i) it has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year- (a) commencing on or after the 1st day of April, 1981, in any free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case may be, software technology park;] 5[(ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1995, its exports of such articles or things are not less than seventy-five per cent of the total sales thereof during the previous year;] (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanation 1 and Explanation 2 to

sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that subsection. ——————————————————————— 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Inserted by the Finance Act, 1981, w.e.f. 1-4-1981. 4 Substituted by the Finance Act, 1993, w.e.f. 1-4-1994. Prior to the substitution, clause (i) read as under: “(i) it has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year commencing on or after the 1st day of April, 1981, in any free trade zone;” 5 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. ———————————————————————- 1.118

1[(3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any five consecutive assessment years, falling within a period of eight years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, specified by the assessee at his option: Provided that nothing in this sub-section shall be construed to extend the aforesaid five assessment years to cover any period after the expiry of the said period of eight years.]

(4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,- (i) section 32, section 32A, section 33, section 35 and

clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture used for the purposes of the business of the industrial undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly

sub-section (2) of section 32, clause (ii) of sub-section (3)

of section 32A, clause (ii) of sub-section (2) of section 33,

sub-section (4) of section 35 or the second proviso to clause

(ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to in sub-section (1) of section 72 or

sub-section (1) 2[or sub-section (3)] of section 74 and no

deficiency referred to in sub-section (3) of section 80J, in so far as such, loss or deficiency relates to the business of the industrial undertaking, shall be carried forward or set off where such loss, or, as the case may be, deficiency relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I 3[or section 80-IA] or section 80J in relation to the profits and gains of the industrial undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the industrial under-taking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment years.

(5) Where an industrial undertaking in any free trade zone has begun to manufacture or produce articles or things in any previous year relevant to the assessment year commencing on or after the 1st day of April, 1977, ———————————————————————- 1 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1987. 2 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1991. ———————————————————————- 1.119 but before the 1st day of April, 1981, the assessee may, at his

option, before the expiry of the time allowed tinder sub-section (1)

or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income for the assessment year commencing on the 1st day of April, 1981, furnish to the 4[Assessing] Officer a declaration in writing that the provisions of sub-section

(1) may be made applicable to him for each of the relevant assessment years as reduced by the number of assessment years which expired before the 1st day of April, 1981, and if he does so, then, the

provisions of sub-section (1) shall apply to him for each of such

relevant assessment years and the provisions of sub-section (4) shall also apply in computing the total income of the assessee for the assessment year immediately succeeding the last of the relevant assessment years and any subsequent assessment year.

(6) The provisions of sub-section (8) and sub-section (9) of section 80I shall, so far as may be, apply in relation to the industrial undertaking referred to in this section as they apply for the purposes of the industrial undertaking referred to in section 80- I.

(7) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, 2[before the due date

for furnishing the return of income under sub-section (1) of section 139] 3[* * *], furnishes to the 4 [Assessing] Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.

5[(8) References 7[in sub-section (5)] to any other provision of this Act, which has been amended or omitted by the Direct Tax Laws (Amendment) Act, 1987, shall, notwithstanding such amendment or omission, be construed, for the 8[purposes of that sub-section], as if such amendment or omission had not been made.] Explanation.-For the purposes of this section,- (i) “free trade zone” means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone” which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; ———————————————————————- 1 Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 2 Substituted for “before the expiry of the time allowed under sub-

section (1) or sub-section (2) of section 139, whether fixed originally or on extension, for furnishing the return of income” by the Finance Act, 1988, w.e.f. 1-4-1989. 3 The words “for the initial assessment year” omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1987. 4 Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1988. 5 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. 6 Substituted for “in this section” by the Finance Act, 1988, w.e.f. 1-4-1989. 7 Substituted for “purposes of this section”, ibid. 8 The Export Processing Zones at Falta in West Bengal; Madras in Tamil Nadu; Cochin in Kerala and Noida in Uttar Pradesh have been specified vide Notification No. SO 872(E), dated 29-9-1987. ———————————————————————– 1.120 1[(ii) “relevant assessment years” means the five consecutive assessment years specified by the assessee at his option

under sub-section (3);]] 2[(iii) “manufacture” includes any- (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device;] 3[(iv) “electronic hardware technology park” means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce; (v) “software technology park” means any park set up in accordance with the Software Technology Park Scheme notified4 by the Government of India in the Ministry of Commerce; (vi) “produce”, in relation to articles or things referred

to in clause (i) of sub-section (2), includes production of computer programmes.] 5[10B. Special provision in respect of newly established hundred per cent export-oriented undertakings’

(1) Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent export-oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the total income of the assessee.

(2) This section applies to any undertaking which fulfils all the following conditions, namely:- (i)it manufactures or produces any article or thing; 7[(ia)in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its exports of such articles and things are not less than seventy-five per cent of the total sales thereof during the previous year;] (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: ———————————————————————- 1 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 w.e.f. 1-4-1987. Prior to the substitution, clause (ii) read as under: “(ii) “relevant assessment years” means the initial assessment year and four assessment years immediately succeeding the initial assessment year;” 2 Inserted by the Finance Act, 1987, w.r.e.f. 1-4-1981. 3 Inserted by the Finance Act, 1993, w.e.f. 1-4-1994. 5 Inserted by the Finance Act, 1988, w.e.f. 1 7 Inserted by the Finance Act, 1994, w.e.f: 1-4-1995. ———————————————————————- 1.121 Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re- establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanation 1 and Explanation 2 to

sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section.

(3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any five consecutive assessment years, falling within a period of eight years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, specified by the assessee at his option: Provided that nothing in this sub-section shall be construed to extend the aforesaid five assessment years to cover any period after the expiry of the said period of eight years.

(4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year relevant to any subsequent assessment year,- (i) section 32, section 32A, section 33 and clause (ix) of

sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that

assessment year itself and accordingly sub-section (2) of

section 32, clause (ii) of sub-section (3) of section 32A,

clause (ii) of sub-section (2) of section 33 or the second

proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to in sub-section (1) of section 72 or

sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I 1[or section 80-IA] in relation to the profits and gains of the undertaking; and ———————————————————————- 1 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1991. ———————————————————————- 1.122 (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment years.

(5) Where the undertaking has begun to manufacture, or produce articles or things in any previous year relevant to the assessment year commencing before the 1st day of April, 1989, the assessee may, at his option, before the due date for furnishing the return of his

income under sub-section (1) of section 139 for the assessment year commencing on the 1st day of April, 1989, furnish to the Assessing Officer a declaration in writing that the provisions of sub-section

(1) may be made applicable to him for any five consecutive assessment years falling within a period of eight years beginning with the assessment year commencing on the 1st day of April, 1989, and if he

does so, then, the provisions of sub-section (1) shall apply to him for each of such assessment years and the provisions of sub-section

(4) shall also apply in computing the total income of the assessee for the assessment year immediately succeeding the last of such assessment years and any subsequent assessment year.

(6) The provisions of sub-section (8) and sub-section (9) of section 801 shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the industrial undertaking referred to in section 801.

(7) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date

for furnishing the return of his income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. Explanation.-For the purposes of this section,- (i) “hundred per cent export-oriented undertaking” means an under-taking which has been approved as a hundred per cent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act; (ii) “relevant assessment years” means the five consecutive assessment years specified by the assessee at his option

under sub-section (3) or sub-section (5), as the case may be; (iii) “manufacture” includes any- (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device.] 1[(iv) “produce”, in relation to any article or thing

referred to in clause (i) of sub-section (2) includes production of computer programmes.] ——————————————————————— 1 Inserted by the Finance Act, 1994, w.e.f. 1-4-1994. ———————————————————————- 1.123

Income from property held for charitable or religious purposes 2. 1[11. Income from property held for charitable or religious purposes 2.

(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- 3[(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty five per cent of the income from such property;] (c) income 4[derived] from property held under trust- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and ———————————————————————- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989 with some modifications. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from the same date. 3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. Earlier, clauses (a) and (b) were amended by the Finance Act, 1970, w.e.f. 1-4-1971. 4 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. ———————————————————————- 1.124 (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; 1[(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.] 2[Explanation.-For the purposes of clauses (a) and (b),-

(1) in computing the twenty-five per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income;

(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of seventy-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then- (a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount; and (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before

the expiry of the time allowed under sub-section (1) 3[* * *] of section 139 4[* * *] for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in ———————————————————————- 1 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. The Explanation was also substituted by the Finance Act, 1970, w.e.f. 1-4-1971.

3 The words “or sub-section (2)” omitted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. 4 The words “, whether fixed originally or on extension”, omitted, ibid. ———————————————————————- 1.125 the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.)

1[(1A) For the purposes of sub-section (1),- (a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain; (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this sub-section,- (i) “appropriate fraction” means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; (ii) “cost of the transferred asset” means the aggregate of the cost of acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in sub-clause

(b) of clause (1) of section 55; (iii) “net consideration” means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.] ———————————————————————- 1 Inserted by the Finance (No. 2) Act, 1971, w.r.e.f. 1-4-1962. ———————————————————————- 1.126 1[(1B) Where any income in respect of which an option is

exercised under clause (2) of the Explanation to sub-section (1) is not applied to charitable or religious purposes in India during the period referred to in sub-clause (a) or, as the case may be, sub- clause (b), of the said clause, then such income shall be deemed to be the income of the person in receipt thereof- (a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received, or (b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.]

2[(2) 3[Where seventy-five per cent of the income refer-red to in

clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated, or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-] 4 (a) such person specifies, by notice in writing given to the 5[Assessing] Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; 6[(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section

(5):]] 7 [Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.]

8[(3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or 9[(b) ceases to remain invested or deposited in any of

the forms or modes specified in sub-section (5), or] ——————————————————————— 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

2 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 3 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. 5 Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 6 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. Earlier, it was amended by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 7 Inserted by the Finance Act, 1993, w.r.e.f. 1-4-1962. 8 Substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 9 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. ———————————————————————– 1.127 (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited, or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.]

1[(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the

provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the 2[Assessing] Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the

provisions of sub-section (3) shall apply as if the purpose specified by such person in the application under this sub-section were a purpose specified in the notice given to the 3[Assessing] Officer

under clause (a) of sub-section (2).]

(4) For the purposes of this section “property held under trust” includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the 4[Assessing] Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes 5[* * *].

6[(4A) 7Sub-section (1) or sub-section (2) or sub-section (3) or sub- ———————————————————————– 1 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

2 Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Ibid. 4 Ibid. 5 The words “and accordingly chargeable to tax within the meaning

of sub-section (3)” omitted by the Finance Act, 1970, w.e.f. 1-4-1971. 6 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to the substitution, sub-section (4A), as inserted by the Finance Act, 1983, w.e.f. 1-4-1984, read as under:

“(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless- (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business.” ———————————————————————— 1.128 section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.]

1[(5) The forms and modes of investing or depositing the money

referred to in clause (b) of sub-section (2) shall be the following, namely:- (i) 2investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 3 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co- operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co- operative land development bank). Explanation.-In this clause, “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 19704 (5 of 1970) or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 198 05 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the Central Government or a State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both the principle whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; (vii) investment or deposit in any 6 [public sector company]; (viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long- term finance for industrial development in India and which is approved by the ———————————————————————- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Ibid. 5 Ibid. 6 Substituted for “Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)” by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. ————————————————————————- 1.129 Central Government for the purposes of clause (viii) of sub- section

(1) of section 36; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is approved by the Central Government for the purposes of clause (viii) of sub-section

(1) of section 36; (x) investment in immovable property. Explanation.-“Immovable property” does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] 1[(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] 2[(Xii) 3any other form or mode of investment or deposit as may be prescribed.] ———————————————————————- 1 Inserted by the Finance Act, 1984, w.e.f. 1-4-1985. 2 Inserted by the Direct Tax Laws (Amendment) Act, 1989, w,e.f. 1-4-1989. ———————————————————————- 1.130 capital gains arising from the transaction in acquiring the new capital asset, the amount of capital gains so utilised would be regarded as having been applied to the charitable or religious purposes of the trust.

6. While under section 11 (1)(a) the tax will be levied in the

year to which the income relates, under section 11(3) the income would be chargeable in the year in which the amounts cease to be accumulated for the specific purpose mentioned. Thus when amounts are taxed under

section 11(3) the benefit which would have been available to a trust in respect of 25 per cent of its income or Rs. 10,000 under section

11(1)(a) would also be lost. 7. If a trust desires to accumulate income in excess of the

limits specified in section 11(1) the conditions specified in section

11(2) have to be fulfilled in respect of the entire accumulation and not merely in respect of the accumulation in excess of 25 per cent of the income. 5. The business income of a trust as disclosed by the accounts plus its other income will be the income of the trust for purposes of

section 11(1). The trust must spend at least 75 per cent of this income and not accumulate more than 25 per cent thereof. Excess

accumulation if any will become taxable under section 11(1). 9. Donations received by a charitable trust from the members of the public being capital receipts cannot be regarded as income of the trust. Accordingly donations should be excluded from the income of the trust for the purpose of calculating the accumulations limit of 25

per cent except in cases covered by section 12(2) 10. With a view to expediting the disposal of applications filed by trusts for condoning the delay, the Board had passed a general

order under section 119(2)(b) by which the Commissioners have been

authorised to admit belated applications under section 11(2) read with rule 17.

Income of trusts or institutions from contributions 2. 1[12. Income of trusts or institutions from contributions 2. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.] 3[ 12A. Conditions as to registration of trusts, etc. The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- ———————————————————————- 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1969. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 12 was substituted by the Finance Act, 1972, w.e.f. 1-4-19 3 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 12A was originally inserted by the Finance Act, 1972, w.e.f. 1-4-1973. ———————————————————————- 1.131 (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the 2[Chief Commissioner or Commissioner] before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later: 3[Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,- (i) from the date of the creation of the trust or the establishment of the institution if the Chief Commissioner or Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) from the 1st day of the financial year in which the application is made, if the Chief Commissioner or Commissioner is not so satisfied;] 4(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds 5[fifty] thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section

(2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form .duly signed and verified by such accountant and setting forth such particulars as may be prescribed.] ——————————————————————– 2 Substituted for ‘Commissioner’ by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 3 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. Prior to substitution, the proviso, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under: ‘Provided that the Chief Commissioner or Commissioner may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid;’ 5 Substituted for ‘twenty-five’ by the Finance Act, 1994, w.e.f. 1-4-1995. ———————————————————————- 1.132

Section 11 not to apply in certain cases 2. 1[13. Section 11 not to apply in certain cases 2.

(1) Nothing contained in section 11 3[or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; (b) in the case of a trust -for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste; 4[(bb) * * *] (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person

referred to in sub-section (3): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any

person refer-red to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution: Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of ———————————————————————– 1 Reintroduced by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Earlier, it was omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from the same date. Section 13 was amended by the Finance Act, 1963, w.r.e.f. 1-4-1962; Finance Act, 1966, w.e.f. 1- 4-1966 and substituted by the Finance Act, 1970, w.e.f. 1-4-1971. 3 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 4 Omitted by the Finance Act, 1983, w.e.f. 1-4-1984. Prior to the omission, clause (bb), as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977, read as under: “(bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution;’ ———————————————————————– 1.133 this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any

person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; 1[(d) 2in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes

specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified

in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii)any shares in a company [not being a Government company as defined in section 617 of the Companies Act, 19563 (1 of 1956), or a corporation established by or under a Central,. State or Provincial Act) are held by the trust or institution after the 30th day of November, 1983: Provided that nothing in this clause shall apply in relation to- (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973 4[* * *]; 5[(ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution;] (ii) any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before the 1st day of March, 1983; 6[(iia)any asset, not being an investment or deposit in

any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, ———————————————————————– 1 Substituted by the Finance Act, 1983, w.e.f. 1-4-1983. The original clause (d) was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977 and was amended by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978 and the Finance Act, 1982, w.e.f. 1-4-1982. 4 The words ‘and such assets were not purchased by the trust or institution or acquired by it by conversion of, or in exchange for, any other asset’ omitted by the Finance Act, 1992, w.r.e.f. 1-4-1983. 5 Inserted by the Finance Act, 1992, w.r.e.f. 1-4-1983. 6 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1983. ——————————————————————— 1.134 otherwise than in any of the forms or modes specified in

sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1[1993), whichever is later;] (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. Explanation.-Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business.] 2 [Explanation.-For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in

sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard shall be had to the amendments made to this section by section 7 (other than sub-clause (ii) of clause (a) thereof) of the Finance Act, 1972.]

(2) Without prejudice to the generality of the provisions of

clause (c) 3[and clause (d)] of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-

section (3),- (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person

referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the

use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to

in sub-section (3)out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made

available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in ———————————————————————– 1 Substituted for “1992” by the Finance Act, 1992, w.e.f. 1-4-1992. 2 2 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 3 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. ———————————————————————- 1.135

sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person refer-red

to in sub-section (3) during the previous year for consideration which is less than adequate; 1[(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person

referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;] (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any person referred to

in sub-section (3) has a substantial interest.

(3) The persons referred to in clause (c) of sub-section (1) and

sub-section (2) are the following, namely:- (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, 2[that is to say, any person whose total contribution up to the end of the ‘relevant previous year exceeds 3[fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; 4[(CC) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, 5[member, trustee or manager] as aforesaid; (e) any concern in which any of the persons refer-red to in clauses (a), (b), (c) 6[,(cc)] and (d) has a substantial interest.

(4) Notwithstanding anything contained in clause (c) of sub-

section (1) 7[but without prejudice to the provisions contained in clause (d) of that sub-section], in a case where the aggregate of the funds of the trust or institution invested in a concern in which any

person referred to in sub-section (3) has a substantial interest, does not exceed five per cent of the ———————————————————————- 1 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 Substituted for ‘twenty-five’ by the Finance Act, 1994, w.e.f. 1- 4-1995. Earlier, ‘twenty five’ was substituted for ‘five’ by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985. 4 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 5 Substituted for ‘or member, ibid. 6 Inserted, ibid. 7 Inserted by the Finance Act, 1983, w.e.f. 1-4-1983. ———————————————————————– 1.136 capital of that concern, the exemption under section 11 1[or section 12] shall not be denied in relation to any income other than the income arising to the trust or the institution from such investment, by reason only that the 2 [funds] of the trust or the institution have been invested in a concern in which such person has a substantial interest.

3[(5) Notwithstanding anything contained in clause (d) of sub-

section (1), where any assets (being debentures issued by, or on behalf of, any company or corporation) are acquired by the trust or institution after the 28th day of February, 1983, but before the 25th day of July, 1991, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such assets, by reason only that the funds of the trust or the institution have been invested in such assets if such funds do not continue to remain so invested in such assets after the 31st day of March, 1992.]

4[(6) * * *] 5[Explanation 1.-For the purposes of sections 11, 12, 12A and this section, “trust” includes any other legal obligation and for the purposes of this section “relative”, in relation to an individual, means- (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) any lineal ascendant or descendant of the individual; (v) any lineal ascendant or descendant of the spouse of the individual; (vi) spouse of a person referred to in sub-clause (ii), sub- clause (iii), sub-clause (iv) or sub-clause (v); (vii) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.] Explanation 2.-A trust or institution created or established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or women and children shall not be deemed to be a trust or institution created or established for the benefit of a religious community or

caste within the meaning of clause (b) of sub-section (1). Explanation 3.-For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,- (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in

sub-section (3); ———————————————————————– 1 Inserted by the Finance Act, 1972, w.e.f. 1-4-1973. 2 Substituted for ‘moneys’ by the Finance (No. 2) Act, 1971, w.e.f. 1-4-1971. 3 Inserted by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1983.

The original sub-section (5) was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and omitted by the Finance Act, 1983, w.e.f. 1-4-1983. 4 Omitted by the Finance Act, 1983, w.e.f. 1-4-1983. It was inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1977. 5 Substituted by the Finance Act, 1972, w.e.f. 1-4-1973. ———————————————————————— 1.137 (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons

referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern.] 1[13A. Special provision relating to incomes of political parties Any income of a political party which is chargeable under the head 2[* * *] “Income from house property” or “Income from other sources” or any income by way of voluntary contributions received by a political party from any person shall not be included in the total income of the previous year of such political party: Provided that- (a) such political party keeps and maintains such books of account and other documents as would enable the 3[Assessing] Officer to properly deduce its income therefrom; (b) in respect of each such voluntary contribution in excess of ten thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution; and (c) the accounts of such political party are audited by an accountant as defined in the Explanation below sub-section

(2) of section

———————————————————————- 1 Inserted by the Taxation Laws (Amendment) Act, 1978, w.e.f. 1-4-

2 The words “Interest on securities” omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 Substituted for ‘Income-tax’ by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. ———————————————————————— 1.138 Explanation.-For the purposes of this section, “political party” means an association or body of individual citizens of India registered with the Election Commission of India as a political party under paragraph 3 of the Election Symbols (Reservation and Allotment) Order, 1968, and includes a political party deemed to be registered

with that Commission under the proviso to sub-paragraph (2) of that paragraph. 1.139 CHAP COMPUTATION OF TOTAL INCOME. CHAPTER IV COMPUTATION OF TOTAL INCOME Heads of income

Heads of income. 14. Heads of income Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:- A.-Salaries. 1[B.-* * *] C.-Income from house property. D.-Profits and gains of business or profession. E.-Capital gains. F.-Income from other sources. A.-Salaries

Salaries. 15. Salaries 2The following income shall be chargeable to income-tax under the head “Salaries”- (a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. 3Explanation 4[1].-For the removal of doubts, it is hereby declared that where any salary paid in advance in included in the total income of any person for any previous year, it shall not be included again in the total income of the person when the salary becomes due. 5[Explanation 2.-Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.] ———————————————————————- 1 The words ‘B.-Interest on securities’ omitted by the Finance Act, 1988, w.e.f. 1-4-1989. 3 Restored to the original provision by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. It was earlier amended by the Direct Tax Laws (Amendment) Act, 1987 consequent upon the omission of Explanation 2 with effect from the same date. The Direct Tax Laws (Amendment) Act, 1989 also omitted the Explanation 2 simultaneously. 4 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 5 Ibid. ———————————————————————- 1.140

Deductions from salaries. 16. Deductions from salaries The income chargeable under the head “Salaries” shall be computed after making the following deductions, namely:- 1[(i) 2[a deduction of] 3[4[a sum equal to thirty-three and one-third per cent of the salary or 3[fifteen] thousand rupees, whichever is less]]: 6 [Provided that in the case of an assessee, being a woman, ———————————————————————– 1 Substituted by the Finance Act, 1974, w.e.f. 1-4-1975. 2 Substituted for ‘in respect of expenditure incidental to the employment of the assessee” by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 3 Substituted by the Finance Act, 1981, w.e.f. 1-4-1982. It was earlier amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 4 Substituted for “a sum equal to *thirty per cent of the salary or **ten thousand rupees, whichever is less’ by the Finance Act, 1988, w.e.f. 1-4-1989. *Earlier, ‘thirty’ was substituted for “twenty-five” by the Finance Act, 1986, w.e.f. 1-4-1987 and for “twenty” by the Finance Act, 1982, w.e.f. 1-4-1983. **Earlier, ‘ten’ was substituted for “six” by the Finance Act, 1986, w.e.f. 1-4-1987 and for ‘five’ by the Finance Act, 1983, w.e.f. 1-4-1984. 5 Substituted for “twelve” by the Finance Act, 1993, w.e.f. 1-4-

6 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, the proviso was omitted by the Finance Act, 1989, w.e.f. 1-4-1990. Prior to the omission, it read as under: “Provided that-

[(i) * * *]

(ii) Where any motor car, motor cycle, scooter or other moped is provided to the assessee by his employer for use by the assessee, otherwise than wholly and exclusively in the performance of his duties; or (iii)where one or more motor cars are owned or hired by the employer of the assessee and the assessee is allowed the use of such motor car or all or any of such motor cars, otherwise than wholly and exclusively in the performance of his duties, ———————————————————————- 1.141 whose total income before making any deduction under this clause does not exceed seventy-five thousand rupees, the provisions of this clause shall have effect as if for the words “1[fifteen] thousand rupees”, the words “2[eighteen] thousand rupees” had been substituted.] 3[Explanation 4[* * *].-For the removal of doubts, it is hereby declared that where, in the case of an assessee, salary is due from, or paid or allowed by, more than one employer, the deduction under this clause shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and shall in no case exceed the amount specified under this clause;] 5[* * *] (ii) 6[a deduction] in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer- (a) in the case of an assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less; and (b) in the case of any other assessee who is in receipt of such entertainment allowance and has been continuously in receipt of such entertainment allowance regularly from his present employer from a date before the 1st day of April, 1955, the amount of such entertainment allowance regularly received by the assessee from his present employer in any previous year ending before the 1st day of April, 1955, or a sum equal to one fifth of his salary (exclusive of any allowance, benefit or other perquisite) or seven thousand five hundred rupees, whichever is the least; 7[(iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause

(2) of article 276 of the Constitution, leviable by or under any law.] ——————————————————————— -> the deduction under this clause shall not exceed one thousand rupees;”. Clause (i) was omitted by the Finance Act, 1981, w.e.f. 1-4-

1 Substituted for “twelve” by the Finance Act, 1993, w.e.f. 1-4-

2 Substituted for ‘fifteen’ by the Finance Act, 1993, w.e.f. 1-4-

3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1975. 4 The figure ‘1’ omitted by the Finance Act, 1989, w.e.f. 1-4-1990. it was inserted by the Finance Act, 1985, w.e.f. 1-4-1986. 5 Omitted by the Finance Act, 1989, w.e.f. 1-4-1990. Prior to the omission, Explanation 2, as inserted by the Finance Act, 1985, w.e.f. 1-4-1986, read as under: “Explanation 2.-For the purposes of the proviso to this clause, the use of any vehicle referred to therein for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as the use of such vehicle otherwise than wholly and exclusively in the performance of his duties;” 6 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 7 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. Earlier, it was omitted by the Finance Act, 1974, w.e.f. 1-4-1975. ———————————————————————– 1.142 1[(iv) * * *] 2[(v) * * *]

“Salary” “perquisite” and “profits in lieu of salary” defined. 17. “Salary” “perquisite” and “profits in lieu of salary” defined 3For the purposes of sections 15 and 16 and of this section,-

(1) “Salary” includes- (i)wages; (ii)any annuity or pension; (iii)any gratuity; (iv)any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; (v) any advance of salary; 4[(va) any payment received by an employee in respect of any period of leave not availed of by him;] (vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and (vii) the aggregate of all sums that are comprised in

the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under

sub-rule (4) thereof;

5(2) “perquisite” includes- (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer; (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases- (a) by a company to an employee who is a director thereof; (b) by a company to an employee being a person who has a substantial interest in the company; ———————————————————————– 1 Omitted by the Finance Act, 1974, w.e.f. 1-4-1975. Earlier, it was substituted by the Finance Act, 1968, w.e.f. 1-4-1968 and amended by the Finance Act, 1969, w.e.f. 1-4-1970; the Finance Act, 1970, w.e.f. 1-4-1971 and the Finance (No. 2) Act, 1971, w.e.f. 1-4-1972. 2 Omitted by the Finance Act, 1974, w.e.f. 1-4-1975. 4 Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1978. 5 See rule 3. ———————————————————————– 1.143 (c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this subclause do not apply and whose income 1[under the head “Salaries” (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds twenty-four thousand rupees;] 2[Explanation.-For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause;] (iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee; and (v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund 3[or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 19484 (46 of 1948), or, as the case may be, section 6C of the Employees’ Provident Funds and Miscellaneous Provisions Act, 19525 (19 of 1952)], to effect an assurance on the life of the assessee or to effect a contract for an annuity: 6 [Provided that nothing in this clause shall apply to,- (i) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer; 7[(ii) any sum paid by the employer in respect of any expenditure ———————————————————————– 1 Substituted for ‘under the head ‘Salaries’, exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds eighteen thousand rupees;’ by the Finance Act, 1985, w.e.f. 1-4-1986. 2 Inserted by the Finance Act, 1989, w.e.f. 1-4-1990. 3 Inserted by the Labour Provident Fund Laws (Amendment) Act, 1976, w.e.f. 1-8-1976. 5 Ibid. 6 Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991. 7 Substituted by the Finance Act, 1994, w.r.e.f. 1-4-1993. Prior to the substitution clause (ii), as substituted by the Finance Act, 1992, w.e.f. 14-1993, read as under: “(ii) any sum paid by the employer- (a) in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; (b) directly to a hospital, approved by the Chief Commissioner having regard to the prescribed guidelines for the purposes of medical treatment of the prescribed diseases or ailments, on account of such treatment of the employee or any member of his family;’ Earlier, prior to the above substitution, clause (ii), as inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991, read as under: -> -> . ———————————————————————– 1.144 actually incurred by the employee on his medical treatment or treatment of any member of his family- (a) in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; (b) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines’: Provided that, in a case falling in sub-clause (b), the employee shall attach with his return of income a certificate from the hospital specifying the disease or ailment2 for which medical treatment was required and the receipt for the amount paid to the hospital;] (iii) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved by the Central Government for the

purposes of clause (ib) of sub-section (1) of section 36; (iv) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government for the purposes of section 80D; (v) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family [other than the treatment referred to in clauses (i) and (ii)]; so, however, that such sum does not exceed ten thousand rupees in the previous year; (vi) any expenditure incurred by the employer on-

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

(2)travel 3[and] stay abroad of the employee or any member of the family of such employee for medical treatment;

(3)travel and stay abroad of one attendant who accompanies the patient in connection with such treatment, 4 [subject to the condition that- ———————————————————————- “(ii)any sum paid by the employer in respect of any expenditure actually incur-red by the employee on his medical treatment or treatment of any member of his family in any hospital maintained by Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees:” 3 Substituted for “or” by the Finance Act, 1993, w.e.f. 1-4-1993. 4 Substituted for “subject to the condition that the expenditure on

travel referred to in sub-clauses (2) and (3) of this clause shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakh rupees and subject to such further ————————————————————————- 1.145 (A) the expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and (B) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does. not exceed two lakh rupees]; (vii) any sum paid by the employer in respect of any expenditure actually incurred by the employee for any of the purposes specified in clause (vi) subject to the conditions specified in or under that clause.

Explanation.-For the purposes of clause (2),- (i) “hospital” includes a dispensary or a clinic 1[or a nursing home]; (ii) “family”, in relation to an individual, shall have

the same meaning as in clause (5) of section 10; and (iii) “gross total income” shall have the same meaning

as in clause (5) of section 80B.] 2[* * *]

(3) “profits in lieu of salary” includes- (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto; (ii) any payment (other than any payment referred to in

clause (10), 3 [, clause (10A) ] 4[, clause (10B)],

clause (11), 5[clause (12) 6[, clause (13)] or clause (13A)] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund 7[(not being an approved superannuation fund)], to the extent to which it does not consist of contributions by the assessee or interest on such contributions. 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. 2 Omitted by the Finance Act, 1985, w.e.f. 1-4-1985. it was inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1985, thus having never come into operation. The consequential amendments in sub-clauses (iv) and (v) were also made and omitted simultaneously. 3 Inserted by the Finance (No. 2) Act, 1965, w.r.e.f. 1-4-1962. 4 Inserted by the Finance Act, 1975, w.e.f 1-4-1976.

5 Substituted for “or clause (12)” by the Direct Taxes (Amendment) Act, 1964, w.e.f. 6-10-1964. 6 Being inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 7 Being omitted, ibid. ———————————————————————— 1.146 gardeners, night watchman and sweepers provided by the employer should be calculated on an ad hoc basis as given in Letter No. 40/25/69, dated 8-6-1971 (reproduced below) only when the services of sweeper are provided by the employer, i.e. the sweeper is recruited by the employer and remunerated by him but his services are placed at the disposal of the employee. 2. Rent-free accommodation.-While determining the fair rental value of an accommodation owned by the company, the cost of acquisition and other capital expenses on renovation, etc. incurred by the company should be taken into account. In respect of premises taken on lease or rent by the company the actual payment by the company should be taken as fair rental value of the premises. 3. Reimbursement of medical expenses.-The value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment incurred by his employee on himself or on his spouse, children or parents including the provision of free medical treatment or treatment at a concessional rate will not be included in the taxable salary of the employee in the following cases: (i) where the medical treatment is availed at hospitals, clinics, etc. maintained by the employer; (ii) where the medical treatment is availed at hospitals maintained by the Government or local authorities or hospitals approved for the purposes of CGHS or the Central Medical Scheme; (iii) where the expenditure is on medical insurance premia; (iv) where the medical treatment is availed of from any doctor outside the institutions/schemes mentioned above, an expenditure of upto Rs. 10,000 in a year in the aggregate; and (v) where the medical treatment is availed of in a hospital outside India and the expenditure is incurred for treatment including on travel and stay abroad in connection with such treatment, as also on travel and stay abroad of one attendant, to the extent permitted by RBI subject to the condition that the amount qualifying for such tax exemption would not include expenditure incurred on travel in the case of employees whose gross total income as computed without considering the amount paid or reimbursed for expenditure in connection with medical treatment exceeds Rs. 1 lakh. 4. Rent-free residential accommodation.-Keeping in view the steep escalation in rents, it has been decided that in the case of rent-free accommodation provided by an employer to an employee at Bombay, Calcutta, Delhi and Madras, the perquisite value will be calculated by adding the excess over 60 per cent of the salary of the employee. The valuation in regard to other places in India would be with reference to the excess over 50 per cent. In the case of rent- free furnished accommodation and addition in respect of the perquisite by way of furniture at 10 per cent per annum of the original cost of such furniture is to be made. Perquisite value of free furniture, including television sets, radio sets, refrigerators, other household appliances and air- conditioning plant and equipment provided to all categories of salaried taxpayers will be taken to be 15 per cent of the original cost of such furniture or where the furniture is hired, the hire charges payable by the employer. In the case of person,,, employed by the RBI, statutory corporations, government companies, bodies or undertakings financed wholly or mainly by the government and officers of government whose services have been lent to or who are employed after retirement from Government service with any company in 1.147 which not less than 40 per cent of the shares are held by the Government of RBI or a corporation owned by RBI, the perquisite value of unfurnished rent-free residential accommodation will be taken to be 10 per cent of the salary due to the person in respect of the period during which the accommodation was occupied by him. If residential accommodation is provided by the employer at a concessional rent the value of the perquisite will be determined as if the employee had been provided with rent-free residential accommodation and the amount so computed will be reduced by the rent payable by the employee. 5. Motor car/conveyance.-If a motor car is provided by the employer for the use by the employee partly for his private or personal purpose and partly for use in the performance of his duties, a proportionate part of the expenditure incurred by the employer on the running and maintenance of the motor car and of the amount representing normal wear and tear of the motor car, which is attributable to the user of the car by the employee for his private or personal purposes the duties of employment are to be performed or from back to his residence will be regarded as use motor car for private or personal purposes will be taken as the value of the perquisite in the hands of the employee. Where the employee is provided with or allowed the use of motor car for his private or personal purposes at a concessional rate, the value of the perquisite will first be computed as if the perquisite had been provided by the employer free of charge and the amount so computed will be reduced by the amount payable by the employee to the employer. 6. Payments to servants.-The amount spent on the salary of a gardener by the employer does not represent a sum paid by the employer in respect of any obligation which but for such payment would have been payable by the employee. The payment of salary to a gardener as such cannot be regarded as a perquisite so as to justify that amount being taxed in the hands of’ the employees. However, the expenses incurred by way of maintenance of a gardener may be taken into account for the purposes of estimating the value of rent-free residential accommodation provided by the employer under rule 3. The taxable perquisite in the hands of the employee on account of services of servants provided by the employer will be calculated at 75 per cent of actual wages or Rs. 60 per month whichever is less in the case of sweeper and 50 per cent of actual wages or Rs. 60 per month whichever is less in the case of gardeners and watchman. 7. Sumptuary allowance.-Sumptuary allowance has to be treated as an entertainment allowance. Accordingly such allowance received by a person who is in receipt of salary from Government to the extent that such allowance is required to be deducted in computing the income chargeable under the head ‘salaries’ may be regarded as an allowance exempt and may not be included in the term ‘salary’ for the purposes of rule 3. 8. Children’s education allowance.-Payments towards children’s education made to the employee or on behalf of the employee will be liable to income-tax (i) where fixed allowances are given in cash by the employer to the employee to meet the cost of education of the latter’s children; (ii) where the education fees are paid by the employer directly to the school; and (iii) where the employee incurs the expenses in the first instance and gets reimbursement from the employer. 9. Premium for annuity.-The premium paid by an ex-employer to purchase an annuity payable to an ex-employee is taxable only under

section 17(3)(ii). The payment will not be admissible as revenue expenditure in the hands of the employer. 1.148 1[Chapter sub-heading ‘B.-Interest on securities’ and sections 18 to 21 omitted by the Finance Act, 1988 w.e.f. 1-4-1989.] ———————————————————————- 1 Prior to the omission, the chapter sub-heading, section 18, as amended by the Finance Act, 1965, w.e.f. 1-4-1965 and the Finance Act, 1988, w.e.f. 1-4-1988; section 19; section 20, as amended by the Finance Act, 1979, w.e.f. 1-4-1980; and section 21 read as under: “B.-Interest on securities

Interest on securities.

18. Interest on securities.-(1) The following amounts due to an assessee in the previous year shall be chargeable to income-tax under the head “Interest on securities”,- (i) interest on any security of the Central or State Government; (ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act.

(2) Nothing contained in sub-section (1) shall be construed as precluding an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year.

Deductions from interest on securities. 19. Deductions from interest on securities.-Subject to the provisions of section 21, the income chargeable under the head “Interest on securities” shall be computed after making the following deductions- (i) any reasonable sum expended by the assessee for the purpose of realising such interest; (ii) any interest payable on moneys borrowed for the purpose of investment in the securities by the assessee.

Deductions from interest on securities. 20. Deductions from interest on securities in the case of a

banking company.-(1) In the case of a banking-company- (i) the sum to be regarded as a sum reasonably expended for the purpose referred to in clause (i) of section 19 shall be an amount bearing to the aggregate of its expenses as are admissible under the provisions of sections 30, 31, 36 and 37 (other than clauses (iii), (vi), (vii) and (viia) of sub-

section (1) of section 36) the same proportion as the gross receipts from interest on securities (inclusive of tax deducted at source) chargeable to income-tax under section 18 bear to gross receipts of the company from all sources which are included in the profit and loss account of the company; (ii) the amount to be regarded as interest payable on moneys borrowed for the purpose referred to in clause (ii) of section 19 shall be an amount which bears to the amount of interest payable on all moneys borrowed by the company the same proportion as the gross receipts from interest on securities (inclusive of tax deducted at source) chargeable to income-tax under section 18 bear to the gross receipts from all sources which are included in the profit and loss account of the company.

(2) The expenses deducted under clauses (i) and (ii) of sub-

section (1) shall not again form part of the deductions admissible under sections 30 to 37 for the purposes of computing the income of the company under the head “Profits and gains of business or profession”. Explanation.-For the purposes of this section, “moneys borrowed” includes moneys received by way of deposits.

Amounts not deductible from interest on securities. 21. Amounts not deductible from interest on securities.- Notwithstanding anything contained in sections 19 and 20 any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B, and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head “Interest on securities.” ——————————————————————— 1.149 C.-Income from house property

Income from house property. 22. Income from house property 1The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head “Income from house property”.

Annual value how determined. 23. Annual value how determined

(1) 2[For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable:] 3[Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him:] 4[Provided further that the annual value as determined under this subsection shall,- (a) in the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 1961, and completed before the 1st day of April, 1970, for a period of three years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so ———————————————————————- 2 Substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1- 4-1976. 3 Substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1- 4-1985. Prior to the substitution, the proviso, as substituted for the first proviso and Explanation by the Finance Act, 1968, w.e.f. 1-4-1969, read as under: “Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are home by the owner, be deducted in determining the annual value of the property:” 4 Substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1- 4-1971. ———————————————————————– 1.150 determined does not exceed six hundred rupees, the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds six hundred rupees, an amount of six hundred rupees; (b) in the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 196 1, and completed after the 31st day of March, 1970, 1[but before the 1st day of April, 1978,] for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so determined does not exceed one thousand two hundred rupees, the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds one thousand two hundred rupees, an amount of one thousand two hundred rupees; 2[(C) in the case of a building comprising one or more residential units, the erection of which is completed after the 31st day of March, 1978 3[, but before the 1st day of April, 1982], for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so determined does not exceed two thousand four hundred rupees, the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds two thousand four hundred rupees, an amount of two thousand four hundred rupees;] 4[ (d) in the case of a building comprising one or more residential units, the erection of which is completed after the 31st day of March, 1982 5[but before the 1st day of April, 1992], for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of- (i) in respect of any residential unit whose annual value as so determined does not exceed three thousand six hundred rupees, the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds three thousand six hundred rupees, an amount of three thousand six hundred rupees. ———————————————————————– 1 Inserted by the Finance Act, 1978, w.e.f. 1-4-1979. 2 Ibid. 3 Inserted by the Finance Act, 1982, w.e.f. 1-4-1983. 4 Substituted for “so, however, that the income in respect of any residential unit referred to in clause (a) or clause (b) or clause (c) is in no case a loss” by the Finance Act, 1982, w.e.f. 1-4-1983. 5 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. ———————————————————————– 1.151 1[* * *]]] 2[Explanation 3[11.-For the purposes of this sub-section, “annual rent” means- (a) in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year; and (b) in any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period.] 4 [Explanation 2.-For the removal of doubts, it is hereby declared that where a deduction in respect of any taxes referred to in the first proviso to this sub-section is allowed in determining the annual value of the property in respect of any previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any earlier assessment year), no deduction shall be allowed under the first proviso in determining the annual value of the property in respect of the previous year in which such taxes are actually paid by the owner.]

5[(2) Where the property consists of- (a) a house or part of a house in the occupation of the owner for the purposes of his own residence,- (i) which is not actually let during any part of the previous year and no other benefit therefrom is derived by the owner, the ———————————————————————— 1 The words “so, however, that the income in respect of any residential unit referred to in clause (a) or clause (b) or clause (c) or clause (d) is in no case a loss.” omitted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-1984. 2 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

3 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4-

4 Ibid. 5 Substituted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to

the substitution, sub-section (2), as amended by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967; substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971 and again by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976 and amended by the Finance Act, 1982, w.e.f. 1-4-1983, read as under:

“(2) Where the property consists of- (i) a house in the occupation of the owner for the purposes of his own residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be reduced by one half of the amount so determined or three thousand and six hundred rupees, whichever is less; (ii) more than one house in the occupation of the owner for the purposes of his own residence, the provisions of clause (i) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf: Provided that for the purposes of clauses (i) and (ii), where the sum so arrived at exceeds ten per cent of the total income of the owner (the total income for this purpose being computed without including therein any income from such property and before making any deduction under Chapter VI-A), the excess shall be disregarded. Explanation.-Where any such residential unit as is referred to in

the second proviso, to sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit.” ———————————————————————— 1.152 annual value of such house or part of the house shall be taken to be nil; (ii) which is let during any part or parts of the previous year, that part of the annual value (annual value being determined in the same manner as if the property had been let) which is proportionate to the period during which the property is in the occupation of the owner for the purposes of his own residence, or, as the case may be, where such property is let out in parts, that portion of the annual value appropriate to any part which was occupied by the owner for his own residence, which is proportionate to the period during which such part is wholly occupied by him for his own residence shall be deducted in determining the annual value. Explanation.-The deduction under this sub-clause shall be made irrespective of whether the period during which the property or, as the case may be, part of the property was used for the residence of the owner precedes or follows the period during which it is let; (b) more than one house in the occupation of the owner for the purposes of his own residence, the provisions of clause (a) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf; (c) more than one house and such houses are in the occupation of the owner for the purposes of his own residence, the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (b), shall be determined under sub-

section (1) as if such house or houses had been let. Explanation.-Where any such residential unit as is referred to in

the second proviso to sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit.] 1[(2A) * * *]

2 [(3) Where the property referred to in sub-section (2) consists of one ———————————————————————- 1 Omitted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to the omission, sub-section (2A), as inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under: “(2A) For the removal of doubt, it is hereby declared that, where the property consists of more than one house and such houses are in the occupation of the owner for the purposes of his own residence, the annual value of the houses, other than that the annual value of which

is required to be determined under clause (ii) of sub-section (2),

shall be determined under sub-section (1) as if such houses had been let.” 2 Substituted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to the

substitution, sub-section (3) read as under:

“(3) Where the property referred to in sub-section (2) consists of one residential house only and it cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house shall- ———————————————————————- 1.153 residential house only and it cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house shall be taken to be nil: Provided that the following conditions are fulfilled, namely,- (i) such house is not actually let, and (ii) no other benefit therefrom is derived by the owner.]

Deductions from income from house property. 24. Deductions from income from house property

1(1) Income chargeable under the head “Income from house

property” shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely:- 2[(i) in respect of repairs of, and collection of rent from, the property, a sum equal to one-fifth of the annual value;] (ii) the amount of any premium paid to ensure the property against risk of damage or destruction; 3[(iii) * * * 1 (iv) where the property is subject to an annual charge 4[(not being a charge created by the assessee voluntarily or a capital charge)], the amount of such charge; (v) where the property is subject to a ground rent, the amount of such ground rent; (vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. ——————————————————————— (a) if the house was not actually occupied by the owner during the whole of the previous year, be taken to be nil; or (b) if the house was actually occupied by the owner for a fraction of the previous year, be taken to be that fraction

of the annual value determined under sub-section (2): Provided that the following conditions are in either case fulfilled:- (i) the house is not actually let, and (ii) no other benefit therefrom is derived by the owner.” 2 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, clause (i), as originally enacted, read as under: “(i) in respect of repairs,- (a)where the property is in the occupation of the owner, or where the property is let to a tenant and the owner has under-taken to bear the cost of repairs, a sum equal to one-sixth of the annual value; (b)where the property is in the occupation of a tenant who has undertaken to bear the cost of repairs,- (i) the excess of the annual value over the amount of rent payable for a year by the tenant; or (ii)a sum equal to one-sixth of the annual value, whichever is less;” 3 Omitted by the Finance Act, 1968, w.e.f. 1-4-1969. 4 Substituted for “not being a capital charge” by the Finance Act, 1968, w.e.f. 1-4-1969. ———————————————————————- 1.154 1[Explanation.-Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years;] (vii) any sums paid on account of land revenue 2[or any other tax levied by the State Government] in respect of the property; 3[(viii) Omitted by the Finance Act, 1992, w.e.f 1-4-1993.] (ix) where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the period during which such part is wholly unoccupied 4[* * *]. 5[Explanation.-The deduction under this clause shall be made irrespective of whether the period during which the property or, as the case may be, part of the property was vacant precedes or follows the period during which it is let;] (x) subject to such rules as may be made in this behalf, the amount in respect of rent from property let to a tenant which the assessee cannot realise.

6[(2) No deduction shall be allowed under sub-section (1) in respect of property of the nature referred to in sub-clause (i) of

clause (a) of sub-section (2), or sub-section (3), of section 23: Provided that nothing in this sub-section shall apply to the

allowance of a deduction under clause (vi) of sub-section (1) of an amount not exceeding 7 [ten] thousand rupees in respect of the property of the nature referred to in sub-clause (i) of clause (a) of

sub-section (2) of section 23.

(3) The total amount deductible under sub-section (1) in respect of property of the nature referred to in sub-clause (ii) of clause (a)

of sub-section (2) of section 23 shall not exceed the annual value of the property as determined under that section.] ———————————————————————- 1 Inserted by the Finance Act, 1983, w.e.f. 1-4-1984. 2 Inserted by the Finance Act, 1968, w.e.f. 1-4-1969. 3 Prior to the omission, clause (viii), as originally enacted, read as under: “(viii) any sums spent to collect the rent from the property, not exceeding six per cent of the annual value of the property;” 4 The punctuation and word “; and” omitted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977. 5 Inserted, ibid. 6 Substituted by the Finance Act, 1986, w.e.f. 1-4-1987. Prior to

the substitution, sub-section (2) read as under:

“(2) The total amount deductible under sub-section (1) in respect

of property of the nature referred to in sub-section (3) of section 23 shall not exceed the annual value of the property as determined under section 23.” 7 Substituted for “five,, by the Finance Act, 1994, w.e.f. 1-4-

1.155

Amounts not deductible from income from house property. 25. Amounts not deductible from income from house property Notwithstanding anything contained in section 24, any annual charge or interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head “Income from house property”. 1[25A. Special provision for cases where unrealised rent allowed as deduction is realised subsequently Where a deduction has been made under clause (x) of sub-section

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

Property owned by co-owners. 26. Property owned by co-owners 2 Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income. 3[Explanation.-For the purposes of this section, in applying the

provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.] ——————————————————————— 1 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4- 1986 3 Inserted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-

———————————————————————- 1.156

“Owner of house property”, “annual charge”, etc., defined. 27. “Owner of house property”, “annual charge”, etc., defined For the purposes of sections 22 to 26- (i) an individual who transfers otherwise than ‘for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred; (ii) the holder of an impartable estate shall be deemed to be the individual owner of all the properties comprised in the estate; 1[(iii) a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof; (iiia) a person who is allowed to ‘take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 2 (4 of 1882), shall be deemed to be the owner of that building or part thereof; (iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof;] (iv) “annual charge” means a charge to secure an annual liability, but does not include any tax in respect of property or income from property imposed by a local authority, or the Central or a State Government; (v) “capital charge” means a charge to secure the discharge of a liability of a capital nature; (vi) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property. ———————————————————————– 1 Substituted by the Finance Act, 1987, w.e.f. 1-4-1988. Prior to the substitution, clause (iii) read as under: “(iii) a member of a co-operative society to whom a building or part thereof is allotted or leased under a house building scheme of the society shall be deemed to be the owner of that building or part thereof;” ———————————————————————- 1.157 D.-Profits and gains of business or profession

Profits and gains of business or profession. 28. Profits and gains of business or profession 1The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; (ii) any compensation or other payment due to or received by,- (a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; (b) any person by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto; (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto; 2[(d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business;] (iii) income derived by a trade, professional or similar association from specific services performed for its members; 3[(iiia)profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947);] 4[(iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;] 5[(iiic)any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971;] 6[(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;] ——————————————————————- 2 Inserted by the Finance Act, 1973, w.r.e.f. 1-4-1972. 3 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1962. 4 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1967. 5 Inserted by the Finance Act, 1990, w.r.e.f. 1-4-1972. 6 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. ———————————————————————— 1.158 1[(v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm: Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted.] 2[Explanation 1.-Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f 1-4-1989.] Explanation 2.-Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as “speculation business”) shall be deemed to be distinct and separate from any other business. ———————————————————————– 1 Inserted by the Finance Act, 1992, w.e.f. 1-4-1993. Earlier, clause (v) was inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and omitted by the Direct Tax Laws (Amendment) Act, 1989, with effect from the same date. 2 Prior to the omission, it read as under: “Explanation 1.-The profits and gains of a business shall include the profits and gains of managing agency.” ———————————————————————- 1.159

Income from profits and gains of business or profession, how computed. 29. Income from profits and gains of business or profession, how computed The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 1[43D].

Rent, rates, taxes, repairs and insurance for buildings. 30. Rent, rates, taxes, repairs and insurance for buildings In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed- (a) where the premises are occupied by the assessee- (i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; (ii)otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; (b) any sums paid on account of land revenue, local rates or municipal taxes; (c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.

Repairs and isurance of machinery, plant and furniture. 31. Repairs and insurance of machinery, plant and furniture In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed- (i) the amount paid on account of current repairs thereto; (ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof.

Depreciation. 32. Depreciation

(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed- 2[(i) * * *1 ———————————————————————— 1 Substituted for “(43C)” by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Earlier, “(43C)” was substituted for “(43B)” by the Finance Act, 1988, w.e.f. 1-4-1988; “43B” for “43A” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and “43A” for “43” by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 2 Omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, clause (ii), as substituted by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976, read as under: -> -> ———————————————————————— 1.160 (ii) 1[in the case of any block of assets, such percentage on the written down value thereof as may be prescribed’]: 1[4[Provided that where the actual cost of any machinery or plant does not exceed 5[five thousand] rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession:] 6[Provided 7[further] that no deduction shall be allowed under this clause in respect of- (a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, unless it is used- 8(i) in a business of running it on hire for tourists; or (ii) outside India in his business or profession in another country; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42: Provided 8[also] that where any asset falling within a block of assets is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this clause in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed under this clause in the case of block of assets comprising such asset:] ———————————————————————- “(i) in the case of ships other than ships ordinarily plying on inland waters, such percentage on the actual cost thereof to the assesses as may, in any case or class of cases or in respect of any period or periods, be prescribed: Provided that different percentages may be prescribed for different periods having regard to the date of acquisition of the ship;” 1 Substituted for “in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed” by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 3 Being omitted by the Finance Act, 1995, w.e.f. 1-4-1996. 4 Inserted by the Finance Act, 1966, w.e.f. 1-4-1966. 5 Substituted for “seven hundred and fifty” by the Finance Act, 1983, w.e.f. 1-4-1984. 6 Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992. Prior to the substitution, the second proviso, as inserted by the Finance Act, 1975, w.e.f. 1-4-1975 and amended by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4198

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